Investment by resident Indians and Non-Resident Indians (NRIs) in India differ in terms of treatment and taxation. Let’s explore the key differences:
#1. Residential Status
The primary distinction lies in the residential status of the investor. Resident Indians are individuals who reside in India for a specified period, while NRIs are Indian citizens or Persons of Indian Origin (PIOs) residing abroad.
#2. Investment Options
Both resident Indians and NRIs have access to a wide range of investment options in India, including stocks, mutual funds, real estate, fixed deposits, and government schemes. However, certain investment avenues may have specific restrictions or limitations for NRIs, such as agricultural land purchases.
a) Stocks: Both resident Indians and NRIs can invest in the Indian stock market. They can purchase shares of Indian companies listed on recognized stock exchanges, subject to certain guidelines and limits set by the Securities and Exchange Board of India (SEBI) and the RBI.
b) Mutual Funds: Resident Indians and NRIs can invest in mutual funds offered by Asset Management Companies (AMCs) in India. They can choose from a variety of mutual fund categories, including equity funds, debt funds, hybrid funds, and more.
c) Real Estate: Both resident Indians and NRIs can invest in real estate properties in India, such as residential or commercial properties, land, or agricultural land. However, NRIs may have specific restrictions on the purchase of agricultural land, which is prohibited in certain cases.
d) Fixed Deposits: Banks in India offer fixed deposit schemes to both resident Indians and NRIs. They can earn interest on their deposits for a fixed period, with varying interest rates depending on the bank and tenure of the deposit.
e) Government Schemes: Various government schemes, such as the Public Provident Fund (PPF), National Savings Certificate (NSC), and Sukanya Samriddhi Yojana (SSY), are open to both resident Indians and NRIs. However, NRIs are not eligible to open new PPF accounts but can continue existing ones till maturity.
#3. Repatriation of Funds
One significant difference is the repatriation of funds. Resident Indians can freely repatriate their investment returns, subject to applicable tax regulations. In contrast, NRIs have the option to invest on a repatriation or non-repatriation basis. Repatriation investments allow NRIs to transfer funds abroad, while non-repatriation investments keep the capital within India.
Taxation rules vary for resident Indians and NRIs. Resident Indians are subject to the Indian tax regime, with their global income taxed in India. NRIs, on the other hand, are generally taxed only on their Indian-sourced income. However, specific tax provisions, such as Double Taxation Avoidance Agreements (DTAA), may apply to NRIs depending on their country of residence.
#5. Tax Benefits and Exemptions
Both resident Indians and NRIs can avail tax benefits and exemptions based on their investments. However, the eligibility and extent of these benefits may differ for NRIs, particularly in areas such as deductions on housing loans and exemptions on long-term capital gains.
#6. Compliance and Reporting
NRIs are required to adhere to specific compliance and reporting obligations, such as filing income tax returns in India if they earn taxable income in the country. They may also need to obtain a Permanent Account Number (PAN) and adhere to the guidelines set by the Reserve Bank of India (RBI) for transactions involving foreign exchange.