Property options for NRIs ::Business Line

Mutual fund investing norms for NRIs :: Business Line

Non-Resident Indians (NRIs) are allowed to invest in Mutual Funds in India. We answer some queries on the investing norms for NRIs.

Can a Non-Resident Indian (NRI)/Person of Indian Origin (PIO) invest in Mutual Funds? Can NRIs from any country invest?

Yes. NRIs and PIOs can invest in Indian mutual funds. However, some mutual funds may not allow NRIs from certain countries to invest. NRIs must read the Scheme Information Documents/Statements of Additional Information to get information in this regard or contact the mutual funds.

Please explain the guidelines for investing in mutual funds by an NRI.

NRIs can invest in Indian mutual funds through their NRE/NRO/FCNR account. The investment has to be made in Indian rupees only. He/she may also send a rupee cheque from abroad payable in a bank in India. The investor status in the form should be marked as NRI and the bank details of his/her NRE/NRO account have to be mandatorily provided. For an NRI to invest, it is mandatory that he/she maintains a bank account in India. AMCs do not accept an NRI application with an overseas bank account detail. NRIs should be ‘know your customer’ (KYC) compliant to invest in a mutual fund.

Can NRIs invest on a repatriable basis?

To invest on a repatriable basis, the amount representing investment should be received by inward remittance through normal banking channels (cheque/rupee denominated DD if from an overseas account) or by cheque drawn on or debited to an NRE/FCNR account of the non-resident investor along with FIRC (foreign inward remittance certificate).

Redemption proceeds/Dividends will be credited to the NRE bank account or paid out by cheque in Indian rupees. The redemption proceeds and/or dividend can be repatriated in full.

How can an NRI redeem investments?

The redemption proceeds will get processed in the normal course by submitting the redemption request form. The redemption proceeds will be paid by cheque or credited to the first unit holder’s bank account registered in the Mutual Fund Folio.

What is the process for bank mandate registration and change?

An NRI can register up to five NRE/NRO bank account(s) in the folios for receipt of redemption/dividend proceeds.

Change in existing bank mandate will be allowed from NRE to NRO/SB account and not vice versa.

Can a power of attorney (POA) invest on behalf of the NRI investor?

Yes. A POA has the authority to invest on behalf of an NRI and sign documents for first and additional purchases as well as redemptions. While subscribing for units, the POA holder should submit the original POA or a duly notarised copy of the same. The same will be registered in the folio.

Is nomination by NRIs allowed?

Yes, NRIs may make a nomination and also be nominees in folios of mutual funds.

How can NRIs track their investments?

NRIs are urged to register their email ID while making a purchase. They can get consolidated account statements, portfolio valuation statements and a lot more through online services.

(Contributed by CAMS Viveka, Investor Education Team of CAMS. Views expressed are general practices in the MF industry and may vary on a case-to-case basis.)

MF Direct plan and NRI investor:: Business Line,

As per a Securities and Exchange Board of India (SEBI) circular dated September 13, 2012, Mutual Funds/AMC have been mandated to provide separate plan for direct investments, i.e, investments not made through distributors in existing and new schemes.

This Direct plan will have lower expense ratio (excluding distribution expenses, commission, etc.). The plan shall have separate NAV.

In order to comply with the above regulations, Mutual Funds have classified the existing plans as Regular plan and have created identical schemes and their related options under the Direct plan as well. These Direct plans are available for investors with effect from January 1, 2013.

The FAQs below is Part 2 of a three-part series on Direct plan and are based on the general rules followed across all Fund houses.

However, some of the applicability may vary from Fund to Fund and hence SID/KIM/Addendums issued by the Asset Management Companies or their Web sites can be referred for more and latest details.

I have a running SIP/STP under existing/regular plan which is not routed through any distributor.

Should I give a request for conversion to Direct plan for the future instalments?

No. The request for the conversion is not required as the future SIP/STP instalments will be automatically converted to direct plan if the SIPs/STPs were registered not through a distributor.

However, the instalments already triggered and processed in the Regular plan will not be automatically converted into the Direct plan. If conversion for those assets is required, a separate switch request will have to be given for converting the entire unit balance in the Regular plan.

For STPs the target scheme (switch-in) will be considered for the conversion into Direct plan.

You may refer to the Addendums issued by the Asset Management Companies or their Web sites for more details.

Will the conversion of future instalments of my SIP/STP registered under the existing/Regular plan be governed by the terms and conditions applied at the time of SIP registration or will the terms and conditions be different for the future instalments?

The terms and conditions will remain the same for the future instalments of the SIP/STP registered under the Regular plan.

I have SIP registered through distributor in existing/Regular plan. Can I give a request for converting the future instalments of the SIP to Direct plan?

Yes. You can give a request for the conversion to Direct plan. However, the terms and conditions that prevailed at the time of original registration will continue for the future SIP instalments.

I am an NRI investor. Will TDS be deducted at the time of conversion from the existing/Regular plan to Direct plan?

Yes. TDS will be deducted as applicable for NRIs.

How NRIs can use insurance products :: Business Line

Annuity products can help secure regular income. You can also choose frequency of payouts.

Indians have spread to virtually every part of the globe and have made their mark. But as an Indian living abroad, it makes good financial sense to make investments back home.Here is how an NRI can use insurance products to meet financial goals.

Let’s take Ashok, a 40-year-old NRI based in London. He works as a senior project manager in a software company. He has two children aged 5 and 9 years and his wife Asha is a home-maker.

His parents are retired and live in Pune. They have no source of income and rely on him for their regular expenses.

Student heading abroad? 3 remittance rules to know :Economic Times,

It's that time of the year when students from India head to various parts of the world to earn that coveted international degree. In this two-part series we will look at the important things students must keep in mind as they embark on their pursuit.

First, it is important to understand the important rules laid down by the Reserve Bank of India when it comes to remitting funds abroad. We will look at these rules in this article. In the next part, we will look at the tax implications for students who are particularly headed to the US.

International funds have a field day: Business Line,

While domestic diversified equity funds lost sheen in the market gyrations of the last one year, international funds gained handsomely. As a category, the latter have managed about 13 per cent returns during this period. This is much higher than the Sensex and the Nifty returns of around 5-6 per cent, too.

Career security for professionals abroad: Business Line,

Career uncertainty has emerged as one of the biggest fear amongst employees, owing to the financial crisis that began in 2008 and still has an enduring effect on the global economy. While the financial crisis has hit sectors such as real estate, financial services more, the developments over the past three to four years have created a lot of fear amongst people currently working or are willing to migrate abroad. Career goals such as retirement, resettlement and most importantly the need to return is still one of the biggest concerns that one faces when thinking of working abroad.

To help workers overcome these concerns, the Ministry of Overseas Indian Affairs (MOIA) had launched Pension and Life Insurance Fund (PLIF) in January 2012 which has recently been renamed as Mahatma Gandhi Pravasi Suraksha Yojana (MGPSY) and opened for registration. The MGPSY scheme is a voluntary scheme which helps workers migrating abroad for permanent/contractual work save for their migration, for returning, resettlement and also for securing their life through a term life insurance policy.

Inform funds of new residential status :: Business Line

I am a non-resident Indian investing Rs 30,000 a month in mutual funds in India. I have SIPs in the following funds: Rs 5,000 each every month in HDFC Top 200 Fund, DSP BlackRock Top100 Fund, SBI Emerging Businesses and UTI MNC Fund, all under growth options.

I also have some investments in DSPBR Balanced (Rs 1.25 lakh) but would like to close this and start SIPs in HDFC Balanced at Rs 5,000 a month.

I have parked Rs 50,000 in Reliance Gold Savings Fund and would like to invest more. But I cannot invest in these SIPs after December 2013 as I will settle down in India after that. But I can keep the funds locked for three to five years. I am also planning to hold Rs 15,000-20,000 in bank deposits — one half in a recurring deposit and the other as contingency fund. Please review my investments. — Jim Paul 

Should NRIs buy property in India now?

The dipping rupee in the past few months has brought a lot of cheer to US-based NRI Tarun Arora. His loyalties are not misplaced, but his glee is justifiable. With the rupee weakening consistently, he will now be able to buy a house in India. "I have been planning to purchase a house in Mumbai as an investment for some time, but since the property prices have been going up steadily, I kept postponing the decision," says the 35-year-old hardware engineer. However, as the real estate market has now turned sluggish and the depreciating rupee adds more power to Arora's dollars, he is likely to acquire a property at a cheaper rate. "I expect the developer to offer a good discount as the demand for real estate is low. Also, my mortgage payments will be lower compared with the sum I would have had to pay a year ago," he adds.

RBI reaches out to NRIs to lift rupee; raises interest rates on deposits in foreign currencies by up to 3%: ET

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Buffetted by a sliding Indian rupee and surging dollar demand for imports, the Reserve Bank of India on Friday eased some curbs to attract dollars from NRIs and scrapped the interest rate ceiling on exporters' foreign currency credit. But the measures, aimed at taking the steam off the currency, may only provide temporary relief, analysts say.

The central bank raised the cap on interest rates offered by banks on non-resident Indians' deposits to make it attractive for those who earn less than 2% in most parts of the Western world.

Aiming to attract long-term money, the cap on three- to five-year deposits has been raised to 3 percentage points above international benchmark rates from 1.25 percentage points. For less than three years, it will be 2 percentage points, raised from 1.25 percentage points. These are for the so-called FCNR (B) deposits, where the bank bears the currency risk since it will repay the depositors in US dollars.

With the benchmark London Inter-Bank Offered Rates, or Libor, at 1.05% for 12 months, NRIs could earn 3.05% in US dollars on their deposits up to three years. For longer maturities, it could go up to 4.05%. Libor is the rate at which banks in London intend to lend to each other, and is used to price bonds and loans worth trillions of dollars.

But these higher returns may still not lure NRIs in droves since transaction costs, convenience and tax rates play a role.

"It will help improve the sentiment at least in the near term," said Parthasarthy Mukherjee, president, treasury and international business operations, Axis Bank. "And banks will be able to lend more freely now."

The Reserve Bank of India has been intervening to arrest the fall of the rupee, which has been the worst performer among top countries in Asia, losing 6.14% after the Union Budget on March 16 upset foreign institutional investors. The avalanche of demand for dollars from international investors, who are pulling out due to tax issues and importers' needs, has limited the impact of the central bank's intervention.


The rupee has declined 1.7% this week to 53.4750 per dollar, Bloomberg data shows. It touched 53.9225 on Friday, the lowest level since December 15, when the currency plunged to a record low of 54.305, prompting the RBI to impose strong curbs on speculation.

How NRIs’ India mutual funds are taxed in US ::Economic Times,

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Mutual funds in India maybe a great investment avenue. Dividends are tax free; long term capital gains on equity funds are also tax free. And if you have been a long term investor, chances are, you built a fairly good corpus thanks to the robust Indian equity market. But if you are an Indian American, Uncle Sam is going to want a share of your pie. That's because the US tax code collects tax on the global income of its residents and citizens. What is more peculiar is that tax is levied on global income as per the rules that apply to that kind of income in the US. Foreign mutual funds in particular face this peculiarity.

First let us quickly look at the tax rules that apply for US mutual funds. In the US, a mutual fund's annual gains from sale of its holdings must be distributed to the unit holders and taxed in the hands of the investor as 'capital gains distributions' and these distributions are taxed at par with long term capital gains. Many investors choose to reinvest these distributions in the fund.

Foreign mutual funds in the US fall under the category of Passive Foreign Investment Company (PFIC). Vinay Navani, CPA and director of tax at New Jersey based firm Wilkin & Guttenplan, P.C, gives a background, "PFIC rules were introduced by the Internal Revenue Service (IRS) in order to discourage the practice by US citizens and residents of parking money in offshore tax havens and deferring the US tax liability. For instance, a US citizen might put his money in an investment company or mutual fund situated in the Cayman Islands. Cayman Islands does not require its funds to make distributions to its investors and therefore there is no tax on annual basis. At the time of sale, while capital appreciation would be tax free in the Cayman Islands, the US citizen/resident would still have to pay tax in the US since he is taxed on his global income. By doing this, he could defer his US tax liability till the time of actual sale. So while the intent of the PFIC rules was to plug such incidents, foreign mutual funds, being of similar structure, also fall under this category. Broadly speaking, according to the PFIC rules, the citizen will face some harsh tax consequences unless he chooses one of the options described below."

While we will get into the details of the options next, it is important to understand that in option 1 and 2, the PFIC rules essentially seek to tax notional gains arising from PFIC investments. These gains are taxed as ordinary income. Option 3 is when the taxpayer chooses to do nothing and pays interest and penalty.

Form 8621

This is the form you would need to fill up if you have mutual fund holdings in an Indian mutual fund company. The form gives you several options to declare the notional appreciation. Let's take a look at the options relevant for a retail mutual fund investor:

Option 1: Election to mark-to-market PFIC

This is the most common option for Indian mutual fund investments. Navani explains, "Broadly speaking, according to this option, you must declare as income the notional gains in the market value of your fund holdings during the year."

Here is what typically happens:

- In the year of purchase, the gains are the difference between market value at the end of the year and cost of purchase.

- In the subsequent years, the gains are the difference between market value at the end of the year and 'adjusted basis'. Adjusted basis is usually the market value in the beginning of the year. In case there is a loss, the loss can be set off against foreign PFIC notional gains of only the previous years. Any loss that is not set off is added back to the adjusted basis of the next year. So for instance, if in year 1 you incurred a notional gain of $100 on your PFIC, $100 would be taxed as ordinary income in year 1. Suppose your loss in year 2 was $150. In year 2, you would be allowed to deduct a loss of $100 from your total income (loss to the extent of gains taxed earlier).

- When the units are actually sold, you will be taxed long term capital gains only on the portion of gains that has not been taxed in previous years as ordinary income

Now there may be a case where you purchased units of the fund before you became a US resident or citizen. In such case, in the first year of your tax returns, the value of your PFIC income will be the appreciation in market value of the fund holdings during the tax year.

Navani illustrates, "X, a nonresident of the US, buys marketable stock in a PFIC for $50 in '95. On Jan. 1, 2005, X becomes a US resident. The fair market value of the stock on Jan. 1, 2005, is $100. The fair market value of the stock on Dec. 31, 2005, is $110. X computes the amount of mark-to- market gain or loss in 2005 using a $100 adjusted basis. Therefore, X includes $10 in gross income as mark- to-market gain and increases its adjusted basis in the stock to $110. X sells the stock in 2006 for $120. X must use its original basis of $50 plus the $10 mark-to-market basis adjustment. Therefore X recognizes $60 of gain, of which $10 would be ordinary income and $50 long-term capital gain."

Maryland based tax attorney and Principal at Kundra & Associates, Chaya Kundra also adds, "For the recent resident, it is often best to elect mark-to-market upon the filing of the first year of their return for the most favorable tax treatment."

Option 2: Election to treat as QEF - Qualified Electing Fund

"This option is commonly used in case of investments by US residents and citizens in offshore private equity funds," Navani says.

A QEF is taxed like a partnership wherein each investor is considered to have a share in the total profits of the fund. You can exercise this option only if the foreign fund agrees to share information with you about your share of profits.

Option 3: Excessive distribution method

"This is a default election. If you opt out of all other options, you will be taxed as per this option, which is also the most taxing," says Navani.

He adds, "According to this option, the distributions in the current year should be at least 125% of the average distributions of last 3 years. The logic being that you are receiving incremental income every year from the fund and therefore not trying to defer taxes. If you do not meet this condition, then the total distributions are allocated over the entire holding period and taxed in each year at the highest tax rate of that year. Not only that, you will also be charged interest on each year's tax liability."

What this means: Suppose you did not make any election on your PFICs and throughout the holding period, did not fill up Form 8621 for your PFIC holdings. You held the PFIC units for say 10 years and did not receive any distributions during these 10 years. In the year of sale, you made a gain of $100. In the year of sale, your gains will be distributed over the past 10 years, that is, $10 per year. It will be treated as though you did not pay tax on $10 per year and hence in year 10, you must pay tax for each of these years plus interest on the delay. You will have to fill up part IV of Form 8621.

A common query then: If you are an NRI and will be in the US on a project for 2-3 years and you know for certain that you will not sell your Indian mutual funds during that time period, does it make sense to go for the default option? This is a tricky one. While this strategy may work for now, a proposed amendment to PFIC rules could prove a dampener.

Kundra explains, "According to this proposed amendment, if a US citizen or resident owning PFIC stock renounces citizenship or abandons US residency, thereby becoming a nonresident alien for US tax purposes, the individual is deemed to sell the PFIC stock on the last day that he or she is a US person."

She adds, "This is a proposal and not yet a law. Having said that, from the IRS website, proposed regulations are often used as precedents by the IRS. It is important to note that this will more than likely become law and when it does, it will apply retroactively."

Form 8938 and Form 8621

From this tax year onward, the IRS has introduced a new Form 8938 for reporting offshore bank and financial accounts. "Be careful with the new Form 8938," Navani advices, "In Form 8938, in Part IV, you must check that you have filled up Form 8621. If you inadvertently declare holdings in Indian mutual funds in your Form 8938, the IRS would automatically check for Form 8621. Consult your CPA or tax advisor."

These are just the broad modalities of how PFICs are taxed. Several adjustments may occur in individual situations. Consult your CPA or tax advisor to choose the best election and arrive at appropriate values.

New Income Tax Act: Drive against black money to set new hurdles for expats (ET)

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The government's zeal to unearth black money could result in thousands of expatriates and their families having to provide details of assets held overseas, a requirement that many experts say could deter foreigners from working in India whose economic growth has attracted global talent in areas ranging from deep-sea engineering to movies.

The Central Board of Direct Taxes, or CBDT, has brought out new tax forms for the current fiscal that require all "residents" to provide information about assets located overseas even before Finance Bill 2012, which mandates these disclosures, has been passed by Parliament.

Under the Income Tax Act, the term 'resident' is divided into two categories: 'ordinary resident' and 'resident but not ordinarily resident.' Most expatriates fall under the second category. Those 'not ordinarily resident' do not have to pay tax on their global income, but the new forms may require them to disclose their global assets, a burden some experts say is excessive.

"These changes are likely to create genuine hardship for the expatriate employees who come into India for shorter duration and qualify to be not ordinarily resident in India," says Kuldip Kumar, executive director, PwC.

A finance ministry official said the disclosures are aimed at resident Indians. The intent of the legislation is that their global income should be taxed in India, he said.

But, experts say there is an ambiguity and it needs to be clarified. "If one goes strictly by the language of the forms, the disclosure should apply only to residents, but the CBDT needs to clarify this explicitly," said Kumar.

The disclosures include details of bank accounts, financial holdings, immovable property, other assets and details of any foreign account in which the taxpayer has signing authority.

The family members of expat workers will also need to file I-T returns in India if they own the overseas assets mentioned in the form.

The disclosure seems more onerous, tax experts said, in view of another provision in the Finance Bill that will allow tax authorities to open tax assessments going back 16 years if they detect any concealment of foreign assets.

According to the new forms, even Indian residents holding signing authority for the foreign accounts of their employer will need to disclose overseas assets.

NRIs with unexplained wealth may land in income tax trouble (ET)

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The government today said the Income Tax Department will "bother" only those non-resident Indians who have unexplained funds.

"If any money is found to be of some person and then it comes to our knowledge, then if it is legitimately explained he doesn't have to bother, but if it is unexplained then we will have to bother and we will bother," CBDT Chairman Laxman Das said at an interactive session with Ficci members here.

Finance Secretary R S Gujral, who was chairing the session, said there is no intention that NRIs should not return or should not bring back their assets to the country.

"I do not think there is any doubt. Obviously, if they have earned money and they are not required to file a return in India and they have assets abroad, they are not the undisclosed assets...," he added.

The two Finance Ministry officials were replying to a query on the impact of the proposed amendment to the Income Tax Act.

But, Gujral said, if a person is employed as a clerk abroad and comes back after two years with $ 1 billion in pocket, the person would have to explain the amount.

"But generally it is very clear that there is no such intention. India wants to attract NRI investment, NRI remittances and we welcome the NRIs even coming back," Gujral added.

Regarding reassessment of income in relation to any asset located outside India, the government in Budget, has proposed reopening of assessments of up to 16 years, against six years at present.

Besides, it also plans to make it compulsory reporting requirement in case of assets held abroad.

"The time limit of six years is not sufficient in cases where assets are located outside India because gathering information regarding such assets takes much more time on account of additional procedures and laws of foreign jurisdictions," the Budget Memorandum had said.

"The 16-year thing is an enabling provision where it is found that... the person whether NRI or anybody is not able to explain as to how he acquired and whether taxes has been paid on those money, whether in India or abroad. It is never the government's purpose to trouble people who are explaining money abroad," Das said.

Experts said that such a move could create unnecessary reporting requirements and harassment for NRIs who have returned to India after staying abroad for long.

When rupee is down, real estate is preferred investment for NRIs. Here's NRI's guide to buying property (ET)

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When it comes to smart investing, timing is of essence. So if you are a non-resident Indian (NRI) wondering where to invest, real estate could be a good option given that the rupee is still floundering. "NRIs have always been interested in investing in India as they are familiar with the location, and realty has traditionally yielded good returns in the short to medium term," says Shveta Jain, director, residential services, Cushman & Wakefield. There are two distinct types of purchasers. One comprises pure investors, who want to reap good returns on their investment, and the other category is the end-users, who purchase property to provide for their families in India. Says Anand Narayan, director, residential services, Knight Frank: "NRIs look at their property in India as a second home, a place they may want to come back to when they retire."

Where can NRIs invest?

All the options that are available to resident Indians are also open to NRIs, but apartments are the most sought-after. "Almost 70% of the purchases are residential units," claims Narayan. However, commercial office spaces are also worth considering. This may be particularly useful if the NRI has a business in the country and is planning to set up an office here. Says Ashish Bhakta, partner, Advaya Legal: "NRIs can also buy commercial land as there is no restriction on such purchases." Agricultural land, on the other hand, is not an option since it is only available to farmers.

Outward remittances: Who gets what ::Business Line,

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Taxing incomes earned abroad: Business Line,

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I am residing in a house built in 1991. I built a second house in 2010 and let it out for rent. I took a loan for this second house from LIC housing finance. I am in the 30 per cent income tax bracket.

I will be paying around Rs 1, 20,000 towards interest alone on the loan for the FY 11-12. I am claiming interest payment as deduction from my income. My PF savings itself come to more than a lakh and hence I am not claiming principal repayment in my income. I am getting a rent of Rs 4,000 a month from the second house.

I am paying Rs 2,000 towards municipal tax for the second house. The net effect is around Rs 90,000 deduction in my taxable income.

One of my friends suggested that I can transfer the income from the second house to my wife and thus I can avoid this rental income in my income tax calculation. Is it possible? If so, how it should be done? What are the legal implications? Please guide. - Ramachandran R

Under the provisions of the Income tax Act, 1961 (“the Act”), the annual value of a property is assessable in the hands of the owner under the head “Income from house property. As you are the legal owner of the property, any income from such property would be taxable in your hands. If you transfer only the rental income of your second property to your wife, it would be diversion of your own income and would still continue to be taxed in your hands.

Further, according to Section 27 of the Act, the owner includes an individual who transfers any house property to his spouse for inadequate consideration. Therefore, in case, you transfer the legal ownership of the house property to your wife for inadequate consideration, you would be treated as “deemed owner” of the property and accordingly the rental income would continue to be taxable in your hands.

As a deemed owner, you will be entitled to claim the deduction towards municipal taxes, flat deduction of 30 per cent of net annual value and interest paid on housing loan during the concerned financial year (FY) in the same manner as you have been currently claiming said deductions against the rental income, which is taxable in your hands.

Whereas, if you transfer the ownership of the house property to your wife for adequate consideration (out of her own funds), then the rental income shall be taxable in your wife's hand. However, in such scenario, since you will ceased to be the owner of the property, deduction towards interest payment on housing loan may not be available.

I work for a software firm in Hyderabad. In 2009, I was deputed to the US. I worked in the US for two years and then came back to Hyderabad to continue to work for the same company. Taxes are deducted from my pay during the stay in US, and I filed IT returns in US for all applicable financial years.

I transferred my savings in the US using ICICI Money2India, to a savings account in India. I was told that as I am paying taxes in US, my savings are not taxed in India, and so I don't have pay tax in India again.

During those two years, I have a very small income in India, through bank deposits. How do I declare my income through savings from the US to Indian IT department? Do I have to declare at all? - Shankar

Taxability of income in India depends upon your tax residential status during the FY. Residential status is in turn determined by the physical presence of the individual in India during the FY and immediately preceding seven FYs. It is important to determine your residential status in India on year on year basis to ascertain the taxability of income in India. Just for understanding, there are three categories of residential status in India:

Non Resident (NR);

Not Ordinarily Resident (NOR); and

Ordinarily Resident (OR).

Depending upon your stay in India, in case you qualify as either NR or NOR during the FY, you shall be taxable in India only on India sourced income, which as mentioned by you is the interest on bank deposit in India. However, salary and other income earned and directly received in the United States of America (US) should not be taxable in India. Further, subsequent transfer of this savings from the US should not attract tax implications in India. Any interest that you earn on your savings bank in India is clearly taxable in India. You have to declare any income earned in India on investments, bank accounts, etc by filing the India tax return if the aggregate income in a FY exceeds the income threshold taxable limit.

However, if you qualify as OR in India in any of the FY, your global income should be taxable in India irrespective of source or place of receipt of such income. Accordingly, under the Act, the entire salary and other income, if any, earned in the US would be taxable in India.

(The author is Executive Director, Tax, KPMG)

Savvy NRIs lap up India Inc's dollar bonds from exiting FIIs (ET)

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Dollar-denominated bonds of Indian companies are gaining popularity among wealthy non-resident Indians (NRIs) and savvy local investors. These individuals are mopping up such bonds, which are being dumped by foreign investors amid worries that Indian companies could default on their debt repayments in the wake of the slowdown in the domestic economy and squeeze in corporate profits.

Wealth managers said confidence in debt of Indian companies is so low that foreign investors are dumping their bonds at 40% to 60% discount to their original prices. Bank bonds, which bear coupon rates in the range of 4-5%, are trading at 6-6.5% levels in overseas markets. Dollar bonds issued by corporates are currently yielding 7-7.5%.

Indian companies are considered risky overseas because of their lower credit rating, which is driven by the nation's sovereign rating of 'BBB minus'.

"There are worries of debt repayment defaults; also there is a feeling that Indian companies will not do well over the next few quarters. This has resulted in foreign banks and institutions reducing exposure to Indian debt," said Nitin Jain, head - capital markets, Edelweiss Capital Markets.

NRIs and the informed domestic investors are seeing opportunities in such fire sales. They are looking out for papers, especially, foreign currency convertible bonds (FCCBs) that are up for redemption this year. Yields on many such bonds are trading at almost 9% overseas, with those issued by blue-chip companies like Tata Steel, Reliance Industries and Bharti Airtel at 8.5-9%. Such investments make sense for NRIs because dollar deposits fetch them just 1% to 1.25%.

Much more than returns, dollar bonds eliminate currency risk for NRIs, said Raghvendra Nath, managing director of Ladderup Wealth Management.

"In these times of currency volatility, there's huge risk involved in bringing money to India and investing them in local assets. There's greater comfort for NRIs to invest in dollar bonds and earn higher yields on them," Nath said. These bonds could fetch these NRIs between 5% and 7%, said wealth managers.

For wealthy local investors, such investments are attempts to diversify their portfolio. Most of them are using the Reserve Bank's liberalised remittances scheme route - which allows individuals to invest up to $2,00,000 in foreign assets every year - to invest in these bonds.

"HNIs (high net worth investors) are investing in dollar-denominated bonds to diversify their portfolio. This strategy allows investors to have exposure to a different currency other than the rupee," said Prateek Pant, head of wealth solutions at RBS. "Several FCCBs are currently trading at a significant discount to their issue price. NRIs are cherry picking the well-known names as value buys," Pant said.

Edelweiss's Jain said rich investors invest in dollar bonds to pocket the additional 'carry' value on rupee. "They are hedging the rupee ( futures) before investing in these bonds. They earn an additional 5-6% carry value on rupee along with 6-7% yields on bonds," Jain said.

NRIs send more money back home in 2011: Business Line,

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Where should NRIs invest their gains from a weak rupee (Economic Times)

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The rupee was quoting at 44.8001 against the US dollar seven months ago, and has depreciated 18.28% since then. A falling rupee is not the best news for us, but it definitely is for exporters and NRI investors who will receive more rupee funds on conversion. Given the current scenario, NRIs have some good investment options to park their surplus funds.

Short term (6 months to 1 year)

Fixed income mutual funds: A range of fi xed income mutual funds offer customers the combined benefi t of attractive returns with full repatriability, low cost, convenient processing and ease of portfolio tracking. Safe investors should opt for liquid plus funds.

Bond funds/longer-duration gilt funds: They are meant for investors who are comfortable with some price uncertainty. "They can benefit from any potential capital gain arising out of any reduction in future interest rates. Also, any appreciation in the rupee over the investment period would imply additional returns," VISHAL KAPOOR, Head, Wealth Management, Standard Chartered Bank, India.

NRE deposits: "They are clearly the best option after the deregulation by RBI. Short-term deposit rates are attractive due to tight liquidity conditions in money markets while being tax free," SUTAPA BANERJEE, CEO - Private Wealth, Ambit Capital.

Medium term (1-3 years)

Balanced mutual funds/NRE deposits: You can opt for either of these instruments depending on whether the horizon is one or three years, respectively. "The choice depends on the kind of price volatility and whether the investor is seeking a guaranteed return or not," JAYANT PAI, CFP, Vice-President, Parag Parikh Financial Advisory Services.

Fixed maturity plans: They are an attractive option for customers looking to locking in at prevailing high rates. For risky investors, Indian equities may offer signifi cant long-term opportunities. "Investors could participate through selective stocks or through a wide range of equity funds with good track record. The quarter ahead may offer selective buying opportunities for active investors, or one could choose to simply stagger investments through a defi ned period, using systematic transfer from debt to equity funds," says Kapoor.

Long term (3 years or more)

Diversified equity funds (through SIPs): They are good options at the current rates. FDs are not a good option as the uncertainty of foreign exchange movements may not be fully compensated by interest rates. "However, risk averse depositors may chits. Gold ETFs are also a oose long-term NRE deposgood option," says Pai. Investors should allocate their funds using a strategic allocation model tailored to their individual risk profi le. This should normally combine debt, equity as well as alternative assets. Clearly, debt offers a very attractive opportunity in the near term but one should also keep in perspective the attractiveness of Indian equities over the medium to long term.

Realty Check

Real estate as an investment option makes sense if you plan to return to India after some time. However, you should choose a location that is familiar to you and stick to a reputed builder, given that proximity is an issue.

From a pure investment angle too, the same caveat applies: Familiarity and reputation. Also, there is greater chance that projects of reputed builders will appreciate more than others'.

Also, as NRIs are not permitted to purchase plots of land/plantations/farm houses. Even commercial real estate is subject to a plethora of limiting regulations. Purchasing apartments or bungalows maybe the only options available.

It is difficult to give a ballpark estimate regarding returns, as it will depend on the location and various other factors.

However, as an investor you have to be cautious in the near-term since it is an interest rate sensitive sector and demand may be impacted by relatively high interest rates.

"It is imperative to find out whether one is allowed to invest in an instrument by RBI as well as by the country of their residence. For example, several bonds don't have separate clauses which allow for NRIs to invest in them," says Banerjee of Ambit Capital .

Choosing The Right Investment

Liquidity, post-tax returns, price volatility and credit risk are the crucial factors that should determine the choice of the instrument you invest in.

The amount of foreign exchange risk one is willing to undertake is also a crucial factor. Of course, the forex risk is always present in all options other than FCNR deposits.

Convenience and trust need consideration. One may choose those options where he/she can transact online. This enables easier portfolio tracking.

Suitability of the product/asset based on endogenous factors such as age, economic situation, liquidity considerations etc. are the same as those for resident Indians.

NRIs: Look before you leap :: Business Line

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Bank deposit rates for Non Resident Indians (NRIs) have turned attractive after recent changes to interest rates. But NRIs may need to keep the following factors in mind while making investment decisions in India.

CHANGES IN THE DTC

It now appears unlikely that the new direct tax code (DTC) will come into effect in April 2012. But as and when it takes effect, it may result in changes to the method by which a person is determined to be an NRI.

The current tax law states that an Indian citizen who stays abroad for employment or is carrying on business for an uncertain duration is a non-resident. However, an NRI becomes a ‘resident' of India in any financial year, if he stays in India for 182 days or more. The added stipulation is that a person will be deemed as resident if he has also visited in India for 365 days or more in the preceding four financial years.

In the new DTC, the 182-day requirement has been reduced to 60 days. This change could impact the residential status for select NRIs, say tax experts.

“Under the Direct Tax Code, NRIs who have historically been spending significant time in India stand to become residents the moment their stay in India exceeds 60 days in the financial year” says Amitabh Singh, Partner, Tax & Regulatory Services, Ernst and Young.

A resident becomes ‘ordinarily resident' under the Income Tax Act if he was resident in India in nine out of the ten previous years and has been in India for 730 days or more during the seven years preceding that year. In such cases, even global income of these NRIs could be added to the Indian income.

“NRIs may have to go through a tie-breaker test if they become tax resident in India and are also tax resident in the overseas country. The tie-breaker test will help decide which country has the taxing rights and which country will give a tax credit” says Singh.

TAX IN THE HOME COUNTRY

A second factor that may have a bearing on NRIs is the tax incidence in their home country.

“Tax-free bonds or tax-free fixed deposits are beneficial only to NRIs who do not have to pay tax in the foreign country. NRIs should look at the post-tax yield taking their global tax liability into consideration and then decide. For example, an NRI who is a US tax resident will benefit more from a 12 per cent taxable bond than a 8 per cent tax-free bond because he will have to pay taxes in the US on his Indian sourced income” says Amitabh Singh. Effectively, NRIs need to compare post-tax returns, based on their tax rates at the foreign country.

In the case of countries with which India has a Double Taxation Avoidance Agreement, NRIs may be allowed to set off tax paid in India against taxes due in such countries. The effective tax rate will be at the higher rate, between the two countries.

RUPEE SWINGS

In addition to the tax effect, NRIs will also have to take a call on the rupee's direction while making Indian investments. Even if the interest rates happen to be high, an adverse currency movement can offset this at the time of maturity of the deposit. This is especially if the NRI plans to repatriate funds back home.