Saturday, January 12, 2019

NRI's Guide to Banking, Income Tax, Aadhaar Card, and Investment in India - Rules, Regulations and Eligibility

As an India citizen, it's important for an NRI to know it's rights and responsibilities, especially about finance, tax, banking, and investments. When I first moved abroad I have absolutely zero knowledge of any of these with respect to Non Resident Indian and I even thought that NRIs are those who are once a citizen of India but now they have citizenship of other countries, I was totally wrong. Slowly I learned a lot of things about who is NRI and what changes when a resident Indian becomes an NRI and this post is a collection of those points.

Each and every point is very important and I strongly believe every NRI must have some idea about it. I am sure many of you already know these but I think there is value in putting these points together in one place as a handy guide for all young Indians who are working or settling down outside India.

I know these points are just tip of the iceberg and there are many more subtle details and things to learn and that's why I have this blog, where I share things which I learn from my own experience, but if you think you can add something to this list, then feel free to do so.

I have also thought about to keep this list growing with the help of you guys so that we can have most important information in one place for everyone's benefit. So, feel free to share important points you think every NRI should know and remember.

Important points NRI should know

Here are some of the most important things I believe every Non-resident Indian should know. All the points are related to income tax, bank accounts, money, investment, tax saving and other finance-related matters.

If you have anything to add to this list, please free to do so by commenting, whenever I come to know about some more important things I will add more points to this list.

1. NRI Residential Status

In general, if a resident Indian spends more than 182 days outside India he is considered NRI for income tax perspective. Taxation laws are different for Resident and Non Resident Indians. Btw, this is is just the general case, for more specific cases, please see this article how to check the resident status of NRI for income tax e.g. to find out whether you are resident Indian, NRI, ROR, or RNOR in a particular financial year.

NRI Status

2. Limit on Cash NRI can take Abroad

An NRI is not allowed to take more than Rs 25,000 in cash outside India, under the Foreign Exchange Management Act. So, when you travel to India or come back to the country you live, you can have almost 25K Indian rupee with you. For a more detailed information, please see the Indian customs rules for carrying cash to/from India.

Because of this many NRIs lose money on demonetization as many of them holding a small sum of cash from 1000 to 25,000 but couldn't exchange that overseas and coming India just for that was just not reasonable.

3. Resident Saving Account

An NRI cannot keep the Resident Saving account once his status changes from resident to non-resident. He needs to inform the bank about this NRI status and then the bank will redesignate his Resident saving account to an NRO (Non Resident Ordinary) account.

The NRI account then can be used to deposit Indian currency e.g. rental income, dividends or any money received from gifts.

You can further see my post Is it Mandatory to Open NRI Bank Accounts for Indians living abroad to learn more about requirements and rules.

4. PPF

An NRI cannot open a new PPF account but he can continue investment if he already holds a Public Provident Fund account which he had open when he was a resident Indian.

The big benefit of PPF account is that every year you can contribute around 1.5 lakh which will be reduced from your taxable income. There is also no tax on maturity amount.

To learn more about the Public provident fund and why it's a good long-term saving option for Indians, please see the pros and cons of PPF account.

Can NRI Invest in PPF

5. Sukanya Samriddhi Yojna

An NRI cannot open Sukanya Samriddhi Yojna account for his girl children. The scheme only allows Resident parents to open Sukanya Samariddhi yojna account for their 2 girl children aged less than 10 years. For eligibility criteria and more details please see my post why and how to open SSY account in India.

Can NRI invest in Sukanya Samriddhi Yojna

6. Tax Saving Schemes for NRIs

There are certain tax relaxation and tax-saving schemes which are not available to NRIs e.g. Rajiv Gandhi Equity Saving Scheme (RGESS) which allows taxpayers to invest up to Rs 25,000 under section 80CCG and deduction for the disabled and handicapped under section 80DD, 80DDB, and 80U. For more details, see this list of tax saving schemes which are not available for NRIs.

Tax Saving options for NRIs

7. NRI Banking Accounts

 An NRI can open three types of bank accounts in India e.g. NRE (Non Resident External), NRO (Non Resident Ordinary) and FCNR(Foreign Currency Non Resident).

They have a different purpose and features, for example, you cannot deposit INR cash or via bank transaction on NRE account, it must be funded from the money earned overseas e.g. via foreign currency cheque or via Remittance.

The NRO account allows you to deposit INR cash or INR via NEFT, RTGS or IMPS. So you can use this account to keep your rental income, dividend earned and other income accrued in India in INR.

The third one, FCNR account is only available as fixed deposit and keep your money in foreign currency e.g. you can open FCNR deposit in USD (Americal dollars), GBP (British pound), JPY (Japanese Yen), SGD(Singapore dollar), CHF (Swiss Franc) and other freely convertible currencies.

They usually provide more interest than the local foreign banks will provide and they are also not susceptible to exchange rate risk because money is always kept in foreign currency as opposed to Indian rupees in NRE and NRO account.

Apart from this, returning NRIs can also open RFC account to deposit their foreign currency while going India for good. They can freely transfer this money to their children studying or living abroad and it also provides certain tax relaxation available to NRIs.

Btw, you can also send money to NRE account using NEFT or RTGS from other NRE account that's allowed.  See how to fund your NRE account for a full list of options.

Difference between NRE, NRO, and FCNR Account

8. Income Tax Returns

Even though it's good to file income tax return in India, It's not mandatory for an NRI to file income tax returns in India especially if they don't have any taxable income in INR.


if they only have income which generated from interest on the fixed deposit, or, as part of dividend or long-term capital gains and TDS is already deducted from them.

Though, they may lose money because TDS is usually higher than for small income and they can ask for a refund by filling income tax return. See here to learn more about when an NRI should file income tax return in India.

Is it mandatory to file income tax returns for NRIs

9. National Pension Scheme for NRIs

Earlier NRI was not allowed to invest in NPS (National Pension Scheme) but from last year Government has lifted that restriction and now NRI can invest in NPS and save up to Rs 50,000 on top of 1.5 lakh rupees they can save under section 80C and others.

This is a very good initiative by Government and if you have some income in India e.g. from rent then you can use these scheme to do some tax saving and save money.

Can NRIs invest in National Pension Scheme or NPS

10. Aadhaar Card

One of most important thing in last 2 years is Aadhaar card and many NRIs are facing a lot of problems with respect to Aadhaar card. First, the government announced that it's mandatory to link your PAN card with Aadhaar, then banks asked to link bank accounts with Aadhaar card, then telephone operator chipped in and asked to link your Phone to link with Aadhaar, then LIC and other insurance companies are asking to link Aadhaar with insurance account.

But, how many of you know that NRIs are not even eligible for Aadhaar card. One of the primary requirement for Aadhaar is that applicant should have lived for more than 180 days in India and if that happens you are not an NRI.

Though, if you have an Aadhaar card before becoming an NRI, you don't need to cancel that. For all those requirements, an exception is made for NRIs and you should tell the same thing to your bank accounts, telephone operators, and insurance companies.

Is NRIs eligible for Aadhaar Card

11. Investment in Stock Market

NRIs are allowed to invest in Stock Market of India both BSE and NSE. They can buy shares/convertibles of listed Indian companies in recognized stock exchanges e.g. Bombay Stock Exchange and National Stock Exchange under Portfolio Investment Scheme or PIS, but NRIs are not allowed to perform day trading.

They must take delivery of the shares and give delivery of the shares. NRIs are also allowed to invest in futures and options which are traded in Stock exchanges on the non-repatriation basis, which requires an NRO PIS saving account, only to SEBI approved limits.

That's all about some important things every NRI, PIO or any Indian living outside India should know and remember. These things are quite common and I am sure many of you already know them but I have lots of friends and colleagues who things putting this information together can greatly help young software engineers and other professional going abroad. They usually have very less knowledge of taxation and investment and these points will certainly help them and encourage to learn more.

1 comment:

  1. Hi ,

    I held an NRE Account(Worked in Merchant Navy) for FY 16 -17 , 2 NRE FD's were created at that time, but due to some Circumstances , from May 17 i am in India, so mine status has been changed to Resident then onwards, but the FD's started in FY 16-17 matured after 1 year period in 2017 (16 Apr and Dec 17 ) ,

    1. So is the complete interest Taxable ?
    2. Or only the accrued interest amount in FY 17-18 would be taxable and accrued interest for FY 16-17 non taxable ?
    3. Recv Apr 17 payment in May, and didn't work for rest of the year, so ideally this salary would be taxable as my NRE status changed to resident, or is it Exempt ?

    How does it work ?