Why Financial Planning?

Planning is bringing the future into the present so that you can do something about it NOW.

NRIs have financial interests in multiple countries. Managing assets and properties across these countries is a challenge, considering the complex legalities. NRIs must follow a well-crafted cross-border plan that requires careful thought, action, and regular review. NRIs must follow a well-crafted cross-border plan that requires careful thought, action, and regular review.

Common NRI Legal Challenges in Investing in India 

  • Investment restrictions
  • Taxation rules and their changing nature
  • Complex processes in real estate management
  • Succession planning

NRI-Legal-Challenges-in-Investing-and-Managing-Wealth-in-India-as-an-NRI

Must Read – Investment Options in India

NRIs may have to deal with more rules and regulations and follow a more complicated process when investing in the Indian market. For example, NRIs have to submit additional documents to open a Demat account. NRIs cannot engage in day trading. Many mutual fund houses don’t accept investments from NRIs residing in the USA and Canada. NRIs cannot continue the Public Provident Fund(PPF) plan beyond 15 years if it was opened when they were a resident Indian.

We share some tips that NRIs can follow to overcome the challenges of managing assets, wealth, and income in India:

Investment Management

NRIs have to convert your Demat account into NRO Demat account and open a Portfolio Investment Scheme (PIS) account to invest in the market. Otherwise, it can lead to penalties and charges of violation of the Foreign Exchange Management Act (FEMA). Through the NRO Demat account and PIS account, NRIS can buy and sell shares. However, they have to regularly update the bank with which they have a PIS account explicitly about the shares purchased. Else, they will not be allowed to sell them.

Real Estate Management

NRIs can sell their property in India. While homes can be sold to anyone, agricultural property, plantations, and farmhouses can only be sold to Indian citizens. They are liable to pay taxes on the capital gains made from selling the property. If the property is sold within two years of its purchase, it falls under the Short-Term Capital Gain (STCG) category, with taxes calculated based on the individual’s income tax slab rates. However, if the property is held for more than two years before sale, it falls under Long-Term Capital Gain (LTCG). In this case, the NRI is taxed at a flat rate of 20%.

When an NRI sells a property, the buyer has to deduct TDS @ 20%. If the property was sold before 2 years from the date of purchase, a TDS of 30% shall be applicable. The buyer must apply for and obtain a TAN (Tax Deduction Account) in their name to deduct TDS.

NRIs need to keep all documentation, such as property title, loan-related documents, NOC(no objection certificate) from the society, if any, identity documents, bank details, etc. They can lower their TDS and avoid the refund process by applying for a TDS certificate with the Income Tax Department. The application for such certificates should be made before the execution of a sales deed.

NRIs can save on capital gains tax by reinvesting the proceeds into another property within two or three years from the date of sale in the case of an existing property or within three years for an under-construction property or a to-be-constructed property. NRIs can also invest the capital gains in Capital Gains bonds issued by NHAI and Rural Electrification Corp. The maximum amount invested in these bonds can be ₹ 50,00,000 per seller.

Managing-Wealth-in-India-as-an-NRI

Must read- Monthly Investment Options for NRI

Estate Planning

It is imperative for NRIs to draft and register a Will to secure their legacy and assets. Estate planning is an ongoing process, and it is important to keep the will current and adapt it to life changes. The will should have a comprehensive list of assets, beneficiaries, and an executor. If the NRI has substantial assets in India and abroad, it is advisable to draft two separate wills. One can be for their global assets outside of India and another for the Indian assets. The Indian Will must comply with Indian laws at all times.

NRIs can also set up a private or public trust. A private trust can be used to maintain private wealth in the case of succession, while a public trust takes care of the transfer of property for charitable purposes. Trusts help protect wealth from potential legal and financial risks. NRIs cannot become trustees in India and, therefore, have to appoint a third party as a trustee.

There are two types of trusts –

Revocable trust: The individual can keep as much control of the trust as they want during their lifetime.

Irrevocable trust: It helps protect assets from future liabilities or insulate oneself from the possibility of inheritance tax. The disadvantage here is that you lose control of your assets.

Inheritance

NRIs can inherit different categories of immovable property within India, encompassing residential, commercial, agricultural lands, and farmhouses and do not have to pay any inheritance tax. They have to ensure compliance with the relevant legal provisions and regulations by registration with the relevant departments by submitting the requisite documentation and following the process required.

Given the complexity of financial regulations, seeking guidance from professional financial planners with expertise in international law and in-depth knowledge of the Indian financial system and related laws can be a good approach. They can provide tailored solutions, help navigate the complex legal landscape, and ensure compliance with relevant laws and regulations.

Please share your experience or legal challenges that you have faced in the comment section.

Published on June 14, 2024

Hemant Beniwal


Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning". 

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