Which asset classes can NRIs invest in?
An NRI can only invest in five asset classes in India. These are
1. Bank Accounts including Fixed Deposits,
3. Mutual Funds,
4. Real Estate and
There are no prescribed limits for investments in the above mentioned avenues. This means that the NRI can invest any amount he or she desires in these instruments.
Which are the avenues that an NRI cannot invest in?
NRIs cannot invest in other savings schemes. NRIs are not allowed to invest in 8% taxable Government of India Savings Bonds, Public Provident Fund (PPF) and the Senior Citizens Savings Scheme. If and when the accounts office comes to know of the anomaly, the deposit will be returned to the investor, without any interest.
Notification dt 25.7.03 prohibits NRIs to open Savings, Recurring Deposit, Term Deposit and Monthly Income Scheme accounts or purchase Kisan Vikas Patras and Nationlal Saving Certificate-VIII (NSC) of the Post Office. The accounts opened prior to this date are allowed to run up to their maturity. As and when the irregularity comes to the notice of the authorities, the money will be returned to you without any interest. Those NRIs who have opened such accounts will do well by withdrawing the investment themselves.
What about accounts that have already been opened while the person was a resident Indian?
Already opened accounts can be continued. As has been mentioned in these columns before, no one is born an NRI, rather people become NRIs when they go abroad for better career prospects. When an Indian Resident goes abroad, more often than not, he leaves a large part of his investments including property behind. These investments may include the abovementioned prohibited investments in terms of PPF, NSC, Post Office instruments etc.
A resident who subsequently becomes NRI during the currency of term of these investments may continue the same till maturity. This means, they cannot open a new account or extend the scheme beyond its maturity. However, an already existing investment may be continued. For those instruments that require periodic investments (PPF), the NRI may use either the NRE or the NRO as per his convenience. Using the NRO account is recommended.
Can maturity Proceeds be remitted abroad?
Yes. As and when such investments mature, the proceeds should be credited to the NRO account. This is very important for the following reason.
Circular 67/2003-RB dt 13.1.03 supplemented by RBI Master Circular dt 1.7.05 makes it possible for an NRI or a PIO to remit as much as US$ 1 million per calendar year for bona fide purposes out of the balances held in NRO accounts including the abovementioned maturity proceeds.
All that is required is that he should have acquired the assets in question, out of rupee resources when he was in India or by way of legacy/inheritance from a person who was a resident in India.
For remittance of sale proceeds of assets, both financial and immovable property acquired by way of inheritance/legacy or settlement from a person who was Resident, there is no lock-in.
An undertaking by the remitter and certificate by a Chartered Accountant in the format prescribed by CBDT vide their Circular 10/2002 dt 9.10.02 has to be produced.
It is necessary to file Form-A2, FEMA Declaration, Certificate from an accountant, and undertaking for payment of income tax, in the specified format. A No-Objection-Certificate from the income tax department will be useful, but not necessary.
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February 7, 2011