Money Management

Budget breakdown, from an NRI perspective

While the corporate sector and capital markets have been understandably happy since the finance minister unveiled the growth-oriented budget, even Indians living abroad have reason to smile. The budget introduced several measures that could alleviate many of the hardships faced by Non-Resident Indians (NRIs) and extend them greater freedom to invest in the country.

The ease of doing business

A big step forward is the authorization to set up sole proprietorships (OPCs) in India. A UCI is a legal person with one person and offers several advantages, such as easier compliances and minimum requirements, even if it enjoys the legal status of a company and obtains the same access to capital.

Until now, only a resident Indian who stayed in the country for more than 182 days in the previous calendar year could set up a OPC. The budget proposed to relax these provisions, reducing the residency limit for an Indian citizen to create a mutual fund from 182 days to 120 days and allowing NRIs to incorporate mutual funds in India.

This move will not only increase the ease of doing business in India, but could also be a boost for startups. Many projects, especially those in the IT industry, need to be managed as a business and not individually. Entrepreneurs will find the OPC route less cumbersome.

No more double taxation on pension funds

Another big reform for the NRI community is the promise to eliminate double taxation of pension funds. When returning to India after retirement, NRIs are often forced to re-pay taxes on their after-tax income earned abroad. In many cases, they are not able to claim a credit for the tax they paid abroad due to a lag in tax periods. Finance Minister Nirmala Sitharaman has pledged to notify rules that will eliminate the double taxation anomaly.


The budget gave real estate a big boost by extending the tax breaks to affordable housing and the tax holiday to projects in this segment of the market. The additional deduction of Rs 1.5 lakh for interest on mortgage loans under Sec 80EEA is now available on loans taken out until March 31, 2022. This deduction is in addition to the deduction of Rs 2 lakh for Section 24 interest. Since mortgage rates have fallen below 7%, this additional deduction represents a golden opportunity for NRIs to invest in real estate in the home country.

The affordable housing segment accounts for over 35% of the total housing supply in major Indian metropolises. Rental yields for low-cost housing are also higher than in other segments.

The extension of the tax holiday for builders will ensure a good supply of housing by developers, thus providing NRIs with good investment options.

Unfulfilled wishes

Although the budget also proposed to alleviate the tax problems of NRIs, some of the longstanding demands remain unfulfilled.

Raising the tax audit limit for NRIs from Rs 5 crore to Rs 10 crore is a welcome step. Even so, the TDS rules continue to be a major problem for NRIs. Resident investors in stocks and mutual funds are not subject to the TDS, but NRIs must pay 15% on short-term gains from stocks and equity funds and even more for gains on debt funds and bonds, gold and real estate. Even long-term gains from property and gold are subject to a 20% TDS.

On bank deposits, NRIs must disburse 30% TDS. Hopefully the government loosens the TDS rules for NRIs, thus encouraging investment in India.