5 Common NRI Problems with Solutions

5 Common NRI Problems with Solutions

There is an ardent invitation from the Indian government for NRIs to invest in India. In reality, however, NRIs face several problems in investing back in their home country.

Legal tangles and convoluted laws are only some of these. The others are structural, from corruption to the complexity of dealing with multiple government departments.

Economies abroad are far more transparent. Among 190 nations, India ranks 63rd in ease of doing business, and that is 14 places ahead of where it was two years ago. It is far easier to invest in Macedonia and Estonia than India.

Take, for example, direct taxes. There is a maze of exemptions and deductions in income and wealth taxes. For over a decade, various administrations have tried to simplify the thousands of subsections to a more straightforward format but failed thus far.

The same holds true for property transfer, repatriation of funds, complexities of residency status, and several more issues.

What are the typical issues that most NRIs face? We examine in detail.

Typical Problems That NRIs Face When Investing in India

  1. Lack of Transparency in Land Records
  2. Though most records have moved online, property purchase in India is a nightmare. Every transaction has to be preceded by a “legal search”, a process of investigating in local courts if there are any pending disputes.

    Needless to say, this search is not only time-consuming, but records are often suppressed. As a result, an NRI buys a house only to find a year later that there are two other rightful claimants to the property.
  1. Dubious Promoters
  2. These problems have extended to new property purchases, too. Due to a lack of liquidity, Indian real estate firms often can’t deliver finished property by the due date. Legal recourse is possible but expensive and needs several years.

    Moreover, the process of seeking damages is long-winded and restricted to pecuniary loss. Pleas for compensation due to mental stress are not accepted at all.
  1. Illegal Possession
  2. As an NRI, it is not possible to continually remain vigilant of the property. Taking advantage of this weakness, break-ins and squatting are common.

    Since squatters’ eviction requires a court order and police involvement, it has to be done in person. If the squatter has the backing of a political party, it is nearly impossible to evict them. Another issue is dubious builders eyeing ancestral property owned by NRIs. With the application of pressure through illegal possession, an NRI is likely to sell the property rather than drag it through the court. This type of coercion is prevalent across India.
  1. Tax Implications
  2. NRIs have to deal with complex tax laws. They are liable to pay taxes out of income arising or deemed to arise in India.

    In addition, if they let property out on rental, they have to claim tax credits for the amount subtracted as TDS by the tenant.

    Indian tax returns have to be reconciled with income earned abroad and the documents correctly maintained. The Foreign Exchange Management Act, 1999 (FEMA) is extremely strict about how and in what form an NRI can repatriate any income from India.

    Thankfully, due to Double Taxation Avoidance Agreements (DTAAs) signed by the Indian government with 85 countries, tax compliance at least avoids excess taxation.
  1. Education System
  2. It is difficult to migrate from the education system abroad to India at the school level. There are two reasons.

    One is a mismatch of curricula – e.g., a student of Grade 10 in the U.S. would have trouble adjusting to the ICSE or CBSE board in India due to a lot of stress placed on plane geometry in India. This type of imbalance is repeated across high-school STEM curricula.

    The other is language. In an Indian board school, there has to be a second language that is an Indian language. A student returning from abroad finds it hard to cope.

    IGCSE and IB schools help ease this transition in some ways, but not all.

    Generally, a student moving from a Western country to India may find himself singled out by other students. Younger students find it more difficult to cope with this alienation.

What is the Way Out?

Employ a Good Lawyer

Lawyers are expensive everywhere, including India. But if you are looking to invest in India as a long-term financial strategy, it is best to employ a good lawyer and build a relationship with him or her.

With a power of attorney, they can handle most of the legal problems. Of course, a power of attorney can be misused, and that is why it is essential that you appoint a lawyer recommended by other NRI friends.

Reputed law firms are an alternative to individual attorneys. Many Indian law firms have begun to set up offices abroad through global partnerships, but these legal firms are exorbitantly expensive.

Get Good Tax Advice

With the complexity of NRE/NRO accounts and income arising in India (such as dividends), you would need an accountant who is able to navigate the maze of Indian tax laws and file your return.

Thankfully, this aspect is quite easily handled. The big four global accounting firms—KPMG, Price Waterhouse, Deloitte, and E&Y—are present in India.

If you want less expensive alternatives, you could employ a chartered accountant with their own firm.

A Caveat…

Before you employ a lawyer or accountant, make sure you understand the rules surrounding general and specialized powers of attorney.

It would be best if you read the Powers of Attorney Act, 1882. It is just a few pages long and freely available online from various legal sites.

Of course, it won’t make you an expert. But you would have a better idea of how the document you sign hands over considerable rights to a relatively unknown lawyer or accountant.

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