NRI Financial Status : MYTHS and FACTS
NRIs do not have tax liability NRIs are required to pay tax on income earned or received in India, even if they do not reside there. The Indian income for the residential status listed below are all taxable, but their foreign incomes are treated differently:
- NRI – Not taxable in India
- Resident and Not Ordinarily Resident (RNOR) – Not Taxable in India up to 2-3 years.Tax then depends on DTAA.
- Resident and Ordinarily Resident (ROR) – Taxable in India
Myth No. 2 – All NRI bank accounts are identical
There are three categories of NRI accounts –
1) NRE (Non-Resident External Account) – It can be started in a foreign currency and retained in INR. The interest earned on this account is exempt from taxation. It cannot be jointly held with an Indian resident. The entire amount can get repatriated.
2) NRO (Non-Resident Ordinary Account) – It is an INR account, which is very similar to a traditional savings account. This account’s interest income is taxable to the NRIs.
3) FCNR (Foreign Currency Non -Resident) – This refers to term deposits. It can be opened by non-resident Indians and held jointly with Indian citizens. Principal and interest are exempt from taxation. It can be maintained until maturity even if the account holder’s status changes from NRI to Resident Indian. Learn more about keeping a Resident Savings Account for NRIs in India.
Myth No. 3 – Power of Attorney (POA) can be given only to relatives
It is not always required to only grant power of attorney to relatives. In many instances, it can be given to trusted individuals. You can technically appoint anyone as your power of attorney so long as you are of sound mind and acting of your own free will. It should be a reliable and capable individual, such as a spouse, close relative, or close acquaintance. You may also designate your attorney as a POA holder.
Myth No. 4 – NRIs cannot get a loan in India
Loans are available to NRIs in India. They can obtain loans for the purchase of residential properties, commercial properties, and residential land. There are additional stages involved in assigning a Power of Attorney, and the typical duration of a home loan is between 5 and 15 years. Loans for automobiles are only available to NRIs domiciled in certain countries. Some institutions permit an NRI to serve as a guarantor, but the car owner must be an Indian resident. Other institutions have age restrictions and mortgage requirements.
Myth No. 5 – NRIs cannot apply for joint loan with an Indian resident
An NRI and an Indian resident may apply jointly for a loan. For some countries, additional documentation is required. The loan will be deemed an NRI loan, with the NRI as the primary borrower. The EMI payments must be made through an NRI account. Numerous banks finish the procedure and paperwork without requiring the NRI borrower to travel to India.
Myth No. 6 – NRIs are not allowed to invest in equities or MFs
An NRI can make investments in direct equity. He must establish an NRE or NRO account. This can be linked to a demat account, which can be opened with any stock broker or the financial institution registered in India. He requires a trading account for the purchase and sale of stocks, as well as cash inflow and outflow. NRIs from countries other than the United States and Canada may invest in all Mutual Funds in India. NRIs from the United States and Canada are restricted to invest in a limited number of mutual fund schemes and are subject to certain restrictions.