NRI friendly policies in India

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Welcome to another module of Smart Money. Just like the previous module, we’re going to continue our focus on Non-Resident Indians, starting with NRI policies in India. As you know already, over the years, the Indian economy started to grow by leaps and bounds. This has made our country a preferred destination for investments.

And so, to make it easier for our NRI brethren to invest in our ever-growing economy, plenty of Indian government schemes for NRIs were introduced. That’s not all. Many policies were also put in place to cater to the needs of NRI investors. And that’s exactly what we’re going to look at in this chapter. So, here are some of the few NRI friendly policies we have in India.

1. Income repatriation policy

Non-Resident Indians who earn their income overseas tend to invest in Indian government schemes for NRIs and other best investment plans in India for NRIs. The income that is generated from these investments are typically held in special Indian bank accounts.

However, since NRIs are individuals who don’t currently reside in India, they might want to transfer the income generated from these investments back to their country of residence. This transfer is what is termed as repatriation.

Thanks to progressive NRI policies in India, Non-Resident Indians can freely repatriate the income earned by them in India back to the country of their residence without any limits whatsoever. That said, if the income earned by them comes from the sale proceeds of assets, NRIs can freely repatriate up to USD 1 million each financial year, which is still quite high.

2. Portfolio Investment Scheme (PIS)

The Portfolio Investment Scheme (PIS) is one of the most important NRI policies in India. It effectively allows Non-Resident Indians to invest in some of the best investment plans in India for NRIs in the secondary capital markets. Thanks to this policy, NRIs and Persons of Indian Origin (PIOs) can purchase the shares of Indian companies through stock exchanges.

While NRIs are free to invest in any Indian company that’s listed in the stock exchanges, there are certain kinds of companies in which NRI investments are prohibited. That’s not all. Depending on the company and the industry that it operates in, there’s also a maximum ceiling (which is a percentage of the paid up capital of the company) beyond which Non-Resident Indians cannot invest.

That said, despite these limitations, the Portfolio Investment Scheme continues to be one of the most NRI friendly policies in India.

3. Setting up business in India

Being an NRI, if you’re interested in setting up a business here in India, you have some good news coming your way. The Indian government has made it extremely easy for Non-Resident Indians to set up a business in India. That’s not all. They have also been given the freedom to choose the mode of conducting business as well.

For instance, the Companies Act, 2013 permits an NRI to choose between forming a Private Limited Company, a Public Limited Company, or a Limited Liability Partnership (LLP). And as recently as 2021, the Indian government has also allowed NRIs to form a One Person Company (OPC) in addition to the above forms of businesses.

4. Borrowing and lending policies

The Reserve Bank of India has enacted several policy and regulatory changes in a bid to make it easy for NRIs to avail loans and credit facilities from Indian banks. Currently, there are absolutely no restrictions with regard to an NRIs ability to avail a loan from an Indian bank, although they may be asked to put up a collateral.

That’s not all. According to RBI guidelines, an NRI can freely avail overdraft facilities from their NRE and NRO bank accounts by securing their fixed deposits as collateral. Also, there’s no limit on the amount of loan that can be availed by them as well.

Additionally, they can also lend money to a resident Indian for a tenure of less than 3 years and for an interest rate of up to 2% above the prevailing bank rates. Thanks to these kinds of NRI policies in India, Non-Resident Indians can finally turn towards Peer-to-Peer lending as a means to put their idle money to good use.

Wrapping up

As you can see from the above, there are plenty of NRI friendly policies in India that you can make use of. Now that you’re done with this chapter, check the next video to learn more about some of the best investment plans in India for NRIs. Once you’re done with the video, head on over to the next chapter to learn about some of the key tax laws that Non-Resident Indians such as yourselves should keep in mind.

A quick recap

  • Non-Resident Indians can freely repatriate the income earned by them in India back to the country of their residence without any limits whatsoever. 
  • The Portfolio Investment Scheme (PIS) is one of the most important NRI policies in India. It effectively allows Non-Resident Indians to invest in some of the best investment plans in India for NRIs in the secondary capital markets. 
  • The Companies Act, 2013 permits an NRI to choose between forming a Private Limited Company, a Public Limited Company, or a Limited Liability Partnership (LLP). 
  • An NRI can freely avail overdraft facilities from their NRE and NRO bank accounts by securing their fixed deposits as collateral. Also, there’s no limit on the amount of loan that can be availed by them as well.

FAQs

1. What does ‘repatriation of funds’ mean?

Repatriation is the process by which money in foreign currency is transferred to the home country. For instance, when an NRI moves money from their NRO account to a bank account in their home country, it is an example of repatriation of funds.

2. What is a One Person Company (OPC)? Can NRIs set up OPCs in India?

A One Person Company is exactly what it sounds like. It is a company that has just one single person as a shareholder. The Indian government recently allowed NRIs to form One Person Companies (OPCs) in India. This is in addition to the other forms of businesses that NRIs can set up in their home country, such as Private Limited Companies, Public Limited Companies, or Limited Liability Partnerships (LLPs).

3. Can an NRI borrow money from an Indian bank?

The Reserve Bank of India has enacted several policy and regulatory changes in a bid to make it easy for NRIs to avail loans and credit facilities from Indian banks. Currently, there are absolutely no restrictions with regard to an NRIs ability to avail a loan from an Indian bank, although they may be asked to put up a collateral.

That’s not all. According to RBI guidelines, an NRI can freely avail overdraft facilities from their NRE and NRO bank accounts by securing their fixed deposits as collateral. Also, there’s no limit on the amount of loan that can be availed by them as well.

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