NRI Taxation and NRI Banking

 

NRI Taxation and NRI Banking

NRI to Pay Tax in India
You are considered an Indian resident for a financial year:
• when you are in India for at least 6 months (182 days to be exact) during the financial year
OR
• You are in India for 2 months (60 days) for the year in the previous year AND have lived for one whole year (365 days) in the last four years.
If you are an Indian Citizen working abroad or a member of a crew on an Indian ship only the first condition is available to you – which means you are a resident when you spend at least 182 days in India. The same is applicable to a PIO who is on a visit to India. The second condition is not applicable to these individuals.
A PIO is a person who, or any of his parents, or any of his grandparents were born in undivided India.
You are an NRI if you do not meet any of these conditions.
Taxable Income of an NRI
Income from salary:
Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.
Income from Salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.
In case your employer is Government of India and you are the citizen of India, Income from salary if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors is exempt from tax.
Example: Ajay was working in China on a project from an Indian company for a period of 3 years. Ajay needed the salary in India to take care of the needs of his family and make payments towards housing loan. However, since salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.
Income from House Property
Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant.
An NRI is allowed to claim standard deduction of 30%, deduct property taxes and take benefit of a interest deduction if there is a home loan. The NRI is also allowed deduction for principal repayment under section 80C. Stamp duty and registration charges paid on purchase of a property can also be claimed under section 80C. Income from House Property is taxed at slab rates applicable.
Example: Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is in India shall be taxable in India.
Rental payments to an NRI
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI’s account in the country he is currently residing.
Example: Maria pays a monthly rent of Rs.30,000 to her NRI landlord. She must deduct 30% TDS or Rs.9,000 before transferring the money to the landlord’s account. Maria must also get a Form 15CA prepared and submit it online to the Income Tax Department.
A person making a remittance (a payment) to a Non Resident has to submit Form 15CA. This form is submitted online. In some cases, a certificate from a Chartered Accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate and TDS deduction as per section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance.
Form 15CB is not required when:
• remittance does not exceed Rs 50,000 (single transaction) and Rs 2,50,000 (in total in a financial year). Only Form 15CA is has to be submitted in this case.
• if lower TDS has to be deducted and a certificate is received under section 197 for it or lower TDS has to be deducted by order of the AO.
Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items.
In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.
Income from other sources
Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax free. Interest on NRO account is fully taxable.
Income from business and profession
Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.
Income from capital gains
Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital Gains on investments in India in shares, securities shall also be taxable in India.
If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in Capital Gains Bonds as per Section 54EC.
Special provision related to investment income
When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.
 The investments that qualify for special treatment:
Income derived from the following Indian assets acquired in foreign currency:
• Shares in a public or private Indian company
• Debentures issued by a publicly-listed Indian company (not private)
• Deposits with banks and public companies
• Any security of the Central Government
• Other assets of the Central Government as specified for this purpose in the official gazette.
No deduction under Section 80 is allowed while calculating investment income.
Special provision related to long-term capital gains
For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:
• Shares in an Indian company
• Debentures of an Indian public company
• Deposits with banks and Indian public companies
• Central Government securities
• NSC VI and VII issues
In this case, capital gains are exempt proportionately if cost of new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.
The benefits above may be available to the NRI even when he/she becomes a resident – until such an asset is converted to money AND upon submission of a declaration for the application of the special provisions to the Assessing Officer by the NRI.
The NRI may choose to opt out of these special provisions and in that case the income (investment income and LTCG) will be charged to tax under the usual provisions of the Income Tax Act.

Non-Resident Indians (commonly referred to as NRIs) are citizens of India or Persons of Indian origin who qualify as Non-Residents in India for the relevant tax year. As per Indian tax laws, a ‘Non-Resident’ is defined as an individual who was present in India for less than 60 days during the relevant tax year, and in case of Indian citizens who leave India (during the year) for the purpose of employment outside India, such limit to break Indian residency is replaced by 182 days. Additionally, when a citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay is less than 182 days in the relevant tax year.

In order to analyze the tax benefits available to NRIs under the Indian domestic tax laws and under the double tax avoidance agreements (DTAAs), let us break such individuals into 2 categories:

For NR employees coming to work in India: Although India follows a ‘source rule’ basis of taxation, i.e. to tax all incomes which accrue/arise from an employment exercised in India, there are certain reliefs available under the domestic tax laws (commonly known as the 90 day rule) and the DTAA (commonly known as the 182 day rule) which allow exemption of such employment income earned in India for individuals qualifying as Residents of their home country, subject to satisfaction of certain other specified conditions such as physical presence in India, cross charge to an Indian entity etc. Personal income received outside India for such individuals (rent, interest etc) is not taxable in India.

For NR employees leaving India to work outside India: The compensation income received by non-resident Indians in a bank account overseas is not subject to tax in India. However, salary received in India is taxable under the Indian domestic tax laws (along with being taxed in the source country as most countries follow the source rule of taxation) i.e. on a ‘receipt basis’. However, in such a case, an exemption may again be claimed under the Dependent Personal Services (DPS) clause of the DTAA entered between India and the relevant host country, if the individual qualifies as a resident in the host country.

Apart from the above, foreign tax credits may also be claimed by NRIs overseas in respect of incomes taxed both in the home as well as host jurisdictions, in accordance with the rules prescribed under the domestic tax laws and DTAA. It is pertinent to note that in case an NRI intends to avail any of the tax benefits provided under a DTAA, a Tax Residency Certificate needs to be applied for and obtained in respect of each of the tax year(s) for which such benefit is claimed. Such certificate is required to be issued by the country where the individual breaks residency.

An important point to note is that, Indian sourced income in the form of interest on deposits, rental income on property in India etc. shall however continue to be taxed in India (as per domestic tax laws) and the exemptions available under the domestic tax laws (except any specifically not applicable to NRIs) such as Section 80C with respect to certain investments, payment of principal on housing loan etc., may continued to be availed by them. Further, a non-resident individual, whose income during the tax year comprises only of investment income or income by way of long-term capital gains or both, does not necessarily need to file an income tax return in India. Also, a return is not required if the necessary tax has already been deducted at source from such income.

In terms of the Foreign Exchange Management Act (FEMA), 1999 a person resident outside India means a person who is not resident in India.

What are the different types of accounts which can be maintained by an NRI1/PIO2 in India?

If a person is NRI or PIO, she/ he can, without the permission from the Reserve Bank, open, hold and maintain the different types of accounts given below with an Authorised Dealer in India, i.e. a bank authorised to deal in foreign exchange. NRO Savings accounts can also be maintained with the Post Offices in India.

Types of accounts which can be maintained by an NRI / PIO in India

  1. Non-Resident Ordinary Rupee Account (NRO Account)

Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transaction in rupees.

Opening of accounts by individual/ entities of Pakistan and entities of Bangladesh require prior approval of Reserve Bank of India.

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.

  1. Savings Account – Normally maintained for crediting legitimate dues /earnings / income such as dividends, interest etc. Banks are free to determine the interest rates.
  2. Term Deposits – Banks are free to determine the interest rates. Interest rates offered by banks on NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
  3. Account should be denominated in Indian Rupees.
  4. Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/ foreign currency funds or by way of legacy/ inheritance.
  5. Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.
  6. NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
  7. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/ PIOs.
  8. Other than current income and the limit of USD 1 Mn per financial year applicable to NRIs/PIOs, balances in NRO accounts cannot be repatriated without the prior approval of RBI.
  9. The accounts may be held jointly with residents and / or with non-resident Indian.
  10. The NRO account holder may opt for nomination facility.
  11. NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. The details of this facility are given in the FAQs on “Accounts opened by Foreign Nationals and Foreign Tourists” available on the RBI website.
  12. Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.
  1. Non-Resident (External) Rupee Account (NRE Account)
  2. NRE account may be in the form of savings, current, recurring or fixed deposit accounts (with maturity of minimum one year). Such accounts can be opened only by the NRI (as defined under Regulation 2(vi) of Notification No. FEMA 5/2000-RB dated May 3, 2000) himself and not through the holder of the power of attorney.
  3. NRIs may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘basis. The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.
  4. Account will be maintained in Indian Rupees.
  5. Balances held in the NRE account are freely repatriable.
  6. Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.
  7. Authorised dealers/authorised banks may at their discretion/commercial judgement allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.
  8. Savings – Banks are free to determine the interest rates.
  9. Term deposits – Banks are free to determine the interest rates of term deposits of maturity of one year and above. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
  10. Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.
  11. Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.
  12. Loans can be extended against security of funds held in NRE Account either to the depositors or third parties without any ceiling subject to usual margin requirements.
  13. Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself.

 

FCNR Bank account

  1. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account
  2. NRIs are eligible to open and maintain these accounts.
  3. FCNR (B) accounts are only in the form of term deposits of 1 to 5 years
  4. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also.
  5. Account can be held in any freely convertible currency.
  6. Loans can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties without any ceiling subject to usual margin requirements.
  7. The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. With effect from March 1, 2014, in respect of FCNR (B) deposits of maturities, 1 year to less than 3 years, interest shall be paid within the ceiling rate of LIBOR/ SWAP rates plus 200 basis points for the respective currency/ corresponding maturity. For FCNR(B) deposits with maturity of 3-5 years interest shall be paid within the ceiling rate of LIBOR/ SWAP rates plus 300 basis points. On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/ maturity plus 200 bps/ 300 bps, as the case may be. For floating rate deposits, the interest reset period shall be six months.
  8. When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.
  9. Terms and conditions as applicable to NRE accounts in respect of joint accounts, repatriation of funds, opening account during temporary visit, operation by power of attorney, loans/overdrafts against security of funds held in accounts, shall apply mutatis mutandis to FCNR (B). NRI can open joint account with a resident close relative (relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative will be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.

 

Is the permission of the Reserve Bank required for opening the various accounts, mentioned above, by Bangladesh / Pakistan individuals/entities?

Opening of accounts by individuals/entities of Pakistan and entities of Bangladesh nationality requires prior approval of the Reserve Bank.. All such requests may be referred to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, 6 Sansad Marg, New Delhi – 110 001. However, individuals of Bangladesh nationality are permitted to open NRO accounts without the prior approval of Reserve Bank of India, subject to conditions.

Can an individual resident Indian borrow money from his close relatives outside India?

Yes, an individual resident Indian can borrow a sum not exceeding USD 250,000 or its equivalent from his close relatives3 staying outside India, subject to the conditions that:

the minimum maturity period of the loan is one year;

the loan is free of interest; and

the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

 

Can an individual resident lend money to his close relative NRI / PIO?

Yes, an individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit prescribed under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India, subject to conditions. The loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

 

Can an individual resident repay loans of close relative NRIs to banks in India?

Yes, where an authorised dealer in India has granted loan to a non-resident Indian such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.

What are the other facilities available to NRIs/PIO?

  1. Investment facilities for NRIs

NRI may, without limit, purchase on repatriation basis:

  1. Government dated securities / Treasury bills
  2. Units of domestic mutual funds;
  3. Bonds issued by a public sector undertaking (PSU) in India.
  4. Non-convertible debentures of a company incorporated in India.
  5. Perpetual debt instruments and debt capital instruments issued by banks in India.
  6. Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
  7. Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

 

NRI may, without limit, purchase on non-repatriation basis :

  1. Government dated securities / Treasury bills
  2. Units of domestic mutual funds
  3. Units of Money Market Mutual Funds
  4. National Plan/Savings Certificates
  5. Non-convertible debentures of a company incorporated in India
  6. Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.
  7. Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-­repatriable basis, subject to the limits prescribed by the SEBI.

 

Note : NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).

  1. Investment in Immovable Property
  2. NRI5 / PIO4 may acquire/transfer immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds.
  3. Foreign national of non Indian origin resident outside India shall not acquire/transfer any immovable property in India other than on lease not exceeding five years, without prior approval of Reserve Bank of India.
  4. The payment of purchase price, if any, should be made out of

(i) funds received in India through normal banking channels by way of inward remittance from any place outside India or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank.

 

Note : No payment of purchase price for acquisition of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically permitted as above.

  1. NRI may acquire any immovable property in India other than agricultural land / farm house plantation property, by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India
  2. NRI may acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India
  3. An NRI may transfer any immovable property in India to a person resident in India.
  4. NRI may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

 

In respect of such investments, NRIs are eligible to repatriate:

  1. The sale proceeds of immovable property in India if the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels / by debit to NRE / FCNR (B) account.
  2. The amount to be repatriated should not exceed the amount paid for the property in foreign exchange received through normal banking channel or by debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.
  3. In the event of sale of immovable property, other than agricultural land / farm house / plantation property in India, by a person resident outside India who is a citizen of India / PIO, the repatriation of sale proceeds is restricted to not more than two residential properties subject to certain conditions.
  4. If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to USD one million per financial year out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.
  5. Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR (B) account/inward remittances.

 

Repayment of Housing Loan of NRI / PIOs by close relatives of the borrower in India

Housing Loan in rupees availed of by NRIs/ PIOs from ADs / Housing Financial Institutions in India can be repaid by the close relatives in India of the borrower.

 

  1. Facilities to returning NRIs/PIOs
  2. Returning NRIs/PIOs may continue 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 when resident outside India
  3. The income and sale proceeds of assets held abroad need not be repatriated.

 

Foreign Currency Account

  1. A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.
  2. A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account should be repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.

 

Resident Foreign Currency Account

  1. A person resident in India may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account.
  2. Proceeds of assets held outside India at the time of return can be credited to RFC account.
  3. The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.
  4. RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.RFC accounts are permitted to be held jointly with a resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.

 

General facilities

 

Can Exchange Earners Foreign Currency (EEFC) accounts be held jointly with a -resident Indian?

Yes, EEFC account of a resident individual can be held jointly with a resident close relative on a ‘former or survivor’ basis.

However, such resident Indian close relative will not be eligible to operate the account during the life time of the resident account holder.

 

Can a resident individual holding a savings bank account include non-resident close relative as a joint account holder?

Yes, individuals resident in India are permitted to include non-resident close relative(s) as a joint holder(s) in their resident bank accounts on ‘either or survivor’ basis subject to conditions.

 

Can a resident individual gift shares/securities/convertible debentures etc to NRI close relative?

Yes, a resident individual is permitted to gift shares/securities/convertible debentures etc to NRI close relative up to USD 50,000 per financial year subject to certain conditions.

 

Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of crossed cheque/electronic transfer within the overall limit prescribed under Liberalised Remittance Scheme for the resident individual and the gifted amount should be credited to the beneficiary’s NRO account.

 

What types of services can be provided by a resident individual to his / her non-resident close relatives?

A resident may make payment in rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Further, where the medical expenses in respect of NRI close relative are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may also be covered under the term “services”.

 

 

 

NRI

Who are a NRI / PIO?

Who can be an NRI?

An Indian citizen residing outside India for a combined total of at least 183 days in a financial year.

What are the benefits of being a NRI?

1.You can get special bank accounts from Indian banks.

2.You can continue to own land and property in India.

3.Your earnings outside India are not taxed by the Indian government, provided you have paid taxes in the nation you reside in. Local earnings in India (interest, rental income) are still taxed.

4.There is a special quota of seats in Indian universities reserved for NRIs.

5.You can still vote, but you have to be in India to do it.

 

What are the drawbacks?

1.You may need permission to take out money invested in India.

2.You may not purchase agricultural land or farm houses.

3.You may not hold a government job.

4.You may not be elected to a political position.

 

How do you become an NRI?

There is no application form needed. The only official record of being an NRI comes on your yearly tax filing. This status can change from year to year. If you wish to open an NRI bank account, you simply need to inform your bank of your plans.

More benefits of NRI

  1. Bank accounts- The NRI banking sector is very vibrant, particularly because the Indian government started to acknowledge this large group of people and provide it with numerous facilities and benefits.
  2. Insurance policy- Another benefit that NRIs experience is the fact that they can enjoy tax exemptions on their incomes provided they register for a tax saving fund, pension plan, insurance policy as well as any other certifications. This is because the aforementioned options offer great returns to NRIs and thus will provide the expected tax exemptions.

 

  1. Immovable assets abroad- Non-resident Indians can continue holding all their immovable assets outside India. These types of assets can either be rented out as rentals or be credited to the overseas bank accounts. The properties can then be transferred or sold with the proceeds of the sale being credited to overseas bank accounts. The best thing about this is that any expenses relating to these assets like insurance premiums and maintenance can be easily settled out of the remaining overseas balances.

Who can be a PIO?

“Person of Indian Origin” means a foreign citizen not being a citizen of Bangladesh, Pakistan or other countries as may be specified by the Central Government from time to time if;

  1. He/she at any time held a Indian passport; or
  2. He/she either of his/her parents or grandparents or great grandparents was born in and was a permanent resident in India as defined in the Government of India Act, 1935 and other territories that become part of India thereafter provided neither was at any citizens of any of the aforesaid countries (as referred above) ; or

 

iii. He/she is a spouse of citizen of India or a person of Indian origin covered under (i) or (ii) above.

Benefits of a PIO card:-

(i) PIO card holders do not require a visa to visit India for a period of 15 years from the date of issue of the PIO card.

(ii) They are exempted from registration at FRRO/FRO if their stay does not exceeds 180 days, Incase if the stay exceeds 180 days, they shall have to register with FRRO/ FRO within the next 30 days.

(iii) They enjoy parity with NRIs in economic, financial and educational benefits like:- Acquisition, holding, transfer and disposal of immovable properties in India, except agricultural/ plantation properties Admission of children to educational institutions in India under general category quota for NRIs, including medical and engineering college, IITs, IIMs etc Availing Various housing schemes of LIC of India, State Government and Central Government agencies All future benefits that would be exempted to NRIs would also be available to the PIO card holders. However, PIOs do not enjoy employment rights in Government of India services nor can they hold any constitutional office in the Government of India. They need prior permission for undertaking mountaineering, missionary activities, research work and to visit restricted areas in India.

 

NRO Accounts

 

What is an NRO Saving Account?

 

An NRO (Non-Resident Ordinary) savings account is where you can maintain and manage your income earned in India such as rent, dividends, pension etc.

Why choose an NRO Saving Account?

Be assured of efficient managing of your local rupee earnings in India, even as you live abroad. Easy redesignation of your account when you change status from resident to non-resident.

Non-Resident Ordinary Rupee Account (NRO Account)

Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transaction in rupees.

Opening of accounts by individual/ entities of Pakistan and entities of Bangladesh require prior approval of Reserve Bank of India.

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.

  1. Savings Account – Normally maintained for crediting legitimate dues /earnings / income such as dividends, interest etc. Banks are free to determine the interest rates.
  2. Term Deposits – Banks are free to determine the interest rates. Interest rates offered by banks on NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
  3. Account should be denominated in Indian Rupees.
  4. Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/ foreign currency funds or by way of legacy/ inheritance.
  5. Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.
  6. NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
  7. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/ PIOs.
  8. Other than current income and the limit of USD 1 Mn per financial year applicable to NRIs/PIOs, balances in NRO accounts cannot be repatriated without the prior approval of RBI.
  9. The accounts may be held jointly with residents and / or with non-resident Indian.
  10. The NRO account holder may opt for nomination facility.
  11. NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. The details of this facility are given in the FAQs on “Accounts opened by Foreign Nationals and Foreign Tourists” available on the RBI website.
  12. Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.

 

Features and Benefits

1.Higher yield post tax: By availing DTAA benefit facility.

2.Low cost and Hassle-free money transfers: Available through various online and offline modes at competitive exchange rates

3.Low balance required: Minimum monthly account balance as low as ₹ 10,000 only

4.Anytime, anywhere account access: With domestic ATM-cum-Debit card, convenient access at over 11,000 ATMs and over 3,000 branches all over India, and phone and 24×7 internet banking.

5.Beneficial interest rates: Interest rate calculated on daily closing balances at 4% per annum. Interest paid half-yearly in June and December.

6.Easy movement: Interest earned in current financial year is fully repatriable(after deducting tax). Funds in NRO account can be repatriated upto USD one million per financial year# for all bonafide purposes.

7.Money2India: Safe and simple online money transfer tracking service with online transfer to over 100 banks in India.

8.Joint holding: With an Indian resident or NRI.

9.Easy redesignation: Of your resident account to NRO Account when you become a NRI. Your account number remains the same.

10.Mandate benefits: Free cheque book and ATM card for mandate holder.

11.NRI Advantage: Handpicked exclusive offers catering to your needs when in India as well as when abroad.

12.FREE PO Box service to send your documents.

13.Double Taxation Avoidance Agreement (DTAA)

14.Earn higher post tax return through reduced TDS rates by applying for DTAA facility on your NRO Savings account.

15.You can avail DTAA benefit on your NRO accounts by providing a self-declaration in the prescribed format, self attested PAN card copy, Form 10F and tax residency certificate for the current year.

NRE ACCOUNTS

What is the meaning of NRE?

 

NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non Resident Ordinary Rupee (NRO) account. An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI).

What is an NRE account?

 

An NRE account is a savings or current account held in India that allows the account holder to repatriate funds that come from outside earnings and transfer earnings to India conveniently and securely. Money transferred to an NRE account from any foreign currency is converted to INR.

 

What is the meaning of NRI bank account?

 

If a person is NRI or PIO, she/ he can, without the permission from the Reserve Bank, open, hold and maintain the different types of accounts given below with an Authorised Dealer in India, i.e. a bank authorised to deal in foreign exchange. NRO Savings accounts can also be maintained with the Post Offices in India.

 

What are the documents that I have to submit to open an NRE Account?

Completed application form signed and attested by your banker/Embassy of India/public notary or any person known to the bank must be accompanied with: (a) Copy of passport (b) Copy of Visa (c) Latest Overseas bank statement in original, latest overseas telephone/electricity bill in original as residential proof.

 

NRE- A type of account maintained by NRI

  1. NRE account may be in the form of savings, current, recurring or fixed deposit accounts (with maturity of minimum one year). Such accounts can be opened only by the NRI (as defined under Regulation 2(vi) of Notification No. FEMA 5/2000-RB dated May 3, 2000) himself and not through the holder of the power of attorney.
  2. NRIs may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘basis. The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.
  3. Account will be maintained in Indian Rupees.
  4. Balances held in the NRE account are freely repatriable.
  5. Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.
  6. Authorised dealers/authorised banks may at their discretion/commercial judgement allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.
  7. Savings – Banks are free to determine the interest rates.
  8. Term deposits – Banks are free to determine the interest rates of term deposits of maturity of one year and above. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
  9. Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.
  10. Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.
  11. Loans can be extended against security of funds held in NRE Account either to the depositors or third parties without any ceiling subject to usual margin requirements.
  12. Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself

 

FCNR   Foreign Currency Non Resident [FCNR] accounts as the name suggests are deposits designated in foreign currency. The same can be opened and maintained by a Non-Resident Indian who may be an Indian citizen or a Foreign citizen of Indian Origin residing outside India . The accounts are convertible / repatriable and are maintained in foreign currency in the form of fixed deposits. Presently, FCNRs can be maintained in US$, GBP, EURO ,Japanese Yen , Australian $ and Canadian $ Provisions as regards eligibility, types of accounts, permitted debits / credits, rate of interest, Loans against the security of funds held in FCNR account, repatriation of funds by NRI nominee, and miscellaneous matters such as joint holding, operations by POA etc. are quite similar to NRE accounts as provided herein.   1. Eligibility: (a) NRIs and PIOs are eligible to open and maintain these accounts with an authorised dealer. (b) These accounts may be opened with funds remitted from outside India through banking channels or funds received in rupees by debit to the account of a non-resident bank maintained with an authorised dealer in India or funds which are of repatriable nature in terms of the regulations made by Reserve Bank. Accounts may also be opened by transfer of funds from existing NRE/ FCNR (B) accounts. (c) Remittances from outside India for opening of or crediting to these accounts should be made in the designated currency in which the account is desired to be opened/ maintained. Without prejudice to this, if the remittance is received in a currency other than the designated currency (including funds received in rupees by debit to the account of a non-resident bank), it should be converted into the latter currency by the authorised dealer at the risk and cost of the remitter and account should be opened/ credited in only the designated currency. (d) In case the depositor with any currency other than designated currency desires to place a deposit in these accounts, authorised dealers may undertake with the depositor a fully covered swap in that currency against the desired designated currency. Such a swap may also be done between two designated currencies. 2. Designated Currencies: Permissible foreign currencies are designated by the Reserve Bank from time to time. Presently FCNR is accepted in US$, GBP, EURO, Japanese Yen , Australian $ and Canadian $. 3. Type of account: Can be opened as Fixed Deposits. 4. Rate of Interest: The interest rates vary between terms and from currency to currency. Rates may also vary between banks. For instance, the rate for a 1 year FCNR deposit in US dollar would be in the range of 2.5-3% while the same for a deposit in Australian dollar would be 5-6%. Rate linked to the LIBOR being notified by Reserve bank of India from time to time. Compounded Half yearly 6. Rate for Conversion of Rupees into Designated Currencies and vice versa: i) Remittances received in Indian rupees for opening these accounts shall be converted by the authorised dealer into the designated foreign currency at the clean T.T. selling rate for that currency ruling on the date of conversion. ii) For the purpose of payment in rupees, funds held in these accounts shall be converted into rupees at the authorised dealer’s clean T.T. buying rate for the concerned currency ruling on the date of withdrawal. 7. Inland Movement of Funds: Any inland movement of funds for the purpose of opening these accounts as well as for repatriation outside India of balances held in these accounts will be free of inland exchange or commission for the non-resident depositors. The Authorised dealer receiving foreign currency remittances in these accounts will also, on request, pass on the foreign currency to another authorised dealer if the account has to be opened with the latter, at no extra cost to the remitter. 8. Manner of Payment of Interest: (i) Interest on balances held in these accounts may be paid half-yearly or on an annual basis as desired by the depositor. (ii) Interest may be credited to a new FCNR (B) account or an existing/ new NRE/ NRO account in the name of the account holder, at his option. 9. Loans/ overdrafts against security of funds held in the account: Available to account holder as well as third party resident in India. LOANS IN INDIA-To ACCOUNT HOLDER: For business, investment in shares & securities, purchase of house property for own residential purpose and any other personal purpose subject to a maxi. of INR 10 mn. LOANS IN INDIA-To 3RD PARTY: For personal or business purpose subject to a maxi. of INR 10 mn. LOANS OVERSEAS: Fund based/ non fund based facility for any bonafide purpose. 10. Change of residential status of the account holder: When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR (B) deposits, for all other purposes such deposits shall be treated as resident deposits from the date of return of the accountholder to India. Authorised dealers should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the accountholder and interest on the new deposit (rupee account or RFC account) shall be payable at the relevant rates applicable for such deposits. 11. Joint account, repatriation of balances, etc.: Two or more NRIs can hold joint account. (1) Terms and conditions as applicable to NRE accounts (cf. Schedule 1) in respect of joint accounts, repatriation of funds, opening account during temporary visit, operation by power of attorney, loans/ overdrafts against security of funds held in accounts, shall apply mutatis mutandis to FCNR (B) accounts. (2) Authorised dealer may permit remittance of the maturity proceeds of FCNR (B) deposits to third parties outside India, provided the transaction is specifically authorised by the account holder and the authorised dealer is satisfied about the bona fides of the transaction. 12. Reporting: The transactions in these accounts shall be reported to Reserve Bank in accordance with the directions issued by it from time to time. 13. Other features: (a) Reserve Bank will not provide exchange rate guarantee to authorised dealers for deposits of any maturity in these accounts. (b) Lending of resources mobilised by authorised dealers under these accounts are not subject to any interest rate stipulations.

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