– By Mudit Vijayvergiya
Despite living abroad for employment, India has become one of the most lucrative investment destinations for NRIs. Due to rapid industrialization, the market has grown multifold and is projected to be one of the top three global economies in the next 10 to 15 years. Its growth potential over the next decade could possibly touch 6% annually, which will make it a favourable market for NRIs to gain higher returns on their investment.
Owing to the liberalization of foreign investment policies, India is reorienting its NRI investment landscape in traditional and non-traditional asset classes. The government has introduced new reforms to bolster India’s economy for soft power investments. For the convenience of NRIs for money transfer or payment, the National Payments Corporation of India (NPCI) has eased the use of UPI payments for NRIs by allowing them to link their non-Indian mobile number with NRO/ NRE accounts.
Understanding the NRI investment classes
India witnesses an optimistic inflow of NRI investments. The growth story is attributed to a plethora of investment options available for NRIs such as Fixed deposits, Real Estate, Equity, Mutual Funds and gold as traditional assets. With accelerated technology advancements and a thriving startup ecosystem, NRIs are shifting their preference towards the Commercial Real Estate segment, Managed Farmland, PMS and Private Equity as non-traditional asset classes.
One of the driving forces contributing to immense growth potential in NRI investments is the emergence of FinTech and WealthTech startups. These platforms bring out highly favourable incentives for the NRI population through tailor-made platforms to create a personalized and diversified investment portfolio with significant exposure to a myriad of investment classes.
As a result, the country is witnessing a steep surge in demand due to better returns on investment and an easier-than-the-past investment process. With digitalization at its peak, NRIs can conveniently explore, evaluate, and invest in asset classes from the comfort of their home. Previously, when NRIs wanted to purchase a property in India for investment, they typically had to undergo a long process of connecting with multiple brokers and relatives in India. Now, NRIs can invest in Commercial Real Estate and make better returns vs residential properties and that too, digitally.
The way forward in the NRI investment scenario
NRI investments are a critical driver of economic growth. Inward remittances or the money they send to India that bolsters the national economy and fuels the investment opportunities in the country. According to recent stats – remittances account for a significant chunk of nearly 3% of India’s GDP. Against this backdrop, it is imperative to understand the regulatory framework and prolonged barriers to support NRI investments.
India has a complex and dynamic regulatory framework and RBI and other authorities are coming up with frequent updates and changes to simplify investment processes. For instance, KYC (Know Your Customer) is deemed to be essential from a compliance angle, reliable accessibility and verified sources of data. However, the inadequacy of resources including non-digitization of the process makes it a complex and lengthy procedure for NRIs for uninterrupted investing experience. The inadvertent lack of standardization and interoperability of the process requires replication of the digitized KYC process for NRIs, corresponding to Indian residents.
Similarly, a few amendments are projected to be witnessed in the NRI taxation landscape. Presently, NRIs need to pay appropriate taxes as detailed in the Income Tax Act of 1961. Although their foreign earnings are not taxable in India, NRIs have to pay tax on income sourced in India, such as capital gains from shares, mutual funds, dividends from Indian companies, interest from NRO fixed deposits, etc.
Once an NRI starts investing in India, their income becomes subject to tax deducted at source (TDS) which is significantly higher than Indian residents. Simply put, any financial transaction in India has tax implications for NRIs. As India is progressing towards digital compliance, it is necessary for NRIs to be aware that almost 90 percent of their tax-related compliances can be taken care of online without having to be present in India.
India has Double Taxation Avoidance Agreements (DTAA) with several countries to prevent double taxation of income. NRIs can take advantage of these agreements to claim relief from paying taxes on the same income in both India and their country of residence. Apart from this, the taxation scenario requires the government’s intervention in simplifying and overcoming prolonged barriers to NRI taxation. This will boost NRI investments in India while strengthening the inward remittances in the country.
Furthermore, as the Indian investment landscape is moving towards improvements, advancements and simplification, many seasoned investors are planning to make smart moves to maximize capital investment gains by investing in multiple asset classes – stocks, mutual funds, commercial real estate, startups, etc. In a volatile market, constant plunges in prices can keep investors concerned. As a smart investment strategy, diversification of asset classes can provide protection to investors from the vulnerability of market uncertainties, helping NRIs build a strong investment portfolio.
It is noteworthy to see how technology has benefited and positively impacted NRIs in investing their income in the Indian market. Besides improvements in the regulatory framework and digitization of several processes, the emergence of FinTech and WealthTech platforms has also been instrumental in helping NRIs to identify the right investment opportunities, providing a seamless experience in overseeing their investments in India.
(Mudit Vijayvergiya is the founder of SBNRI.)
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
