Ref: MPML/PMS/100/2008
Date : May 23, 2008
For NRIs, Home Is Where The Investment Should Be...
"The Reserve Bank of India figures on NRO deposits, which it has recently started publishing shows that the inflows under non-resident ordinary (NRO) have more than doubled in FY08 to $1,080 million."
"Even after the tax deduction the net return in the current interest rate regime ends up being higher than that on the other NRI schemes."
Rising Prospects Of Realty & Stocks, Plus Better Interest Rates Prompt Overseas Indians To Keep Money In NRO AccountsNRIS are still buying the India story. Instead of parking funds in repatriable schemes like FCNR (B) and NRE (RA), more money is flowing to nonrepatriable NRO accounts. Even though returns are repatriable, they are tax deducted. Lured by the rising investment options both in real estate and stocks, the Indian diaspora is shunning the repatriable deposits. Instead, they are choosing to keep back and reinvest the capital by investing in NRO accounts. Here, the NRI can choose to take back home the income from his deposits back home.
The Reserve Bank of India figures on NRO deposits, which it has recently started publishing shows that the inflows under non-resident ordinary (NRO) have more than doubled in FY08 to $1,080 million.
While the foreign currency non-resident (banks) or FCNR(B) scheme has seen a net outflow of $1,048 million during the year. Net inflows under non-resident (external) rupee account or NR (E) RA were a paltry $149 million. Though the remittances sent by the Indian diaspora to their relatives back home which is akin to NRO deposits is soaring by the day, the NRO money is largely money in the concerned NRI's custody.
A lot of money, both the remittance as well as the funds, under NRO deposit scheme is believed to be invested in acquiring property and the stock markets, though they are not allowed to use the money in any real estate venture or agriculture activities. A part of the money is also kept as term deposits.
But, what makes NRO more attractive than the other NRI schemes though the redemption proceeds are non-repatriable is that the returns on the deposits are at par with that offered on domestic deposits. Return on the other schemes linked to the London inter-bank offered rate (libor) is much lower. What distinguishes NRO from other NRI schemes is that the redemption proceeds of these deposits are not repartiable, while the maturity proceeds of the other two NRI schemes is repatriable.
However, the current interest income from NRO deposits is repatriable, though it is subject to tax deduction at source. Even after the tax deduction the net return in the current interest rate regime ends up being higher than that on the other NRI schemes.
Moreover, it also permits the account to be held jointly with a relative. It also ends up serving the dual purpose of helping the relative on the one hand as limited withdrawal by the relative are permissible. While on the other hand the NRI can benefit from higher return on his money and take back home the current income from his investments.
Net Inflows through various NRI schemes
FCNR NR(E) RA NRO
(Source: - Economis Times)