How can NRIs in Canada and USA invest in India

How can NRIs in Canada and USA invest in India

It is quite difficult to ignore India’s growth. Until the late 2000s, most of the NRI money was flowing in real estate. However, over the last few years, the trend is changing. Investors are moving away from physical assets and into financial assets.

Simply speaking financial assets can be broken down into debt and equity.

Fixed deposits

Most of the NRIs prefer fixed deposits because it is simple and easy.

NRI needs to open one of the three banks accounts-non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR) with an Indian bank.

NRE Account is best suitable for those who need to make payments in Indian rupees or want to make investments in India from his/her overseas earnings and at the same time want rupee savings to be freely repatriable.

NRO account is suitable for those who want to deposit his/her income in India from sources such as rent, dividends etc. and want the investments in India to give higher returns.

FCNR Accounts are best suitable for people who wish to keep his overseas savings in India but do not want to convert them in Indian rupees.

Debt mutual fund

There are 7-8 fund houses in India that are offered to the investors in the US and Canada. Investing in ultra-short-term and short-term debt is preferred since you don’t know where the $ to INR would move over long-term.

The benefit of debt mutual fund over a fixed deposit is the indexation benefit if the investment stays for more than three years.

At the time of redemption, TDS is applicable.

Equity mutual fund

The fund houses that offer debt mutual funds also offer equity mutual funds to the investors in the US and Canada. You can make investments through an NRO or NRE account.

Redemption proceeds are either paid through cheques or directly credited to the investor’s bank account. All earnings are payable in rupees. Investments made through inward remittances or from NRE/FCNR accounts are fully repatriable. Hence, earnings made by redeeming the units or through dividends are fully repatriable. However, in case of investments made through NRO accounts, only the capital appreciation is repatriable, not the principal amount.


Equity Mutual Funds

Debt Funds

 Short-term Capital Gains Tax

Investments held for less than 12 months:

15% + surcharge 12%+ education cess 3% = 17.3% (total)

Investments held for less than 36 months:

As per tax slab

 Long-term Capital Gains Tax       

10% + surcharge 12%+ education cess 3% = 11.65% (total)

20% with indexation

 Dividend Distribution Tax



While tax liabilities of an NRI investing in India are the same as that of a resident investor, the tax is deducted at source in case of the former. Whether an NRI is subject to double taxation-once in India and again in the country of their residence depends on the country of residence. If the Indian government has an avoidance of double taxation treaty (ADTT) with that country, the NRI will be spared from paying tax twice.

Stock investing

In the United States, IRS guideline on PFIC (Passive Fund Investment Company) applies. The guideline explains that as a US tax filer you need to disclose all your investments globally and pay taxes. These taxes also apply to unrealized gains on mutual funds, infrastructure fund and exchange-traded fund. 

One way to avoid paying taxes on unrealized gains is to invest directly. If you invest through a discretionary PMS, PFIC guideline does not apply. A financial advisor can help in facilitating PMS investment in India. There are more than 275 PMS, therefore financial advisor should be able to evaluate the top PMS and create a portfolio.

US and Canada based NRIs must deal with a qualified and SEBI registered financial advisor. This will take care of the compliance and reporting.

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