To be or not to be….. Presentation on Non resident Indians

Institute of Chartered Accountants of India Dahisar Study Circle Presentation by : CA. Sudha G. Bhushan

Definition Regulators Relevant definition Deposits Investment

By : CA. Sudha G. Bhushan

Regulators Re

gula

tors

Reserve Bank of India

Securities and Exchange Board of

India

Authority for Advance Ruling

Secretariat for Industrial Assistance

Foreign Investment Implementation

authority

Person resident in India Section 2(v) of FEMA

Person resident outside India “person resident outside India” means a

person who is not resident in India; [As per FEMA Sec 2(w)]

A person (Individual) resident in India

A person (being an individual) residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include

(A) A person who has gone out of India or who stays outside

India, in either case— (a)for or on taking up employment outside India, or (b)for carrying on outside India a business or vocation outside India, or (c)for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) A person who has come to or stays in India, in either case, otherwise than—

(a) for or on taking up employment in India, (b) for carrying on in India a business or

vocation in India, (c) for any other purpose, in such

circumstances as would indicate his intention to stay in India for an uncertain period;

Two Conditions must-Resident He should be residing in India for at least 183 days during the preceding financial year

He should have come to India or is staying in India either for

taking up employment or carrying on business or vocation in India or for any other purpose, that would indicate his

intention to stay in India for an uncertain period.

An Example Mr. Paul came to India on 1 Sep 07 for

taking up an employment in India.

Financial Year 2006-07 Financial Year 2007-08

For the Financial Year 2006-2007, he was not in India. As such, for the financial year 2007-2008 he is not resident of India.

For the Financial Year 2007-2008, he was in

India for more than 182 days. As such, he is resident of India for the financial year 2008-2009.

An Example Mr. Eberhardt came to India on 1 Sep 07

as a tourist and since then he is in India till today.

For the Financial Year 2006-2007, he was not in India. As such, for the financial year 2007-2008 he is not resident of India.

For the Financial Year 2007-2008, he was in India for more than 182 days. However, he is not in India for any of the purposes listed in the second condition. As such, he is not a resident of India for the financial year 2008-2009 too.

An Example Mr. Ashok, born and brought up in India,

goes to the USA for taking up an employment on 15-5-2007. Determine his residential status under the Act for the F.Y. 2007-2008.

An Example Mr. Bharat, born and brought up in India,

goes to USA on 10-4-2007 to look after his mother, who is suffering from a chronic disease , with the intention to stay in the USA till his mother recovers. Determine his residential status under the Act for the financial year 2007-2008 and 2008-2009.

Mr. Ashok shall be treated a Resident of India till 14-5-2007. With effect from 15-5-2007, he shall be treated a Non-Resident as he is covered by one of the exceptions listed in sub-clause (A) to section 2(v).

An Example Mr. Bharat is going to USA (on 10.04.07) neither for

employment nor for business nor for any purposes which indicate his intention to stay there for an uncertain period. Thus, his physical presence in India during the preceding F. Y.; i.e., 2006-2007 shall have to be considered and as he was in India for 365 days during the F. Y. 2006-2007 he would be treated Resident of India for the financial year 2007-2008.

If he continues to stay in USA, say, till 31-3-2009, his stay in India during the preceding financial year; i.e., 2007-2008 would be less than 183 days and hence he would be treated Non-Resident for the financial year 2008-2009 as the first condition of the physical stay in India is not fulfilled.

Not Permanently Resident Means a person resident in India for the

employment of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed three years.

Not Permanently Resident (NPR)- Facilities enjoyed Remittance for maintenance of close

relatives abroad, exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions).

Can acquire or sale any foreign security without any

procedures or formalities or permission out of his foreign currency resources outside India

He can possess without limit, foreign currency in the

form of currency notes, bank notes and traveller’s cheques, if such foreign currency was acquired, held or owned by him when he was resident outside India and has been brought into India in accordance with the regulations made under the Act.

Restrictions on dealing in Foreign Exchange Section 3 of FEMA provides for a blanket

restriction on dealing in foreign exchange by any person unless it is permitted Under the provisions of the Act Under the provisions of the Rules made

under the Act Under the provisions of the Regulations

framed under the Act By General or special permission of RBI

Restrictions on dealing in Foreign Exchange Clause (a) prohibits any person To deal in foreign exchange or foreign

security To transfer any foreign exchange security to

any person other than an authorised person. Clause (b) prohibits every person for making

any payment to or to the credit of a person resident outside India in any manner.

Illustrations: Restrictions on dealing in Foreign Exchange (1) Can Mr. Pandya, a resident of Canada,

instruct his brother staying in Mumbai to make a payment of Rs. 5,000 to Mr. Joshi, his close friend.

Ans: No. Such payment is not permitted under clause (b) of section 3 of the Act

(2) Mr. Rakesh, a resident of UK asks his Chartered Accountant in India to form a Pvt. Ltd. Co. and proposes to reimburse all the expenses after the formation of the company. Whether, the Indian Chartered Accountant, can spend for the above purpose on behalf of Mr. Rakesh ?

Ans: No, as such payment is not permitted under clause (b) of section 3 of the Act.

Restrictions on dealing in Foreign Exchange Clause (c) prohibits every person for

receiving any payment from or on behalf of a person resident outside India except by way of an inward remittance, from a place outside India through an authorised person.

Clause (d) prohibits a person to enter into any financial transaction in India as consideration for acquisition, creation or transfer of a right to acquire any asset outside India by any person. The clause would affect a transaction in the nature of “Hawala Transaction”.

Restrictions on Indian Resident Section 4 provides for a blanket

prohibition on a person resident in India to acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India except as permitted under the Act, Rules or Regulations made thereunder

Exceptions to section 4…..

Exceptions to section 4….. Section 6(4) of the Act permits a person resident in

India to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person resident outside India.

Illustration Mr. Patel, who was resident of USA for many years,

now permanently returns to India . He continues to hold some immovable property, foreign security and other foreign exchange assets in USA. Can he hold such assets outside India?

Bank Accounts The FEM ( Deposit) Regulations, 2000

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Rupee Account

Foreign Currency Account

By : CA. Sudha G. Bhushan

Rupee Account Non resident (External) Rupee Accounts

(NRE Accounts) Ordinary Non resident Rupee Account

(NRO Accounts)

By : CA. Sudha G. Bhushan

Difference between NRO NRE Accounts Interest rate on NRO account is much

higher than NRE account. NRE accounts are tax free whereas NRO

accounts are not. Up to a Million Dollars is repatriable in NRO

Account.

General Permissions

Resident individuals, partnership/proprietorship can avail interest bearing rupee loans from NRIs/PIOs out of funds remitted by them from abroad or out of funds held in their bank accounts in India, on non repatriation basis.

NRIs/PIOs to transfer by way of gift shares held by them in Indian companies and

to transfer by way of gift immovable property held by them in India subject to

compliance with other applicable rules/regulations including the provisions of Foreign Contribution Regulations Act, 1976

by the charitable trust/organisation concerned.

Domestic public/private sector mutual funds can issue Units to NRIs/PIOs on both

repatriation as well as non-repatriation basis

NRIs/PIOs to place deposits with Indian firms, on non-repatriation basis and with Indian companies including Non-banking financial companies on non-repatriation basis out of domestic sources.

NRIs/PIOs for sale of shares acquired under direct

investment Schemes on stock exchanges in India.

NRIs/PIOs for sale of shares acquired under direct

investment Schemes on stock exchanges in India.

NRIs /PIOs for transfer of shares, by way of sale under private

arrangement to another NRI or to a resident

Investment Opportunities

Investment in Immovable Property

Investment in Proprietary and Partnership Firm

Portfolio Investment (PIS)

Foreign Direct Investment (FDI)

Lending in Rupees

Lending in Foreign Currencies (ECB)

CA Sudha G. Bhushan

Investment in Immovable Property (IP) in India

NRI who is either a citizen of India or a Person of Indian Origin can purchase or sell IP in India under automatic route.

A citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan cannot acquire IP in India other than lease not exceeding 5 years.

Citizen of foreign countries who are not PIO cannot acquire any IP in India without RBI Permission.

Permitted Immovable Property can be residential or commercial other than an agricultural property, plantation, or a farm house.

CA. Sudha G. Bhushan

Repatriation of sale proceeds Sale of IP other than agricultural land/farm house

/plantation property in India -repatriation of the sale proceeds permitted subject to conditions as under: The IP was acquired as per Exchange Laws The amount to be repatriated does not exceed the

original amount invested (i.e. capital gain if any cannot be repatriated).

In case of residential houses, the repatriation is restricted to two such houses.

US$ 1 million scheme-for IP held in India

Investment in Firm or Proprietary Concern

Permitted to NRIs/PIOs PIOs who are not citizen of Bangladesh,

Pakistan or Sri Lanka Firm should not undertake- Print Media,

Agricultural/ Plantation & dealing in land and immovable property

Capital invested cannot be repatriated Income can however be repatriated

Foreign Direct Investment FEMA 20/2000

Sectors/activities where FDI is prohibited.

Approval from Govt.- Approval Route

Automatic Route of RBI

Direct Investment

Portfolio Investment

India

Repatriation Basis

Non repatriation Basis

CA Sudha G. Bhushan

Foreign Direct Investment Investment in Capital - equity, preference,

convertible preference, Convertible debentures. Automatic Route Government Approval Route Investment on repatriation basis- sale proceeds net

of taxes eligible for repatriation out of India

FE(Transfer or issue of security by a person resident outside India)regulations, 2000 Schedule III Purchase/sale of shares and /or convertible debentures by a NRI on a stock exchange in India on repatriation and/or non repatriation basis under portfolio investment Scheme

Schedule IV Purchase and sale of Shares/convertible debentures by a NRI on non repatriation basis

CA Sudha G. Bhushan

Portfolio Investment by NRIs Limit of 5% by single NRI, 10% by all NRIs (can be

increased to 24%) to be maintained Payment to come from NRE/FCNR or NRO (in case

of non repatriable investment) Delivery based purchase and sale permitted OCBs are not permitted after 29/11/2001 to invest in

PIS

Schedule IV

Chit Fund or a Nidhi company or

Agricultural/plantation activities or real estate

business or construction of farm houses or dealing in

Transfer of Development Rights.

real estate business shall not include development of

township, construction of residential/

commercial premises, roads, bridges, etc.

by way of inward remittance through

normal banking channels or out of

funds held in NRE/FCNR /NRO

account maintained with an authorised

dealer

The amount invested in shares or convertible debentures under this

Scheme and the capital appreciation thereon shall not be

allowed to be repatriated abroad.

Business of chit fund, or ii) Nidhi company, or iii) Agricultural or plantation activities, or iv) Real estate business* or construction of farm

houses, or v) Trading in Transferable Development Rights (TDRs).

* Real estate business" does not include construction of housing / commercial premises, educational institutions, recreational facilities, city and regional level infrastructure,townships

CA Sudha G. Bhushan

Investment in Shares/CD’s on non-repatriation basis by NRIs Scheme applies to investment other than PI NRIs may acquire without any limit, shares under

public issue, private placement or right issue The Condition of Central Govt., approval if investor

has previous JV or technical collaboration or trade mark agreement in the same or allied field has been done away with

Not permitted- investment in companies engaged in chit fund/nidhi, agricultural/plantation or real estate business or construction of farm house or dealing in TDRs

Investment in securities other than shares or CDs by Non Resident Investment on

repatriation basis in Dated Govt.,

securities/treasury bills, NCD and Units of

Domestic MF Bonds issued by Public

sector undertaking

Investment on Non Repatriation basis by NRIs in – units of money market funds in India or National Plan/Saving Certificates.

CA Sudha G. Bhushan

Lending in Indian Rupees by NRI Non Corporate entity can borrow from NRI or

PIO on non-repatriation basis subject to following conditions: The period of loan should not exceed 3 years the rate of interest on the loan shall not

exceed 2% over the Bank rate prevailing on the date of availment of loan;

CA Sudha G. Bhushan

Lending in Foreign Currency by NRI

An individual resident in India may borrow a sum not exceeding US $ 250,000/- form his close relatives outside India, subject to the conditions that the minimum maturity period of the loan is one

year the loan is free of interest; and 'Close relative' means relative as defined in

Section 6 of the Companies Act, 1956 At the end of the term loan amount can be

repatriated.

THANKS….. CA. Sudha G. Bhushan Taxpert Professionals Private Limited www.taxpertpro.com 09769033172 sudhag999@gmail.com sudha@taxpertpro.com