Non Resident Indians

Who is a Non-Resident Indian(NRI)?
An Indian citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a Non-Resident.

What is an OCB?
Overseas Corporate Bodies predominantly owned by individuals of Indian Nationality or origin resident outside India.

What are the various facilities available to NRIs/OCBS?
Maintenance of bank accounts in India Investment in securities/shares and deposits of Indian firms/companies Investment in immovable property in India

Can accounts be maintained by NRIs with any bank in India?
No. Banks holding authorised dealers' licences or banks specifically authorised in this behalf by Reserve bank can only maintain accounts in the names of NRIs.

Are NRIs permitted to maintain accounts in rupees and in foreign currency?
Yes.

What are the types of Rupee accounts permitted to be maintained?
Two. Non-Resident (External) Rupee Accounts (NRE Accounts) and Ordinary Non-Resident Rupee Accounts (NRO Accounts).

Can proceeds of foreign currency notes/travellers cheques brought by NRIs during their visit to India be credited to their NRE accounts without any restriction?
Yes

What is the distinction between NRE and NRO accounts?
Funds remitted from abroad or local funds which can otherwise be remitted abroad to the account holder, can be credited to NRE Accounts. Local funds which do not qualify for remittance outside India are required to be credited to NRO accounts.

Can NRO/NRE accounts be maintained by NRIs jointly with residents?
NRO accounts can be held jointly with residents. However, NRE accounts cannot be held jointly with residents.

Can funds in NRE/NRO accounts be repatriated outside India?
NRE accounts yes. NRO accounts - interest earned during the financial year 1994-95 and onwards can only be repatriated.

Can funds in NRE/NRO accounts be utilised for payment of air fare to/from/in India of the account holder and/or his dependents?
Yes

Are NRO/NRE account holders eligible for loans/overdrafts against their fixed deposits?
Yes.

Is nomination allowed in NRO/NRE accounts?
Yes.

Can accounts be maintained by NRIs in a foreign currency?
Yes.

What are the foreign currencies in which such accounts can be maintained?
Pound Sterling U.S. Dollar Deutsche Mark Japanese Yen

Are funds in FCNR accounts freely repatriable abroad?
Yes.

Can NRIs invest their funds in government securities or units of Unit Trust of India?
Yes.

Can NRIs make investments in National Savings Certificates issued by post offices in India?
Yes

Are sale/maturity proceeds of Government Securities/Units/National Savings Certificates allowed to be repatriated abroad?
If such securities are purchased out of funds remitted from abroad.

Is permission of Reserve bank required for NRIs to invest in proprietary/partnership concerns on Non-Repatriation basis?
No.

Is permission of Reserve bank required for making investments in new issues of Indian companies on Non-Repatriable basis?
No.

Can NRIs make investment in non-convertible debentures of Indian companies?
Yes.

Can NRIs purchase existing shares/debentures of Indian companies private arrangement?
Yes.

Are incomes/interest earned on investments/deposits held in India by NRIs on Non Repatriation basis allowed to be repatriated?
Yes.

How do I buy/sell stocks through the secondary market ?
You can buy/sell shares/debentures through a broker after obtaining necessary RBI permission. To obtain RBI permission, a Bank account in India needs to be opened with a designated bank. Through this bank Form RPI is forwarded to the RBI for seeking RBI permission for buying/selling shares/debentures from the SECONDARY MARKET on repatriable basis. This form is to be filled by the client in duplicate. RBI permission is a blanket permission granted by RBI which is valid for 5 years. Investments on non-repatriation basis can also be made from NRO accounts and also from funds remitted directly. For this purpose application should be made to RBI on Form NRI.

What is the permission, which a NRI has to obtain from RBI to invest in India?
NRI's are allowed to invest in Indian equity markets under the Portfolio Investment Scheme. Under this scheme NRIs/OCBs are permitted to invest in shares/debentures of Indian companies through Stock Exchanges in India. These investments require prior approval of RBI, which is valid for a period of five years and can be renewed upon written request.

How do I get the necessary approvals from RBI for Portfolio Investment scheme?
The application is to be submitted to RBI through a designated branch of a bank in India in one of the prescribed forms, i.e. NRC/NRI/RPC/RPI. RBI issues general permission for a period of 5 years, which can be renewed further by the concerned authorised dealer, for a further period of 5 years. If you open an account with ICICI Bank, the necessary application will be submitted by ICICI Bank on your behalf for getting the approvals.

How do I open a depository account?
You can open an account with one of the depository participants. .

What are the limits for investment in Indian Stock Market?
There is an overall ceiling of 10% of paid-up equity share capital of the company/paid-up value of each series of convertible debentures for purchase by NRIs/OCBs. The overall ceiling can be raised to 30% if the company concerned passes a special resolution to that effect in its general body meeting and a Board resolution. Individually, NRIs/OCBs can make investment upto 5% of the paid-up equity share capital/each series of convertible debentures. However, there is no ceiling for investment in domestic Mutual Funds.

Taxation:

Heads of Income?
Salaries - Income from House Property - Profits and Gains of Business and Profession - Capital Gains - Income from other sources.

Scheme of Taxation?
The scheme of taxability in India is linked to person’s residential status and the scope of total income. A person’s residential status would determine the scope of total income falling within the net of Indian taxation. By scope of total income is meant the territorial extent to which the Law can extend its arm to bring a person within the tax net. This is intricately connected with residential status. The scope of total income as contemplated by Sec.5 of Income Tax Act is: Income received or deemed to be received in India. - Income which accrues or arises or is deemed to accrue or arise to him in India. - Income which accrues or arises to him outside India during the year. - Income deemed to accrue or arise in India : Sec. 9 of the ITA contains various categories of income, which are deemed to accrue or arise in India. An important situation where income is deemed to accrue or arise in India is where the income accrues or arises from any "Business connection or from any property situated in India". Business connection implies a real and intimate relationship between trading activity carried on outside India. Salaries earned in India i.e. payable for services rendered in India as also dividend paid by an Indian company, is considered as income deemed to accrue or arise in India. Interest, royalty and fees for technical services paid by an Indian resident is also deemed to accrue and arise in India.

Tax on Cpital Gain?
TAX EXEMPTION FROM LONG TERM CAPITAL GAINS ON TRANSFER OF FOREIGN EXCHANGE ASSETS Sec. 115-F provides that long term capital gains arising on certain specified capital assets shall be exempt from tax to the extent the consideration is reinvested in new assets within a period of six months. This facility is not available to Indian residents. The new asset should be as mentioned above or in any savings certificates issued by the Central Government and notified under Sec.10 (4B). The benefit of Chapter XII-A is available only to non-resident Indians. This benefit is subject to Sec.115-H, which provides a limited exception to this rule. Sec.115-H states that whether a non-resident Indian becomes assessable as resident in India in respect of the total income of a subsequent year, he may furnish to the Assessing Officer a declaration in writing alongwith his return to the effect that the provisions of Chapter 12-A would continue to apply to him in relation to the investment income derived from any "foreign exchange asset" other than shares.

Special provisions for NRIs?
In 1983, certain provisions were introduced for non-residents Indian in respect of foreign exchange investments by them in certain specified assets vide Chapter 12-A of the Act. These special provisions are applicable only to individuals - assessees. The Chapter has restricted in its field of operation only two categories of income arising to non-resident Indian viz. (a) investment income; (b) long term capital gains. The investment income is defined to mean income derived from a "foreign exchange asset" other than dividends declared, distributed or paid on or after the 1st day of June, 1997 by an Indian company (domestic company) whether out of current of accumulated profits. In order to avail of the beneficial tax rate, the income must arise from investment made in one or ore of the following assets and such investment must have been made in convertible foreign exchange. The assets are - Shares in an Indian public company; Debentures issued by an Indian public company; Deposit with an Indian public company; Any security of the Central Government; and Such other assests as notified in the official Gazette by Central Government. Under Sec. 115-E, income by way of long term capital gain arising to a non-resident Indian is subject to tax @ 10% w.e.f. 1st April 1998. Investment income is subject to tax @ 20% and where the non-resident Indian has income other than investment income other than investment imcome and long term capital gains, such other income is charged to tax as a separate block at normal rates.

Defination of NRIs?
The definition of non-resident is linked to the period of stay in India where definition of non-resident for the purpose of FERA is based on the intention of the person concerned.
According to Sec. 6(1) of the Income Tax Act, an individual shall be a resident in India in any Financial Year if he
is in India in that Financial Year for a period or periods totalling to 182 days or more, or
has been in India within the four preceding years for a period or periods totalling to 365 days or more and for a period of 60 days or more in that Financial Year.
The significance of above classification can be understood from the following chart :

Resident :
R & O R World wide income is liable to tax

R but NOR:
Income outside india is not liable to tax

Non Resident:
Income outside india is not liable to tax

DEFINITIONOF NON-RESIDENT INDIAN :-

A non-resident Indian is a person who is a citizen of India or a foreign citizen of Indian Origin who has left India either for business or for employment or for any other reasons indicating a intention to stay outside India for an uncertain period (FERA).

CATEGORIESOF NON-RESIDENT INDIANS :-

Indian citizens who stay abroad for employment or for carrying for a business or vocation or for any other purpose, in circumstances indicating an indefinite period of stay outside India.

Indian citizen working abroad on assignments with foreign government/ government agencies like United Nations Organisation (UNO) - including its affiliates, International Monetary Fund (IMF), World Bank (IBRD), etc.

Officials of the Central and State Governments and public sector undertakings deputed abroad on temporary assignments or posted to their offices (including Indian diplomat missions) abroad.

Withholding Tax?
In many cases the income earned specially by non-residents is subject to withholding tax provisions commonly called as provisions for Tax Deducted at Source (TDS). As regards TDS is concerned, the position is that the non-resident seller can repatriate immediately the funds to the extent of the cost of acquisition of investment sold or the actual amount of sale proceeds realised, whichever is less, without production of a tax clearance certificate from the Indian tax authorities. In cases of long term capital gains, where the disignated bank under Sec.204 of the Income Tax Act, deducts tax @ 20% from long term capital gains in respect of foreign exchange assets, the balance that the entire cost plus 80% of long term capital gains can be remitted to the non-resident Indian or credited to his NRE/FCNR account. The facility of repatriation of sale proceeds will be available only if the investment is reiterated by the non-resident holding for a period of at least one year for shares or in other securities listed in a recognised Stock Exchange in India or a unit of Unit Trust of India or a unit of Mutual Funds specified under Sec.10(23D) and three years for other assets from the date of registration of the holding in his name or in the name of designated bank or the latter’s name. As regards short term capital gains, the bank would not credit the sale proceeds to NRE account or would not remit the funds abroad and would insist on payment of tax which the non-resident would be sold, advised to pay in the form of advance tax. For royalty and fee for technical services derived in India also, there are TDS provisions that by and large are the same as the rates of tax for such category of income.

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