Things an NRI should consider while investing in India

Things an NRI should consider while investing in India


If you are a non resident Indian (NRI) and you are looking to invest in Indian market, then there are a handful of things that you need to know before investing. Considering the downward journey of most of the developed economies in the past few years and the fact that Indian economy is en route to stability despite being marred by high inflation and interest rates, India emerges as an investment destination. India has managed to remain stable compared to other emerging economies and it is advisable that you can opt to invest more in your home country than the country where you work or staying at present.

Types of accounts
Before making any investments, you need to know the type of accounts you would be investing from. Being an NRI, ask yourself few questions before deciding upon the type of accounts – Does the fund in the account comprise of your salary? In which currency do you want to hold your account?

There are two types of NRI accounts:
(1) NRE account: In NRE account, your funds in foreign currency are converted into Indian rupees, at the rate prevailing at the time of transferring the funds from your account. The funds in NRE account are freely repatriated.
(2) NRO account: If you want to transfer Indian earnings through an account, then NRO account is suitable for you. You can deposit foreign currency in the account, too. The interest earned is subject to tax deduction at source at the rate of 30%. You cannot, however, repatriate funds in NRO account to abroad.
Assess each NRI investment avenue
First, you need to make up your mind as to where to make the investment. Investment decisions are not something which you impulsively take. Weigh each and every investment options before making the investment.
You can make direct investment into equities. Before investing into equities consider time horizon of investment and expected return as compared to risks being taken. Before investing in mutual funds, be sure to know all the fund house rules. Real estate can be a good choice for your investment as high price appreciation on properties in major cities is an undoubted possibility.

Taxation
Regarding taxation, you need to know all the different rules pertaining to different sources of income. For any income that is received in or arises or accrues in India is taxable for an NRI. However, any income that is received in or arises or accrues outside India is not taxable.
In case of dividends declared by equity oriented funds, i.e. of the mutual funds you are investing, more than 65% of assets are invested in equities, then being an NRI investor, your income is not taxed. Similarly, dividends declared by debt-ridden mutual funds (where less than 65% assets are invested in equities) are also tax-free.

Any mutual funds unit, if held for less than a year, is called a short term capital asset. When you sell units in equity oriented mutual fund are sold (redeemed) within one year of being held, then you incur either short term gains or loss. The short term gains are taxed at 15% on gain. However, when you sell off debt ridden mutual fund within a year, then tax is levied under slab rules for individuals.
When units in equity oriented mutual fund are sold off after a duration of more than a year, then gain on such units redemption is tax free. In case you sell off debt ridden mutual funds after being held for more than a year, gains are taxable as long term capital gains.

source cf

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Capital Gains Tax ---

How to save capital gains tax while selling a house?

What is capital gains tax?

Capital gains means the profit obtained from the sale of a non inventory asset which had been purchased at a lower price than the sale amount. Capital gains tax is the tax levied on this profit. Capital gains tax may be levied on sale of various assets – bonds, stocks, precious metals and property.

Buying property for investment purpose and selling it off later is a regular practice. However, if you are looking at making profit from selling your ancestral property or selling a house which you had bought earlier, you should keep an eye on the tax payable on the gains.
Capital gains on property

In India, if a property is held for more than 36 months, then the profit obtained form its sale is regarded as long term capital gains. If the property is held for less than 36 months,i.e. 3 years, then the gains made of sale is regarded as short term. While long term capital gains are taxed at a rate of 20%, short term gains are taxed at normal rate.
In case of shot term gains, an individual is taxed as per the tax slab he/she falls under. For example, if he/she falls under 20% tax slab, then 20% tax will be levied on capital gains.
Ways to save capital gains tax:

1. Indexation

In case of long term gains, i.e. the property being sold after 3 years, tax is calculated as per indexation. Indexation involves cost inflation index on the basis of which cost of acquisition of the property is recalculated. As the inflation factor is taken into account, cost of the asset is increased and gains is reduced. Hence the tax payer gets benefitted from indexation.

Indexation rates are notified for every financial year by the government. The indexed cost is calculated as per the following rule:
Indexed cost = original cost x (indexation rate for year of sale/indexation rate for the year of purchase)
Long term capital gains are calculated as: Capital gains = Sale price – Indexed cost

Indexation is included in determining profit in case of long term capital gains. As the tax payer is able to inflate the cost of his/her assets, it is advisable to hold the asset for more than 3 years, so that you can lessen the tax as compared to short term gains.
2. Investment in real estate

You can claim tax exemption under Section 54 on the long-term capital gain on sale of a property. If you buy a house within two years or construct a house within three years with all the profit made of sale, then you can avail tax exemption.

You can avail tax exemption if you had bought a second house within a year before selling the first house.
Further, you can avail tax exemption under Section 54 (F), too. For this, you need to own not more than one house and invest sale proceeds from assets other than a house in real estate. Real estate investment in India must be made in residential properties, not in commercial properties or vacant plot, in order to avail tax exemption.

3. Investment in capital gain bonds

You can avail tax exemption on sale of a house if the profit is invested in either bonds of the National Highways Authority of India and Rural Electrification Corporation Limited for three years. The investment has to take place within six months of realising the profit, i.e. selling the house. However, investment is allowed only up to Rs 50 lakh in a financial year. Usually the interest on these bonds is around 5-5.5%.

Hence, few factors should always be kept in mind when you are going to buy or sell a property. While making profit by selling a house, you need to know which tax bracket you fall under when calculating capital gains tax and also whether or not indexation can save tax payable for you.

Source- CF