NRI Explains : THE MOST Important things to do as an NRI | NRE vs NRO | Demat | Investments | Taxes

Summary

This video by 'Finance Boosan' offers a comprehensive guide for Non-Resident Indians (NRIs) on managing finances in India. It covers the legal definitions of NRI, the importance of maintaining proper bank accounts like NRE and NRO, and the process of converting savings accounts. The video also discusses investment strategies, insurance options, and tax implications for NRIs, providing practical advice on handling demat accounts, mutual funds, and stock trading while abroad. It addresses common pitfalls and highlights the benefits of term insurance and health insurance for NRIs and their families in India.

Takeaways

• 📘 An NRI is defined differently by FEMA Law and the Income Tax Act, with the latter considering someone a resident if they stay in India over 182 days a year plus meet other conditions.
• 🏦 NRIs are not allowed to use regular savings bank accounts and must convert them to NRO accounts to avoid penalties, while NRE accounts offer tax-free interest and unrestricted money repatriation.
• 💼 It's crucial for NRIs to maintain proper bank accounts; unauthorised use of a regular savings account can result in hefty fines.
• 💡 NRE accounts are beneficial for NRIs as they provide tax-free interest on deposits and allow easy repatriation of funds.
• 🌐 NRIs can invest in India but must do so through NRI-specific accounts, and certain restrictions apply, such as prohibition from intraday trading and short selling.
• 📋 Converting a regular Demat account to an NRI account involves a one-time process with specific documentation, and some brokers offer this service online.
• 🏦 FCNR accounts allow NRIs to hold foreign currency, providing an option to protect savings from rupee depreciation.
• 🛡 Term insurance is recommended for NRIs, especially if they have dependents in India, and can be more cost-effective in India with additional discounts.
• 💼 NRIs should be cautious of banks trying to sell insurance or investment plans with higher incentives, which may not always be in the customer's best interest.
• 💼 For investments, NRIs need to understand the difference between PIS and non-PIS accounts, which affects their ability to participate in IPOs and mutual funds.
• 💰 The tax structure for NRIs in India is similar to residents, but TDS (Tax Deducted at Source) is automatically applied, and they are taxed on Indian income irrespective of their residence.

Q & A

What is the definition of an NRI according to FEMA Law?

According to FEMA Law, an NRI is a person from India who goes to another country for work, study, or stay and is involved in managing foreign exchange, which includes transactions between India and a foreign country.

How is an NRI defined under the Income Tax Act?

Under the Income Tax Act, an NRI is classified based on the number of days stayed in India and other conditions. If a person stays in India for more than 182 days a year, they are considered a resident Indian, but there are also 6 other conditions to consider, such as the purpose of the visit and annual income in India.

Why is it illegal for an NRI to use their old savings bank account from India?

It is illegal because according to FEMA Law, an NRI should not transfer money to or keep their old savings bank account operational. Using such an account can result in a high penalty, including a fine for 300% of the transaction value.

What should an NRI do with their old savings bank account after moving abroad?

An NRI should either request their bank to close the savings bank account or convert it into an NRO (Non-Resident Ordinary) account by providing necessary documents such as passport, foreign address proof, and visa status.

What are the benefits of having an NRE account for an NRI?

An NRE account offers benefits such as completely tax-free interest on deposits like FD or RD, and the ability to repatriate money from the account to abroad without any restrictions.

What is the purpose of an FCNR account for NRIs?

An FCNR (Foreign Currency Non-Resident) account allows NRIs to hold the money they send from abroad in the original foreign currency, providing an option to avoid depreciation of the Indian Rupee.

Why might an NRI prefer to get term insurance in India rather than abroad?

An NRI might prefer term insurance in India due to lower premiums, which can be up to 50% cheaper, and the availability of an 18% GST waiver, leading to a potential discount of up to 23% on the premium.

What are the restrictions for NRIs when investing in the Indian stock market?

Restrictions for NRIs include not being allowed to engage in intraday trading, short selling, and investing in certain government schemes like PPFO or sovereign gold bonds. They also cannot pledge to trade in F&O in some broker applications.

How does taxation work for NRIs in India?

NRIs are taxed in the same manner as resident Indians, but tax is automatically deducted at source (TDS) for income generated in India, such as from selling mutual funds or stocks, or rental income.

What is the process for converting an existing Demat account to an NRI account?

The process involves raising a request online with the broker, filling out required forms and documents, and getting them attested, either in India or at an embassy or notary office abroad. Once verified, the broker will open a separate NRI account, and any existing shares will be moved to this new account.

What are the two types of investment accounts for NRIs in India, and what are their differences?

The two types are PIS (Portfolio Investment Scheme) and non-PIS accounts. PIS accounts have more restrictions and require more paperwork, while non-PIS accounts offer more flexibility, including the ability to participate in IPOs and invest in Direct Mutual Funds.