Various definitions of an Non-Resident Indian (NRI)
As per Income Tax:
Based on the number of days of stay in India.
As per FEMA:
Based on the number of days of residing and the conduct intention of the person.
Eligibility for Overseas Citizen of India. (OCI):
Based on conclusive tests for claiming OCI eligibility.
As per Citizenship:
Based on Citizenship Act.
Who is an NRI for Banking & Investment purposes?
As per FEMA (Foreign Exchange Management Act), a person RESIDENT IN INDIA is:
A person residing in India for more than 182 days during the course of preceding financial year but does not include
- i) A person who has gone out of India or who stays outside India, in either case
- for or on taking up employment outside India; or
- for carrying on a business or vocation outside India; or
- for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
- ii) A person who has come to or stay in India, in either case, otherwise than –
- for or on taking up employment inside India; or
- for carrying on business or vocation in India, or
- for any other purpose in such circumstances as would indicate his intention to stay in India for an uncertain period.
Banking Regulations for NRI:
- NRI are not allowed to keep Resident Indian savings account in India under FEMA.
- Either the resident savings account is to be closed or converted in NRO account.
TYPES OF BANK ACCOUNT:
- NRO Account
- NRE Account
- FCNR Account
- RFC Account
NRO Account (Non Resident Ordinary Account):
- Non repatriable rupee account.
- When Resident Indian becomes NRI his existing account changes to NRO banks need to be informed.
- Credits and debits of Non repatriable funds.
- The income from the account is taxable under Income Tax.
- Joint account with another NRI OCI or with resident can be opened.
- Loan available against this account in Indian Rupees.
NRE Account (Non Resident External Account):
- Remittance from abroad or other NRE or FCNR Accounts.
- Balance held in rupees but are repatriable.
- Proceeds on maturity of repatriable assets can be credited.
- Foreign exchange can be credited by NRI himself.
- The income from the account is exempted from Income Tax.
- Loan can be availed against the balances in this account, in Indian Rupees.
- Joint account with another NRI/OCI or with resident relative can be opened.
FCNR Account (Foreign Currency Non Resident Account):
- Deposits in specified foreign currencies (Savings bank account not available).
- Different Interest rates for holding deposits in different currency. Swap between currencies possible.
- Transfer to NRE and vice versa possible.
- The income from the account is exempted from Income Tax.
- Loan can be availed against the balances in this account, in Indian Rupees and
specified foreign currency. - Joint account with another NRI OCI or with resident relative can be opened.
RFC Account (Resident Foreign Currency Account):
- This account can be maintained in form of savings bank account as well as term deposits by returning NRIs.
- There is no maximum time limit for holding RFC savings bank account and term deposits.
- This account can be opened and maintained in any convertible foreign currency.
- Loan not available against this account.
- Credits of foreign exchange assets, NRE FCNR balances.
Management of Assets (Movable & Immovable) by Power of Attorney for NRI
For Movable Assets:
- Should be notarised in India or Abroad.
- Shouldbe stamped as per local Stamp Act, in Gujarat, it is Rs 300.
Important clauses of POA to manage Movable Assets:
- To carry out all the operations of Depository Account including instruction for debit credit to the demat account.
- To carry out operation of Government supported savings schemes with specific mention of names.
- To carry out the affairs of a Hindu Undivided Family HUF where the NRI is the Karta of his HUF.
- To carry out the affairs of Partnership or Proprietorship Concern.
- To carry out functions as a Director of a Company.
- To make and accept all claims under a WILL or under succession.
- To encash fixed deposits even before maturity and close bank accounts (subject to acceptance by the bank).
- POA can be for a limited period The period should be clearly.
- stated in the POA document.
For Immovable Assets:
The procedure for transfer of Immovable Assets with a POA in the state of Gujarat is notified by the the above circular. Following is the analysis of the same.
- All POA for management or transfer of immovable assets have to be stamped and registered.
- It can be for a limited or unlimited period If the period is limited, it has to be clearly stated in the POA.
- POA giver and/or receiver can be in or outside India. Different compliances to be followed have been stated in the following slides.
Where POA giver – receiver both are in India:
- The POA should be registered with the jurisdictional sub registrar office where the property is located.
- The POA can be registered with any sub registrar office in Gujarat/anywhere in India if the POA giver is suffering from illness , employment at distant location, working with armed forces , serving prison sentence , etc.
- A sub registrar which does not have jurisdiction over the immovable asset shall not register such POA unless the document of POA contains the objects/reasons why the POA is registered with sub registrar other than the jurisdictional sub registrar.
- Where POA has been registered at any registrar office other than the sub registrar where the property is located the sub registrar registering the transfer of property on the basis of the POA shall verify the correctness of the POA.
- Differential stamp duty needs to be paid if the POA is executed outside Gujarat and the stamp duty in Gujarat is more.
Where the owner of immovable asset is out of India and intends to transfer the asset in India:
- The owner of the immovable asset himself/herself signs the sale document in and a POA to present the sale document and confirms the signature of the seller who has signed the sale document outside India
- The sale document and POA should be signed before the Notary Public or Judge or Magistrate or Indian Consul or Vice Consul.
- Stamp duty needs to be paid if the POA is executed outside India without payment of stamp duty.
Where the POA giver is outside India and receiver is in or outside India:
- POA should contain reasons why the same is signed outside India It should be signed before the Notary Public, Judge, Magistrate, Indian Consulate or Vice Consulate.
- The POA should be produced before the stamp duty authorities within the stipulated time limit (90 days after receipt in India), for affixing appropriate stamp duty on it. The date on envelop shall be considered as the date of receipt in India.
- The POA should be produced within the stipulated time limit before the jurisdictional sub registrar for registration. The jurisdictional Registrar shall seek confirmation about the signature of the POA giver and register the POA.
- It is advisable to give a Letter of Authority to a lawyer, to represent the parties before authorities in India where the POA giver and receiver have signed the POA outside India If the POA receiver is in India he/she needs to be present before the jurisdictional Sub Registrar for registration.
Where the POA is executed outside Gujarat in respect of immovable property located in Gujarat:
- The same process as stated above has to be followed as in the case where the POA giver is outside India However, the difference of stamp duty between the amount payable in Gujarat and amount paid outside Gujarat, has to be paid.
Stamp Duty on POA:
- Appropriate stamp duty has to be paid, which is Rs 300 for POA in Gujarat to close relatives ( mother, brother, sister, wife, husband, son, daughter, grandson, granddaughter)
- When POA given to any person other than close relative market value based stamp duty will be liable on the POA.
Transfer of funds from NRO A/c to NRE A/c and repatriation of funds out of India
NRI can avail the benefit of transferring funds (other than borrowed funds) from NRO A/c to the extent of US 1 million (since 2005 per person per year to NRE A/c or out of India).
Requirements:
- Taxes due on funds supposed to be transferred should be paid.
- Simple procedure has to be followed for the transfer. The funds shall not be from any borrowed sources or from transfers from any other NRO accounts.
- Where the remittance is made in more than one instalment, the remittance of all instalments shall be made through the same authorised dealer (bank).
A person who desires to make a remittance of assets exceeding USD 1 000 000 (US Dollar One million only) per financial year in the following cases, may apply to the Reserve Bank if the remittance is:
- On account of legacy bequest or inheritance to a citizen of foreign state resident outside India and;
- By a Non Resident Indian NRI or Person of Indian Origin PIO out of the balances held in NRO accounts/ sale proceeds of assets/ the assets acquired by way of inheritance/ legacy.
- The Remitter shall have to prove that hardship will be caused to such a person if remittance from India is not made.
Advantages of Fund Transfer from NRO A/c to NRE A/c or outside India:
- NRE Account Interest is Tax Free.
- TDS would not be applicable on the interest income from NRE Account.
- The balances in the NRE Account are fully repatriable to the country of residence without any limits and formalities.
- Repatriation can be done at the ease of Account holder to avail the benefit of comfortable exchange rate.
The circular of Government for transfer of funds from NRO to NRE or abroad is just relaxation given to NRI. It is not an obligation of the government to allow such transfer. However, the transfer of money from NRE to abroad is an obligation of the government.
Repatriation of Current Incomes:
- As per section 5 of FEMA, any person can enter into Current Account transactions (as defined under section 2 ( without seeking any prior approvals, unless restricted by RBI.
- Therefore, there is no limit (Of 1 million or any limit) up to which Current incomes ( interest, business profession income, etc can be transferred directly outside India or from NRO to NRE bank account by an NRI.
- Appropriate taxes must have been paid or deducted from such incomes to execute the transfer.
Inbound Investments by NRI
Investment in Proprietorship/Partnership Firm
Foreign Exchange Management (Non debt Instruments) Rules, 2019 SCHEDULE IV.
- Investment in Proprietorship/Partnership can be by NRI or OCI Proprietorship refers to any business activity in individual capacity.
- Capital contribution without any limit.
- Business of Proprietorship/Partnership should not be into prohibited sectors such as agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights Real estate development activity is permitted.
- The NRI cannot engage in any of the prohibited sector business activity stated above even after seeking RBI approval.
- Investment through NRE NRO FCNR Direct Remittance.
- Amount invested and the capital appreciation thereon to be credited in NRO A/c.
Bank Accounts by NRI for Proprietorship Business SNRR Account (Special Non Resident Rupee Account):
- This account can be maintained by any person who is a Non Resident under FEMA (other than Pakistan and Bangladesh nationals) having business interest in India.
- This account is a rupee denominated non interest bearing account which is repatriable, but transfers from NRO account are prohibited.
- There shall not be any term for holding this account if it is opened in accordance with the RBI guidelines.
- The SNRR account shall be used only for the specific business for which it is in operation.
- The amounts shall be credited to the NRO/NRE account of the nominee of the death of account holder.
Investment in LLP by NRI
NRI as Designated Partner of an Indian LLP.
- As per Section 7 of the LLP Act, 2008 every LLP shall have at least one designated partner who has stayed in India for a total period of not less than 182 days in the previous calendar year.
- Therefore, one or more NRI can become a partner/s in any Indian LLP provided there is at least one designated partner.
- There are no restrictions on acceptance of deposits by the LLP from its partners.
Foreign Exchange Management (Non debt Instruments) Rules, 2019 SCHEDULE IV:
- Investment in LLP can be by NRI or OCI.
- Capital contribution without any limit.
- Business of LLP should not be into prohibited sectors such as agricultural/plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights Real estate development activity is permitted.
- Investment through NRO FCNR Remittance.
- Disinvestments receipts from LLP to be credited in NRO bank account.
- Investment in LLP can be done by any NRI or OCI at a value not less than the FMV of the share in the firm.
- LLP should be in business activities, where FDI up to 100 percent is permitted under automatic route In sectors/activities not listed in the FDI policy, FDI is permitted up to 100 under the automatic route, subject to applicable laws/regulations.
- No restriction on Capital Contribution subject go conditions of LLP Act.
- Investments through Remittance/NRE/FCNR bank account
- Disinvestments receipts from LLP can be remitted out of India or can be credited in NRE FCNR bank account.
Taxation of Limited Liability Partnerships:
- The incomes can be distributed in form of interest on capital (max. 12 % p. and remuneration to some or all the partners. Such distributions will become the incomes of the respective partners taxable at normal slab rates of income.
- The balance income of the firm will be taxable at a rate of 31.2 % (including cess ) and surcharge at 12 % if the income crosses 1 crore.
- The income distributed after such payment of tax will be tax free in the hands of partners as per their respective profit sharing ratio.
Investment in Unlisted Companies by NRI Non Repatriation basis
Foreign Exchange Management (Non debt Instruments) Rules, 2019 SCHEDULE IV:
- Investment in Indian companies can be by NRI or OCI’.
- Companies should be in business activities, which are under automatic route of FDI or after appropriate approvals.
- Investment through Remittance/NRE/FCNR/NRO and shall not be allowed to be repatriated abroad.
- Disinvestments receipts from shares to be credited in NRO A/c.
- Investment in Indian companies can be done by any NRI or OCI.
- No restriction on Capital= Contribution subject to conditions of the Companies Act Companies should be in business activities, which are under automatic route of FDI or after appropriate approvals.
- Investments through Remittance/NRE/FCNR A/c.
- Disinvestments receipts from Indian companies can be remitted out of India or can be credited in NRE A/c.
NRI as Director of an Indian company:
- As per Section 149 3 of the Companies Act, 2013 every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
- Therefore, one or more NRI can become a director/s in any Indian company provided there is at least one resident director.
Taxation of Companies:
- The incomes can be distributed in form of interest on deposits and director remuneration to the partners. Such distributions will become the incomes of the respective partners taxable at normal slab rates of income.
- The balance income of the firm will be taxable at an effective tax rate of 26% under the old regime and at an effective tax rate of 25.17 under the new regime u/s 115BAA (with applicable conditions).
- Surcharge at 7% if the income crosses Rs.1 crore and 12% if the income crosses Rs.10 crores will be applicable on the tax liability.
- The income distributed after such payment of tax in form of dividend will be taxable in the hands of partners as per normal slab rates.
Loans by NRI/OCI to Resident Indians
On Repatriable Basis in Foreign Currency:
As per the above mentioned RBI Regulation, Loan can be given by NRI/OCI to their close relative in Foreign Currency subject to below mentioned condition:
- The amount of the loan should not exceed US 250 000.
- Loans can be from remittances, NRE, FCNR A/cs in Foreign Currency.
- Minimum maturity period of loan is 1 Year.
- Loan is free of interest.
On Non Repatriable Basis in Indian Rupees:
As per the above mentioned RBI Regulation, Loan can be given by NRI/OCI to their Resident Individual in INR subject to below mentioned condition:
- Loans can be from remittances, NRO, NRE, FCNR A/cs.
- Loan period not to exceed 3 years.
- Rate of Interest not to exceed 2 over the Bank Rate (Repo Rate).
On Non Repatriable Basis in Indian Rupees to Indian proprietorship concern/ partnership firm or company on non repatriation basis from NRI:
Deposit and repayment to and from NRO A/c
- The maturity period of deposit shall not exceed 3 years
and has to be repaid within 3 years. - The rate of interest payable on deposits shall not exceed the ceiling rate prescribed under Companies Act.
- There are a lot of regulatory restrictions on acceptance of deposits from NRI on repatriable basis (through NRE bank A/c). Therefore, it is advisable to accept deposits from NRI on non repatriable basis (through NRO bank A/c).
- The funds will flow from and back to the NRO bank A/c of the NRI in India.
- Any business concern accepting deposits from NRI shall not exceed the rate prescribed under Companies (Acceptance of Deposits) Rules, 2014
- As per the above Company Law regulation, the interest on deposit cannot exceed maximum rate of interest or brokerage prescribed by the Reserve Bank of India for acceptance of deposits by non banking financial companies.
- The deposit shall not be utilized for relending or for undertaking agricultural/ plantation activities or real estate business or for investing in any other concern or firm or company engaged in such activity.
Maximum limit of acceptance of deposits by companies as per Companies Act, 2013:
- As per section 73 of the Companies Act, 2013, the company can accept deposits from its directors and their relatives * without any limit.
- Deposits from members can also be accepted up to 100% percent of aggregate of the paid up share capital , free reserves and Securities Premium account
- The deposits should not be from borrowed funds.
- So, a private company can accept money from NRI directors & their relatives without any upper limit and from members of the company up to the specified limits if the conditions are met. Loan from any other party is strictly prohibited.
Loans from banks against security of funds held in the NRO/NRE bank account to NRI or to third parties:
- Loans against NRO/NRE fixed deposits can be availed in rupees to NRI or any other person in India.
- The loan funds shall be utilized only in India for personal requirements or business purpose and not for carrying on agricultural/ plantation activities or real estate business or for relending.
- Loans against NRE deposits can also be used by the depositor for acquiring flat/house in India for his own residential use.
- There should be no direct or indirect foreign exchange consideration (monetary benefit) to the NRI agreeing to pledge his deposits with the to enable the resident individual/ firm/ company to obtain such facilities.
- Corresponding branches of banks in foreign countries can lend loans against security of deposits in NRE/NRO account in India, provided advances are fully secured by the fixed deposits and as per the regulations prescribed.
Gifts by NRI/OCI to Residents in India
Implications under FEMA, 1999:
- NRI/OCI can gift to Resident from their NRO NRE account, by remittance, in India
- However, the POA holder is not authorised to sign the cheque for the transaction relating to gift. Cheque is to be signed by the account holder only.
- NRI/OCI can even gift cash to Residents (Sec 9 FEMA) Resident cannot retain currency more than US 2000 or equivalent.
Implication under the Income Tax Act, 1961:
- There is no gift tax in India. However, gift is taxable in the hands of recipient in certain conditions.
- The amount of gifts in aggregate is in excess of Rs 50 000 per financial year.
- If the amount of gift exceeds Rs 50 000 entire amount is taxable under the head “Income from other sources”.
- The exceptions to it is, gifts received from relatives (as defined under the Income Tax Act Sec 56 (2) is exempted.
- Section 56 & 68 are independent in operation.
- Though the gift is exempted under Section 56 Section 68 of Income Tax act, has still to be satisfied.
- As per Section 68 ,,“any sum of fund is credited in the books of assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in opinion of the Assessing officer satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year.
- An assessee is required to prove the below mentioned details from whom gift is received
- Identity of the person
- Creditworthiness of the person
- Genuineness of the transaction
- The documents required to prove the above mentioned details vary from case to case basis
Cash carrying limits in foreign currency
- Any person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of foreign currency exceeds USD 5,000, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.
- Resident travellers going to all countries are allowed to purchase foreign currency notes / coins only up to USD 3000 per visit. Balance amount can be carried in the form of store value cards, travellers cheque or banker’s draft.
- A person resident in India shall retain foreign currency notes, bank notes and foreign currency traveller’s cheques not exceeding US$ 2000 or its equivalent in aggregate. (Circular No.47/2015-16[(1)/11(R)])
PPF & NRI
- NRI are not allowed to open PPF account in India.
- If the PPF account is opened as resident status and later became NRI they are allowed to make contribution to the account and continue that account up to maturity.
- On Maturity the NRI have to compulsorily close the account. The maturity receipts will get credited to NRO bank account.
- The income generated (interest income) from PPF investment is fully Tax Free. These incomes are liable to tax in respective foreign country.
AADHAAR & NRI
Under the AADHAAR (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act 2016:
- Resident means an individual (any nationality) who has resided in India for a period or periods amounting in all to 182 days or more in 12 months immediately preceding the date of application for enrolment.
Under Sec 139 AA Subsequent notification, all PAN Card holders, who are NRI under the Income Tax Act 1961 are:
- Supposed to link their AADHAAR Card with PAN, if they hold the AADHAAR Card.
- If they do not hold the AADHAAR Card, they are exempted from the requirement of linking it with the PAN Card of Income Tax.
- As per AADHAAR Act, NRI OCI are not eligible to obtain AADHAAR Card, hence are fully exempted to produce AADHAAR for any verification.
FEMA & RBI Regulations on Transmission of Assets
- In case of transmission of any asset (transfer after death of the owner) other than immovable property, the rules shall be checked from the viewpoint of the successor.
- When the successor of the asset is an NRI, he/she shall be entitled to transmission in the same manner, terms conditions as he/she is entitled to invest in that type of asset.
- For eg. when the NRI is unable to invest in a particular company due sectoral caps on repatriable basis the transmission of shares of that company will not take place to any NRI on such terms.
Penalty for contraventions by NRI under FEMA
General Penalty under FEMA:
Under section 13 of FEMA,
If any person contravenes any provision of this Act/rule regulation/notification/direction/order issued/any condition subject to which an authorisation is issued by the Reserve Bank, he shall,
- be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable
- or up to two lakh rupees where the amount is not quantifiable ,
- and where such contravention is a continuing one , further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.
Prosecution (Criminal proceedings) under FEMA:
Under section 13 (1C) of FEMA,
If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding Rs. 1 Crore (F. No. A 12011/02/2014 Ad.ED), he shall:
- be, in addition to the penalty be punishable with imprisonment for a term which may extend to five years and with fine.
- Therefore, there are no prosecution provisions for NRI under FEMA other than the above stated provision.
Arrest for investigation under FEMA:
Under section 14 (3) & 14 (4) of FEMA,
- An arrest warrant may be issued if any defaulter fails to pay the penalty as may be levied within the specified date.
- It may also be issued if the Adjudicating Authority is satisfied, that the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.
- Where appearance is not made pursuant to a notice issued and served , the Adjudicating Authority may issue an arrest warrant for the defaulter.
Regulation on transfer of Immovable Assets by NRI
NRI intending to SELL any immovable property
Foreign Exchange Management (Non-debt Instruments) Rules, 2019 CHAPTER IX
NRI intending to PURCHASE any immovable property
Foreign Exchange Management (Non-debt Instruments) Rules, 2019 CHAPTER IX
Joint acquisition of NRI/OCI with spouse who is a foreign citizen not of Indian origin
- A foreign citizen not of Indian origin, who is a spouse of an NRI/OCI can acquire one immovable property in India (other than agricultural land or farm house or plantation property) jointly with the spouse in India.
- The marriage should have subsisted for at least two years immediately preceding the acquisition of such property.
- The funds for the acquisition can be through NRO/NRE bank account of the NRI/OCI or from direct remittances received from abroad.
NRI intending to INHERIT any immovable property
Foreign Exchange Management (Non-debt Instruments) Rules, 2019 CHAPTER IX
- Various definitions of an Non-Resident Indian (NRI)
- Management of Assets (Movable & Immovable) by Power of Attorney for NRI
- Transfer of funds from NRO A/c to NRE A/c and repatriation of funds out of India
- Inbound Investments by NRI
- Loans by NRI/OCI to Resident Indians
- Gifts by NRI/OCI to Residents in India
