Chpt.I

General

Q.1

Who is a Non-Resident Indian [ NRI ] ?

Ans..01



.02

Under the Foreign Exchange Management Act, 1999, an Indian citizen or a person of Indian origin is defined as "Non-Resident Indian" [‘person residing outside India’] when he goes or stays outside India for taking up employment, commencement of business, profession, vocation or any other purpose showing his intention of settlement outside India. 

However, under the Income Tax Act, 1961, a person residing outside India is defined as a  "Non-Resident" if his stay in India does not total to less than 182 days during a financial year commencing on 1st April and ending on 31st March.

Q.2

Who is a Person of Indian Origin [PIO]?

Ans.  1

.01
.02

.03

.04

2.

.01
.02

.03

.04

A Person of Indian Origin (PIO) is defined as a citizen of any country other than restricted countries who:
has held an Indian passport at any time or

himself, either of his parents or any of his grad parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 or 

is a spouse of an Indian citizen or

is a spouse of a person referred in .01 or .02 above.

Restrictions regarding citizenship of specified countries are separately laid down under various regulations. Accordingly. the definition of PIO excludes citizens of specified countries as under:

for purpose of banking facilities citizens of Bangladesh or Pakistan,

for investment in proprietorship and partnership firms citizens of Bangladesh, Pakistan or Sri Lanka,

for investment in securities in India citizens of Bangladesh, Pakistan or Sri Lanka,

for investment in immovable properties citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan.

Chpt.II

Bank Accounts  ( A. General )

Q. 6

Can accounts be maintained by NRIs with any bank in India?

Ans.

Banks in India, who have been licensed as Authorized Dealers (ADs) can maintain NRI’s accounts in Indian Rupees as also foreign currencies, i.e. NRE, NRO & FCNR(B) accounts.

Co-operative banks holding permission of the Reserve Bank of India can also maintain Rupee accounts for NRIs, namely, NRE & NRO accounts.

Chpt.II

Bank Accounts  ( B. Rupee Accounts )

Q.8

What are the different types of rupee accounts permitted to be maintained?

Ans.

.01

.02

NRIs can open and maintain two types of Rupee Accounts,

Non-Resident (External) - being repatriable account and

Non-Resident (Ordinary) being Non-repatriable Account.

Q.19

Can funds in NRE/NRO/NRSR accounts be repatriated outside India?

Ans..01

.02

.03



.04

Balance in NRE account can be freely repatriated out of India. The transfer may be made to the account holder or to another NRI as per the instructions of the account holder without remittance cost.

Although balance in NRO account is not repatriable, under Foreign Exchange Management Act, 1999 (FEMA), and earlier under FERA,’73 current income credited to NRO account is repatriable upon fulfillment of specified procedure.
Remittance upto US$ 1mn every year is permitted out of NRO balance being sale proceeds of immovable properties held for more than 10 years, legacies and remittance to meet educational or medical expenses of the family members subject to compliance of specified procedure.
NRSR account is discontinued since 1st April, 02. Balance on said date was required to be transferred to NRO account of the account-holder.

Q.24

Can loans raised against NRE fixed deposits be repaid out of funds in NRO/NRSR accounts?

Ans..01

.02

.03

NRI account-holder can repay loan availed against security of NRE deposit out of funds held in NRO accounts

In such case, the interest would be charged at commercial rate in force from time to time, which may vary from bank to bank.

Presently, interest varies from 4% to 11%. 

Chpt.II

Bank Accounts  ( C. Foreign Current Accounts )

Q.37

Can accounts be maintained by NRIs/OCBs in foreign currencies?

Ans..01

.02

NRIs can maintain foreign currency accounts by way of Foreign Currency Non-Resident (B)  [FCNR (B)] deposits.

Overseas Corporate Bodies (OCBs) are not allowed to maintain such accounts since 3.10.2003.

Chpt.III

Investments in Securities / Shares and Company Deposits ( B. Company Shares / Debentures )

Q.54

Is permission of Reserve Bank required for NRIs to invest in proprietary/partnership concerns on non-repatriation basis? 

Ans..01

.02

.03

.04

NRIs other than citizens of Bangladesh, Pakistan and Sri Lanka are granted general permission for investment by way of capital in proprietorship unit or partnership firm in India on non-repatriation basis.
The Concern should not be engaged in agricultural or plantation activities or should not be undertaking real estate business.

The investment should be made from NRE and NRO account or Forex Remittance from abroad.
Such investment can be made on repatriation basis, subject to prior approval of SIA, Government of India/Reserve Bank of India.

Q.63

What are the schemes available to NRIs for direct investments in India with repatriation benefits?

Ans..01

.02

.03

NRIs can invest in shares and / or convertible debentures of Indian companies under the direct investment scheme on repatriation basis.

Under the scheme offers can be made to NRIs by small scale undertakings upto 24% ; by trading company being an export / trading / star trading house upto 51% ; by manufacturing, service sector and export oriented units in free trade zones between 24% to 100% of new issue of capital on repatriation basis.

The company accepting the investment is required to submit detailed report to the Reserve Bank of India within 30 days from the date of receipt of funds and also within 30 days from the date of issue of shares providing necessary details.

Q.74

Can NRIs make investments in companies engaged in real estate development in India?

Ans.

.01

Yes. Investment upto 100% in the new issue of equity shares/convertible debentures of Indian companies engaged in the following areas is permissible on repatriation basis:

Development of serviced plots and construction of residential premises;

construction of residential and commercial premises including business centres and offices ;

Development of township ; 

City and region level urban infrastructure facilities including roads and bridges ;

Manufacture of building material ; 

Financing of housing development.

Q.87

What is the Portfolio Investment Scheme?

Ans.

Portfolio Investment Scheme (PIS) is designed for NRIs for purchase and/or sale of Shares, Debentures and other securities through Stock Exchange in India.

Chpt.III

Investments in Securities / Shares and Company Deposits ( C. Company Deposits )

Q.93

Can NRIs keep deposits with companies in India with repatriation benefits?

Ans.

.01

.02

.03

.04

.05

NRIs can place deposits on repatriation basis subject to the following conditions:

The deposits are received under Public Deposit Scheme for a period not exceeding 3 years.

Interest payable and other terms and conditions are in conformity with Regulations for acceptance of deposits under applicable Statutes.

Total deposits accepted by the Company do not exceed 35% of its net owned funds.

The deposit amount should not be utilized undertaking agricultural/plantation activities, real estate business or for relending.

The investment is made from NRE/FCNR accounts or forex remittance.  

Chpt.III

Investments in Securities / Shares and Company Deposits ( D. Sale / Transfer of shares / securities  )

Ans..01

NRIs can freely transfer/sell government securities or Units of Indian Mutual Funds.

Sale proceeds, subject to payment of tax, can be repatriated, if the investment was made from NRE a/c. or forex remittance.

If investment is made from NRO a/c., then repatriation cannot be permitted.

IV

Investment in Immovable Property

Q.104

Do foreign citizens of Indian origin require permission of Reserve Bank to purchase immovable property in India for their residential use?

Ans.

Foreign citizen can also freely purchase residential or commercial property in India as general permission is granted in their case too.

Q.119

Can authorised dealer grant housing loan to non-residents of Indian nationality where he is a principal borrower with his resident close relative as a co-obligant/guarantor or where the land is owned jointly by such NRI borrower with his resident close relative?

Ans.

Yes. However, in such cases the payment of margin money and repayment of the loan installments should be made by the NRI borrower.

V

Facilities to Returning Indians ( A. Overseas Assets )

Q.120

Ans.

V

Facilities to Returning Indians ( B. RFC )

Q.133

Ans.

VI

Taxation  ( A. NRI Definition )

What are the taxes applicable to NRIs/PIOs in India?

Ans.

.01

In India, NRIs/PIOs like other ‘Residents’, are subject to direct taxes, namely

the Income-tax Act, 1961, whereby annual income other than exempt income, is liable to income-tax, and

the Wealth-tax Act, 1957m taxing the market value of specified taxable assets being a kind of holding tax;

As the provisions of the Gift Tax Act have been abolished since 1st October, 1998, gifts are not liable to any tax.  However, such gifts should be genuine and bonafide as the source and relationship can be questioned.

Similarly, as Estate Duty is abolished since 16th March, 1985, estate/assets of deceased are not subject to this draconian law any more. 

Ans.  1.

2.

.01

.02

.03

3.

.01

4.

.01

.02

Certain incomes are granted total exemption whereas few specified incomes are granted concessional tax rate under the Income-tax Act.

NRIs defined as 'person resident outside India' under FERA, '73 are granted total exemption from Income-tax as regards:

Interest income from NRE account

Interest on Foreign Currency Non Resident (Bank) – FCNR(B) deposits

Interest earned on India Millennium Deposits (IMDs) of State Bank of India.

Tax exemption for a Non-Resident as defined under the I. T. Act is:

Interest earned on Non Resident Non Repatriable (NRNR) deposits.

Total exemption is granted to following incomes:

Dividend earned from equity shares of Indian Companies.

Dividend earned from Indian Mutual Funds. 

Ans.  1.

2.

3.

.01

.02

.03

.04

.05

.06

A ‘ Non-Resident ‘ as defined under the I.T.Act is exempt from compulsory filing of  tax return if he does not have taxable income in India .

NRIs, like residents are required  to pay tax on such incomes as are not  exempt from tax, provided such taxable income exceeds the basic exemption limits, presently Rs.50,000.

If an NRI’s stay in India totals to 182 days or more in a financial year and thereby such NRI, although permanently residing outside India,  is defined as a ‘ resident ‘ under the I.T. Act, then like other persons residing in India, such NRI too will be required to compulsorily file tax-return if he fulfills any one of the following six conditions :

he occupies as an owner or otherwise a house-property exceeding specified floor area;

has a cellular phone not being WLL ;

owns or has leased a motor vehicle other than a two-wheeler ;

is a   member of a club having entrance fees of Rs. 25,000/- or more ;

has expended on travel abroad for self or other person or

holds a credit card not being an  add on card.

VI

Taxation  ( B. Capital Gains Tax )

Q N8

Are NRI’s capital gains from Shares and Debentures computed differently?

Ans.   .01

.02

.03

.04

.05

In case of ‘ Non-Residents ‘as defined in I.T. Act, capital gains from shares or debentures of Indian companies aquired out of NRE accountor forex remittance are to be calculated by converting the sale and purchase value into the foreign currency which was initially utilised for acquisition of the said shares/debentures and the capital gains are to be arrived at in said foreign currency.

The gains so computed in foreign currency are reconverted into Indian currency at State Bank of India’s TT buying/selling rate and tax is computed on such gains.

In case of investment from NRE account, the computation is based on the foreign currency as was utilised initially  for credit into NRE account.

Every reinvestment thereof is also to be  computed in the foreign currency originally utilised.

The provisions apply in case of both long term and short-term gains.

VI

Taxation  ( C. Returning NRI's Taxation )

1.

.01

.02

2.

.01

.02

3.

The Residential Status under the I.T. Act is determined on the basis of in individual's stay in India in a given financial year.  Accordingly, a Returning NRI's Residential Status will be determined by total number of days of his stay in India, in the year of return and subsequent years as under: 

Non-Resident :  An NRI returning to India for settlement is treated as a  ' Non Resident ' if during the financial year of return :

his stay in India does not total to 60 days or

if his stay in India exceeds 60 days than the stay does not total to 182 days and also his stay in preceeding 4 years doesnot total to 365 days .

Not ordinarily Resident : if a person stays in India for 182 days or more in a financial year, OR stays  for 60 days or more in the financial year coupled with a stay of 365 days or more in 4 preceding years, he is treated as a "Resident" in the financial year. Such person is further treated as “Not-Ordinarily Resident” if –
he has been a “Non-Resident” in 9 years out of 10 preceding years, and
his stay in India does not exceed 730 days in preceding 7 years

Resident : A Resident person not covered by the definition of  ' Not Ordinarily Resident " will be treated as a 'Resident and Ordinarily Resident '.

Ans.   .01

.02

.03

Overseas income will be exempt from tax in India up till the account-holder's residential status under the I. T. Act continues to be  "Non-Resident" or " R but NOR ".

After the returnee NRI becomes "Resident & Ordinarily Resident" under I. T. Act, his entire global income, i.e. overseas income from shares, bank deposits, funds, rent etc. will be liable to tax in India.

However, concessions/exemptions granted under Double Tax Treaty (DTT), if any, between India and the country of NRI's original residence will be applicable and relief will be granted as regards tax paid outside India on the overseas income liable to tax in India.

VI

Taxation  ( D. Tax Deduction at Source (TDS) )

Ans.   1.

2.

.01

.02

.03

.04

.05

Normal rate of TDS is 30%, which is applicable in case of interest on NRO deposit, interest from non-repatriable deposits and debentures of companies and short-term capital gains from shares and Mutual Funds.

Other Specific TDS rates are:

10 % in case of Long Term Capital gains from shares of Indian Companies.

10 % in case of Long Term Capital gains from repatriable deposits and debentures of Indian Public Company,

20 % in case of interest income from repatriable deposits and debentures of Indian Public Company,

20 % in case of long term capital gains from Mutual Funds, and

30%  in all other cases

VI

Taxation  ( E. Wealth Tax Provisions )

Ans. .01

Wealth-tax is payable by all persons irrespective of their residential status, provided the market value of their taxable wealth as on 31st March of a financial year  exceeds specified limits, presently Rs.15 lakhs. 

It is a general fallacy that NRIs are not required to pay any tax in India and in many cases NRIs are ignorant about their Wealth Tax liability. Like Resident Indians, NRIs are also liable to pay Wealth Tax if the market value of taxable wealth in India held on the 31st March of a given year exceeds Rs.15 lakhs.

VII

Miscellaneous

Ans.   1.

.01

.02

3.

4.

Balances in NRO a/cs. Are repatriable up to US$ 1 mn. per year. The said facility can be availed for the purpose of –

Educational expenses of family members of the NRI.

Medical expenses of the family members of the NRI.

Balances being sale proceeds of immovable property held for 10 years or more are also repatriable under said limits.

Amount representing current income other than capital gains, i.e. dividend, interest on NRO a/c., rent etc. is also repatriable, subject to payment of tax.