When it comes to the NRI status, there are a lot of myths out there. And most of these myths emanate from the lack of the correct information.
While the list of misconceptions that people have about NRIs and the NRI status runs long, we have identified the top concerns and busted those myths wide open.
Myth 1: NRIs don’t have any tax liability in India.
Fact: NRIs have to pay taxes in India. Income from the following sources is taxable in India:
- If you receive your salary for services rendered in India
- Income from your house/property in India
- Rental income (Your tenant will deduct TDS before transferring the rent and pay it to the concerned department.)
- Income from other sources (Interest from NRE and FCNR is tax-free in India, while the interest received on your NRO account is taxable)
- Income from the business that is run by the NRI in India
- Income from any kind of capital gains
Myth 2: All NRI accounts are the same.
Fact: There are three types of accounts that an NRI can own. They differ from one another in terms of repatriation, the taxability of interest, and other factors.
Here is a brief description of the 3 types of accounts:
- NRO (Non-Resident Ordinary Account): Similar to a savings account. The interest earned from this account is taxable.
- NRE (Non-Resident External Account): It is a foreign currency account. It can also be maintained in rupees. The interest income is not taxable in India, and the amount in this account is fully repatriable.
- FCNR (Foreign Currency Non-Resident Account): It is a term deposit account. The interest is not taxable in India. And this account can be jointly held by an NRI and an Indian citizen.
Myth 3: NRIs can grant power of attorney only to their relatives.
Fact: NRIs may issue a power of attorney to anyone they trust. If you have a close friend or longtime neighbor in India whom you trust, you can issue a power of attorney in their name.
However, banks and other organizations have their own rules as to who can be issued a power of attorney. This to add an extra layer of security to the transaction. You should check the guidelines related to power of attorney with the bank or organization that you want to transact with.
Myth 4: NRIs cannot get loans from banks in India.
Fact: NRIs can get loans, like a car loan or property/home loan, from Indian banks.
The difference between residents and NRIs getting loans in India is that NRIs have to satisfy some additional conditions. Also, transferring or issuing a power of attorney is necessary, and this causes the process to become a bit more complex.
Different banks and financial institutions have different criteria and conditions for offering loans to NRIs. It is best to check with the lending organization before applying for a loan.
Myth 5: NRIs cannot take out loans jointly with an Indian resident.
Fact: NRIs and resident Indians can jointly apply for a loan in India. Depending on the country in which the NRI is currently residing, the paperwork requirements differ.
Also, if the NRI is the principal borrower, the loan would be treated as an NRI loan. This means the interest payments would be deducted from the NRI’s account.
Myth 6: NRIs cannot invest in stocks or mutual funds.
Fact: NRIs can invest in stocks using their NRE/NRO account that is linked with a Demat account. With your trading account, you can easily invest in stocks in India as an NRI.
NRIs can also invest in mutual funds in India. However, NRIs from the U.S. and Canada have certain restrictions regarding mutual fund investments due to FATCA reporting regulations.
We hope now you have a deeper understanding about important issues concerning NRIs. We suggest reading all policy-related documents carefully before making any decisions to avoid hassles later.
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