BASICS

Who is a Non-Resident?

Non-resident status, for exchange control purposes, is determined by the nature of the stay abroad. Duration of stay in India is of limited significance. If one is employed, has a business or pursues a vocation one is a non-resident. If one has business interests in India and abroad and travel frequently, resident status would depend on the length of stay in India. To be eligible for retaining Indian residency, the stay in India must be more than one hundred and eighty two days(182) during the course of the preceding financial year.

Who is a Non-Resident Indian?

You are considered a NRI if you are a non-resident and an Indian citizen, a non-resident foreign citizen and of Indian origin.

How do I know if I am a person of Indian origin?

If you are a foreign citizen and want to open a bank account or invest in Indian shares and securities, you are considered to be of Indian origin if,

• You have at any time in your life held an Indian passport
• You or any one of your parents or any one of your grand parents were a citizen of India
• You are not of Indian origin but your spouse is an Indian citizen or is a person of Indian origin. (Your bank accounts and investments should be held jointly with your spouse)

If you are a citizen of Pakistan or Bangladesh, you are not considered to be of Indian origin even if you meet the above criteria.

If you want to acquire immovable property in India, you are considered to be of Indian origin if you

• At any time, held an Indian passport or
• Your father or grandfather were a citizen of India

If you are a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan, you are not considered to be of Indian origin even if you meet the above criteria.

If I am a NRI, what happens to my status when I come to India?

You become resident in India only when you come back to India for employment, to carry on business or pursue a vocation. You also become a resident if your stay in India is for an indefinite period.

What if I come to India for a holiday?

You continue to be a NRI when visits to India are for short periods like holidays.

What if I come to India on a business trip?

You remain a NRI on short business visits as long as you have a job abroad.

If I am an NRI, what are the investment opportunities available to me in India?

There is a wide range of investment opportunities for NRIs like Bank Deposits, Government securities, public sector bonds, primary share issues (both public and private placement), secondary equity markets, convertible and non-convertible debentures, partnership and proprietary concerns, start ups, mutual funds, company deposits, immovable property.

If I invest in India, can I take my money back?

If your investment has been allowed on repatriation basis, you can take back abroad the principal and the income. If your investment is on non-repatriation basis you can take back only the income.

Do I need permission to invest in India on repatriation basis?

The Reserve Bank of India and Government of India have granted general permission for certain kinds of investments like Bank Deposits. For the rest permission is needed. Investments in IPOs and debentures, the issuing company will get the necessary approval. Mutual Funds also get RBI clearance.

BANK ACCOUNTS

What are the different kinds of Bank Accounts,that I, as an NRI, can maintain in India?

If you are keen on repatriation of both principal and interest, you can open a Non-Resident External (NRE) account or a Foreign Currency Non- Resident (FCNR) account. On non-repatriation basis you can maintain a Non-Resident Ordinary (NRO) account, a Non Resident Special Rupee (NRSR) account or a Non-Resident Non repatriable (NRNR) account.

What are Non-resident External (NRE) Accounts?

These are Indian Rupee accounts, which you can maintain as Saving Bank or Current bank account or Term Deposits. These accounts can be held jointly with another non- resident Indian. Or else you can authorize a resident to operate the account for all local payments except gifts. In these accounts, the principal and interest can be taken abroad. Interest earned on these deposits is tax free.

Are there any restrictions on operations in NRE accounts?

Yes.You cannot credit local funds to your NRE account. Some of the sources from which you can credit funds to your NRE Account are:

• Inward remittance from abroad
• Transfer from other repatriable accounts (NRE/ FCNR accounts)
• Proceeds of foreign currency traveler's cheques or currency notes during visits to India
• Income from investments made on repatriable basis
• Sale proceeds of investments made on repatriable basis

Can I borrow against these accounts?

You can take a loan or overdraft in India against your NRE deposit for some specific purposes. You can also borrow overseas against these deposits. Indian relatives and friends can get credit facilities in India against the security of your NRE fixed deposits.

What happens to the account when I visit India?

While in India on short visits, you retain your NRI status and your NRE account will continue as it is. When you come back to take up residence in India your NRE account will change to a resident account.

Are there any disadvantages in having an NRE account?

Yes there is one disadvantage. As the account is held in Rupees, if it depreciates you will lose. Imagine you had opened a NRE Fixed Deposit account with an inward remittance of US $100 with the intention of taking back your money in dollars when the deposit matures. If the Rupee /Dollar exchange rate at that time was 42.50, your account would have been credited with Rs. 4250. If, when the deposit matures, with the exchange rate at Rs. 43.50 to the dollar, your deposit amount will get you only $ 97.70.

How do I protect myself against the possibility of the Rupee losing its value?

To protect against depreciation, open a Foreign Currency Non Resident (FCNR) account. It is similar to a NRE account but with one big difference. A FCNR account can be opened in US Dollars, Pound Sterling, Deutsche Mark or Yen, while a NRE account is maintained in Rupees.

Does it mean I am protected from exchange rate fluctuation if I put my money in a FCNR account?

No, you are protected against the Rupee losing value, but if the currency in which you placed your deposit depreciates, you will lose.

Can I get forward cover for my FCNR or NRE accounts?

Yes. You can get forward cover for the balances in your FCNR or NRE account.

Between FCNR and NRE accounts, how do I decide where to place my money?

If the rupee depreciates the NRE holder loses while the FCNR holder is protected. If the Foreign currency depreciates the FCNR holder loses while the NRE holder is protected. The NRE account pays a higher rate of interest than the FCNR account. So depending on your risk taking ability and investment objectives, a call on FCNR and NRE account should be made.

What happens to my FCNR deposit when I relocate to India?

If you wish, your FCNR deposit can continue till maturity at the contracted rate of interest. However, for all other purposes such deposits would be treated as resident deposits from the date of your return to India. On maturity, the deposit should be converted into a resident Rupee account or a Resident Foreign Currency account RFC account (if you are eligible).

GOVT SECURITIES/UNITS

Can NRI’s invest funds in Government securities or Units?

Yes. NRI’s can invest funds, Government securities or Units of Unit Trust of India through authorised dealers. Units can also be purchased directly from UTI.

Can NRI’s make investments in National Savings Certificates issued by Post Offices in India?

Yes. Investments in National Savings Certificates can be made by NRI’s subject to the terms and conditions applicapable to the sale and issue of such certificates. However, NRI’s are not permitted to invest in bearer securities like Indira Vikas Patra and Kisan Vikas Patra.

Can Government securities and units be transferred or sold?

Yes, provided the transfers and sales are arranged through an authorised dealer. Units can, however, be repurchased directly by UTI.

Are sale and maturity proceeds of Government Securities/Units,National Savings Certificates allowed to be repatriated abroad?

Securities purchased by funds remitted from abroad or out of NRE/FCNR accounts, sale and maturity proceeds can be repatriated. Repatriation is not permitted on purchases made by Ordinary Non-resident Account (NRO).

DIRECT INV WITHOUT REPATRIATION BENEFITS

Is permission of the Reserve Bank of India required for NRI’s to invest in proprietary/partnership concerns on non- repatriation basis?

No. Reserve Bank has granted general permission to non-resident individuals of Indian nationality/origin to invest by way of capital contribution in any proprietary/partnership concern in India on non- repatriation basis provided the company is not engaged in agricultural/plantation activity or real estate business.

Is permission of Reserve Bank of India required for making investments in new issues of Indian companies on non-repatriation basis?

No. Indian companies have been granted general permission to accept investments on non- repatriation basis, in shares/convertible debentures by way of new/ rights issue provided the company is not engaged in agricultural/plantation activity or real estate business (excluding real estate development i.e. development of property and construction of house) or chit fund or is not a Nidhi company

What are the formalities required to get repatriation benefits?

No formalities are required. However, companies receiving such investments are required to file declarations with Reserve Bank of India within 90 days from the date of the investment

Can NRI make investments in domestic public/ private sector Mutual Funds or Money Market Mutual Funds floated by commercial banks and public/private sector financial institutions on non- repatriation basis?

Yes.

Can NRI’s purchase existing shares/debentures of Indian companies?

Yes. Reserve Bank of India permits NRI to purchase shares/debentures of existing Indian companies on non–repatriation basis.

Is it necessary for a resident, holding securities in Indian companies, to secure approval from Reserve Bank on his becoming a non-resident for such securities?

No. Reserve Bank of India has granted general permission to companies in India to enter the overseas addresses of the shareholders in their books. Companies have to obtain undertakings from holders that they will not seek repatriation of any sale proceeds of the security.

Is income/interest earned on investments/deposits held in India by NRI’s on non & repatriation basis allowed to be repatriated?

Yes, Income/interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held by NRI’s with non- repatriation benefits will be eligible for repatriation as under:

• Up to $1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95
• Up to U.S $ 1,000 or its equivalent in full and two –third of the balance income earned during the financial year 1995-96
• The entire income earned during the financial year 1996-97 and onwards

What is the procedure to be followed for seeking repatriation in such cases?

NRI’s should designate a branch of an authorised dealer through whom the remittance of income is to be made. Details of incomes earned during the previous financial year along with a Chartered Acountant's Certificate should be give to the branch. The designated branch will allow the remittance of net amount (i.e. after payment of tax) or credit to NRE/FCNR account of the applicant.

DIRECT INV WITH REPATRIATION BENEFITS

What are the schemes available to NRI’s for direct investments in India with repatriation benefits?

NRI’s can make investments in new issues of shares/convertible debentures of Indian companies under direct investment schemes such as 24 per cent scheme/ 51 per cent scheme/ 100 per centscheme. They can also invest in the schemes of domestic Mutual Funds floated by public/private sector institutions/companies. Non- resident investors are not required to apply for permission to invest. The company concerned will have to file a declaration in Form ISD together with the required documents to Reserve Bank within 30 days from the date of issue.

What is a 24 per cent Scheme?

Under the 24 per cent Scheme, Indian companies engaged or proposing to engage in any activity including finance, hire purchase, leasing trading or other services, establishments of schools/colleges (except agricultural/plantation activities) are allowed to issue shares/debentures to NRI’s with repatriation benefits to the extent of 24 per cent of the new issue.

What is a 51 per cent Scheme?

Under the 51 per centScheme, NRI’s/OCB’s are permitted to subscribe to new issues of equity/preference shares and convertible debentures of any new or existing company on repatriation basis provided

• The issue of equity/preference shares and convertible debentures to NRI’s /OCB’s with repatriation benefits does not exceed 51 per cent of the face value of each new issue of the company
• The shares of the company are not listed on any Stock Exchange
• The company is engaged in manufacturing activity permitted by the Government of India

Investment under this scheme can be made for setting up manufacturing projects or for expansion/diversification of their existing manufacturing activities.

Is remittance of interest/dividend to NRI investors freely allowed under the 24 per cent or 51 per cent Scheme?

Yes. There is no ceiling or restriction on the amount of remittable dividend. Remittance of interest/dividend to NRI investors will be allowed by authorised dealers under the powers delegated to them.

What are the specified industries under the 100 per cent Scheme?

Under the 100 per centScheme, NRI’s are permitted to invest in high priority industries up to 100 per cent of the new issue.

Is dividend/interest earned in respect of investments made under the 100 per cent Scheme freely remittable to the NRI's ’abroad?

Dividend/interest can be remitted except in the case of consumer goods industries where the outflow on account of dividend is required to be balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend. This requirement is enforced for a period of seven years from the commencement of commercial production

How does NRI obtain permission of Reserve Bank of India for investment under the 24 per cent or 51 per cent or 100% Scheme?

The NRI investor need not apply to Reserve Bank. Indian companies have been permitted to issue shares/convertible debentures to NRI’s/OCB’s.

Besides the 24 per cent, 51 per cent, and 100 per cent Schemes is there any other scheme for investment in the equity companies ?

Yes. NRI’s are permitted to undertake revival of sick industrial units by making bulk investments in them to the extent of 100 per cent either way of purchase of existing equity shares or in the form of subscription to new equity issues.

Is the capital brought into India for revival of a sick industrial unit allowed to be repatriated ?

Yes.

MISCELLANOUS

Are any tax concessions available to NRI’s on balances/deposits held in NRE/FCNR accounts?

Yes. Income from interest on funds held in NRE/ FCNR accounts is exempt from Income – tax

Are similar concessions available in respect of balances held in NRO accounts?

No.

What are the tax benefits to Non-resident (Non-repatriable) Rupee deposit accounts (NRNR) account holders?

They enjoy the following tax benefits :

• Income from the deposits will be free from Indian Income –tax.
• The deposit will also be exempt from Gift tax for one- time gifting (in the case of NRI’s only)
• Exemption from Income from Income –tax will not be available to resident donee and those residents , who being joint holders ,become owners of the deposit as survivors of the non- resident depositor.

What is the approved method of sending remittances into India?

The approved method of sending remittances is through normal banking channels.

At what rates are remittances in foreign currencies made by NRI’s converted by banks into rupees?

Such remittances will be converted by banks at the market rate of exchange

Can remittances be sent into India other than through the medium of a bank in the country of residence of the remitter?

Yes. Exchange House in Gulf countries have been permitted to send remittances into India by means of Demand Drafts, Money Transfer and Telegraphic Transfer drawn on banks in India.

Can Exchange Houses draw drafts in foreign currencies?

Yes. Exchange Houses can draw drafts in U.S dollar or pound sterling on a limited number of branches of the drawee bank in India, if they have entered into such an arrangement with the drawee bank.

Can assets held in India by NRI’s prior to their becoming non- resident be repatriated outside India?

No.