What are the problems faced by NRIs when investing in India?

 Introduction

When an Indian attains the status of an NRI, it gets difficult to some extent to invest in properties located in India, whether related to investment in shares or debenture or real estate, to name a few. Different statutory bodies have various rules and regulations for investing in different sectors by an NRI. For example, if an NRI wants to invest in stocks or shares, first they have to open an NRO or NRE account, or the NRI must convert their existing trading account to a Rupee-designated NRI account. Likewise, the Demat account also must be converted into an NRO or NRE account. Similarly, if the NRI wants to trade in stock must have a PIS account (Portfolio Investment Scheme). That’s why the NRI must be aware of the rules and regulations prescribed by the Indian Government. Often, NRIs are unaware of the guidelines and face problems related to their investments made in India. This article will be discussing the problems NRI faces while investing in India and the solutions to the same.

Problems faced by NRIs while Investing in India

The following are some of the problems or issues faced by NRI while investing in India;

Investment Restrictions

As mentioned earlier, NRIs may have to deal with some of the rules and regulations, and the process of the same may be a little complicated with regard to investment in the Indian market. For instance, an NRI based in the United States of America must be aware of the mutual fund houses operating in India and also must be allowed to invest in the aforesaid fund houses. This is required as mutual fund houses have to complete a lot of compliances and paperwork to receive investments from NRIs residing in Canada and the United States of America after applying for the Foreign Account Tax Compliance Act (FACTA) related to such investment. Due to this law, a few mutual fund houses operating in India accept NRIs investments made from the United States of America. Also, the NRIs residing in any other country must provide their residence status by submitting the relevant required documents.

Must read: Corporate Services Advisory

Minimal Diversification 

Usually, NRIs invest in traditional fixed investments in India, which include Real Estate, Fixed Deposits, Gold, etc. Thus, it isn’t easy to diversify the investment made in different classes. In this regard, some of the common problems that an NRI may face are listed below;

• Complex Web Regulations
• Lack of knowledge or awareness about the Indian Market
• The Taxation Regulations
• Transactional Compliances

The issues mentioned above may lead to a little interest by an NRI to invest in other types of investments in India. Although, there may be different avenues available for NRIs from which they can choose the investment option offering higher returns, including Mutual Funds, Exchange Traded Funds (ETFs), Direct Equity, Initial Public Offerings (IPOs), Non-Convertible Debentures (NCDs), etc. to name a few.

Must read: Income Tax Concept of Taxation for NRIs

Digital Assets

Generally, NRIs who know technology may be more interested in investing a significant amount in the digital assets like cryptocurrencies and Non-fungible Tokens (NFTs). However, due to ambiguity regarding the legal status of such digital assets in India, they may not proceed to invest. Usually, NRIs make a limited investment to make sure that volatility must not be at risk with regard to their investment portfolio.

Unawareness of Legal Rights

There may be cases when an NRI wants to invest in real estate in India but may be confused or lack clarity regarding their legal rights. Sometimes, the NRIs may face fraudulent activities, including the purchase of illegal lands by fraudsters, and accordingly, they may face huge losses. The NRI must deal with only certified real estate brokers operating in India to tackle such issues.

Double Taxation/Tax Avoidance

Tax Avoidance or Double Taxation is considered one of the major problems faced by NRIs. According to the taxation regulations of India, any income earned and received by NRIs in India, whether it may be in the form of interest from Fixed Deposits, NRO accounts, Dividends from Mutual Fund Investments, dividends from equity shares, income from capital gains, Rent received, etc. exceeding the amount specified is liable for income tax filing. Accordingly, there may be cases when NRIs may face double taxation in some countries. In simple words, NRIs may be required to pay double tax in the country they are residing in and also in India.

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To reduce double taxation on NRIs, India has made specific arrangements by signing a tax treaty called Double Taxation Avoidance Agreement (DTAA) with around 90 countries across the globe. The aforesaid treaty helps tackle the problem of double taxation and tax avoidance of NRIs. According to the above-mentioned agreement or treaty, the NRI must pay tax in either of the countries, i.e., India or the land of their residence. This suggests that an NRI has already paid taxes on his or capital gains income received in India, and then they are not liable to pay taxes in their country of residence. Therefore, the aforesaid arrangements can be a great relief for NRIs living in foreign countries.

Also, it is challenging for an NRI to keep themselves updated regarding the latest reforms and recent amendments in the Indian laws. Thus, it is always advisable for an NRI to discuss their taxation eligibility with a certified legal consultant prior to sending the money to the seller or signing any document specifically in case of a real estate transaction.

Delay in Process

Sometimes, an NRI can complain about the investment process as it involves a lot of background checks that can lead to delays in the services and are also time-consuming. Generally, NRIs may face these issues while investing their money in NRO, FCNR, or NRE accounts. That’s why NRIs must use the service of a bank that is credible in the market and is smooth to operate.

Lack of Professional Advice

Most of the issues arise for NRIs due to dubious advisors who know how to get the advantage of the NRIs. Thus, it is essential to have a reliable and trustworthy professional source of advice.

It is advisable to get advice from trustworthy legal professionals offering great solutions about Income Tax Returns, Mutual Funds; Tax Deducted at Source, Real Estate Investments, Tax Planning, etc.

Financial Discrimination

The rules of taxation for NRIs are very different from the Indian residents. According to the Income Tax Laws of India, taxes are not levied on foreign income; however, the reporting of taxes is a little elaborative. In simple words, the rules related to TDS are stiff, and NRIs do not get the same tax advantage as the resident citizens of India. Therefore, guidelines should be followed by a taxpayer before investing in India. It is necessary to take the right step in the right direction to secure the future and gain financial benefits from the investment made sooner or later in a hassle-free manner while sitting abroad.

Must read: Tax advisory & services in India

Issues related to Real Estate Investments

The Real Estate sector is the lucrative and prominent investment areas for an NRI. There are many advantages of investing in properties for NRIs. However, most of the NRIs are unaware of the issues related to such investment, nor have they ever addressed them. For instance, there can be challenges in being aware of the local legal rights of an NRI, finding the right occupant for the property invested, analysing the changing market trends, etc.

While there are many challenges and issues that NRIs can face while investing in real estate, some common problems are:

• Issues related to illegal possession of the property
• Local legal rights of the NRIs while investing in the real estate sector
• Builders maintaining dubious records
• Delay in the verification process
• Obtaining the right and professional legal advice to manage the property by an NRI

Solution for Investing in India by NRIs

In India, NRIs/PIOs can invest in two ways which are as follows;

• Repatriation Basis; and
• Non-Repatriation Basis

Repatriation Basis

The following are some of the investments that an NRI can invest in on a repatriation basis;

• Investment in treasury bills and government-dated securities.
• Investment in mutual funds by purchasing some units of the domestic companies.
• Investment in bonds issued by the Public Sector Units in India
• Investment in debt capital instruments issued by the Indian banks for investment
• Investments in non-convertible debt instruments in India
• Investment is an Indian company’s stock issued under the FDI scheme.
• Investment in convertible debentures issued by the Indian companies under the portfolio investment scheme through the stock exchange.
• Investment in convertible shares issued by the Indian companies under the portfolio investment scheme through the stock exchange.

Must read: Legal entity in India

Non-Repatriation Basis

The following are some of the investments that an NRI can invest in on a non-repatriation basis;

• Investment in treasury bills and government-dated securities.
• Buying the units in domestic mutual funds and money market securities
• Investment in Indian companies directly.
• Investment in NSC which comes under the Government of India regulation
• Investment in Exchange-Traded Derivative Contract by Securities and Exchange Board of India has to be paid out of the Indian currency funds held by the NRIs.
• Investment in convertible debentures of the Indian companies under portfolio scheme through stock exchanges
• Investment in convertible debentures of the Indian companies under portfolio scheme through stock exchanges
• Any other investment schemes

Conclusion

Over the last few years, India’s market has undergone vast changes. The Indian market is not the same as it used to be in the 2000s. Due to a lack of awareness and risk tolerance, the investors stayed off investment, especially NRIs. However, with the changes in time, there have been heavy investments in different asset classes such as Exchange Traded Funds (ETFs), Initial Public Offerings (IPOs), Direct Equity, Mutual Funds and many more.

As for NRIs, many investment options are available across India. Many stock brokers, banks and fintech companies offer online investment plans for NRIs. These days, non-resident Indians with OCI or PIO cards are eligible to open demat accounts, trading accounts, and NRI bank accounts and start trading and investing in India in different assets. To get acquainted with the Indian laws and taxation laws made for NRIs, the NRIs can contact experts from India online by sitting at home abroad. With the implementation of the latest economic technologies and the efforts of the Indian Government, the NRI investment has been boosted. The common problems faced by NRIs while investing have also been reduced to a greater extent. With the investment procedures moving online modes, it has made the transactions easy for an investor, even for the NRI investors.