NRI Wealth Advisory

NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts are both governed by the Foreign Exchange Management (Deposit) Regulations 2016 notified under FEMA. An NRE account holds foreign earnings converted to INR — the principal and interest are freely repatriable, and interest income is exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act 1961. An NRO account holds India-source income (rent, dividends, pension) — it is rupee-denominated, repatriation is capped at USD 1 million per year under FEMA Notification No. 13(R), and interest is taxable in India at 30% plus surcharge and cess under Section 115G. For foreign salary remittances that you want to keep freely repatriable and tax-free, use an NRE account; for collecting Indian-source income, the NRO account is mandatory.

NRIs can invest in listed Indian equities and mutual funds under the Portfolio Investment Scheme (PIS) route approved by their designated bank under Schedule 2 of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019. Gains on equity shares and equity-oriented mutual funds held for more than 12 months are Long-Term Capital Gains taxable at 12.5% under Section 112A of the Income Tax Act 1961 (as amended by Finance Act 2024) on gains exceeding ₹1.25 lakh per year. Short-Term Capital Gains on equity instruments sold within 12 months are taxed at 20% under Section 111A. The mutual fund or broker will deduct TDS at the applicable rate before crediting redemption proceeds; you should verify these credits in Form 26AS and claim any excess TDS as refund in your India return.

The Liberalised Remittance Scheme (LRS) is available only to persons resident in India as defined under Section 2(v) of FEMA 1999 — NRIs who are resident outside India are not eligible to use LRS for outward remittances. If you are an NRI, your outward remittances from India-held funds are governed by separate FEMA regulations (specifically FEMA Notification No. 13(R) for remittances from NRO accounts). However, if you are in India on a visit and are temporarily classified as a resident for the financial year, LRS may become applicable, and the current annual cap is USD 2,50,000 per individual per financial year as set by RBI Master Direction on LRS (Updated 2023). Your CA must assess your residency status each year before advising on the applicable outward remittance route.

On becoming a Resident Indian as determined under Section 6 of the Income Tax Act 1961, you must convert your NRE and NRO accounts to Resident Foreign Currency (RFC) accounts or resident savings accounts within a reasonable period, as required under Regulation 4 of the Foreign Exchange Management (Deposit) Regulations 2016. RFC accounts allow you to hold foreign currency balances earned during your NRI period and are freely repatriable. Interest earned on RFC accounts is exempt from tax while you retain RNOR (Resident but Not Ordinarily Resident) status, which typically lasts two to three financial years after return. During the RNOR period under Section 6(6), foreign income (income earned and received outside India) remains exempt; however, Indian-source income is fully taxable, so early planning around the timing of asset liquidations is essential.

Gifts received from specified relatives are exempt from income tax regardless of amount under Section 56(2)(x) of the Income Tax Act 1961, and 'relative' includes parents. Therefore, a gift of money or property from your NRI parents to you is not taxable in your hands. From the FEMA side, your NRI parent may remit gifts to a close relative who is a resident Indian under Schedule III of the Foreign Exchange Management (Remittance of Assets) Regulations 2016, within the overall cap applicable. However, income subsequently earned on the gifted amount in your hands will be taxable as normal income; if assets are gifted, the cost of acquisition for your future capital gains computation will be the original cost in the hands of your parent under Section 49(1) of the Income Tax Act 1961. Proper documentation of the gift deed and inward remittance advice should be retained for FEMA and income tax record purposes.