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Fema 1999 and Non Resident Indians: Provisions and Implications


Published on This slideshow provides defition of NRI. The main objective of the document is to show the Opportunities for NRI under FEMA and Implications of FEMA for NRI. NRI FAQ

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Fema 1999 and Non Resident Indians: Provisions and Implications

  1. 1. omForeign Exchange Management Act .c A primer for NRIs et treisnr
  2. 2. om Content Overview1. Overview of Opportunities in FEMA .c2. Definition of NRI3. Possession & Surrender of Foreign Exchange et4. Bank Accounts5. Loans to NRIs6. Loans by NRIs re7. Investment in Immoveable Property8. Investments in India9. Starting a Business t10. Insurance Policies is11. Derivative Contracts12. Remittance of Assetsnr13. Special Cases of Residents
  3. 3. om Person Resident outside India• Means a Person who is not a Resident in India .c et t re isnr
  4. 4. om Definitions -NRI• Means a person resident outside India who is a citizen of .c India or a person of Indian Origin. etException: Applicable only under the Foreign Exchange Management re (Remittance of Assets) Regulations t is • Means a person resident outside India who is a citizen of
  5. 5. om Case Study• Mr. Khan, a Senior Citizen, goes to USA for medical .c treatment in March 2007. The Doctors advise him that the medical treatment will last for 10 months and he et decides to stay with his son in California. He comes back in Jan ‘08. What his residential status for: re FY 2006-07 FY 2007-08 FY 2008-09 t isnr
  6. 6. om Case Study• Sunny Singh, a software engineer is deputed by his Company for an .c stoverseas assignment in Italy for a period of 20 months starting 1 Jan2007. What is his residential status for:  FY 2007-08 et  FY 2008-09• Would it make a difference if he was not deputed by his company rebut went on his own accord to work for the Company in Australia? t isnr
  7. 7. om Not Permanently ResidentMeans a Person resident in India: .c • For employment of a specified duration (irrespective of the length), or et • For a specific job or assignment of duration not exceeding 3 years. reSpecial Feature: • Can retain currency without limit like travellers’ cheques etc t acquired/owned when he was a resident outside India and is brought into
  8. 8. om Definitions -PIO• Means a citizen of any country other than of a Prohibited Country, if .ca) He at any time held Indian Passport: or etb) He or either of his parents or any of his grand- parents were a citizen ofIndia by virtue of the Constitution of India or the Citizenship Act,1955, or rec) The person is a spouse of an Indian citizen or a person referred to in sub- tclause (a) or (b). isnr
  9. 9. om Prohibited Countries• Indian Citizens who are now taken citizenship / carry passport of the following countries are not considered as PIOs i.e. they get the same treatment as Foreigners under FEMA. .c et Regulation Prohibited Countries Borrowing or Lending in Rupees re Bangladesh, Pakistan Remittance of Assets Bangladesh, Pakistan Non Resident Accounts Bangladesh, Pakistan Investment in Shares Bangladesh, Pakistan, Sri Lanka Acquisition and Transfer of Bangladesh, Pakistan, Sri Lanka, t Immoveable Property Afghanistan, China, Iran, Nepal, is Bhutan NRE / FCNR (B) NRO As per Bank’snr Maximum Amount Rs. 50,000 judgement
  10. 10. om PIO Card• Privileges .c  No Visa Required to come to India  No separate Student / Employment Visa  Exempt from registration requirement if single stay in India does not exceed et 180 days  Parity with NRIs in facilities in Economic, Social and Financial field• Validity – 15 Years from the date of issue re• How to Apply  Submit the prescribed Form accompanied by documentary evidence that person is PIO t  Form to be submitted to the Indian Embassy where the person is a Resident is  Fee is Rs 15,000 for (Rs 7,500 for children upto 18 years of age)nr
  11. 11. omPossession & Surrender of Foreign Exchange .c et t reisnr
  12. 12. om Brining and Retention of Foreign Exchange in India• Brining Foreign Exchange .c ANY PERSON can at ONE TIME get the following amounts to India:• USD 5,000 of foreign currency• USD 10,000 in currency and travellers cheques including the currency et mentioned above (Amounts in excess of above: Currency Declaration Form)•Retention of Foreign Exchange re PERSON RESIDENT IN INDIA can AT ANY GIVEN TIME retain upto USD 2,000 only if the same are acquired are as follows: t• Unspent amount out of foreign exchange purchase for foreign travel is• Payment for services outside India, if the services are not arising from any business or anything done in India• Gift, Honorarium, payment for services or settlement received from a Personnr Resident Outside India visiting India• Gift or Honorarium while on a visit outside India
  13. 13. om Surrender of Foreign Exchange• Periods of Surrender• 180 days from: .c • In case of Receipt – Date of Receipt • In case of any amount is unused – Date of Purchase • In case of unspent – Date of return to traveller et• Exchange brought back can be utilised for next visit• Unspent exchange can also be deposited in RFC (D) Account re t isnr
  14. 14. om Bank Accounts .c et retisnr
  15. 15. om Bank Accounts – Which one?NRE NRO .cUsed for international receipts and Used for local receiptspayments etFully Repatriable Non-Repatriable (Now repatriation re allowed for certain types of payments upto USD 1 Million per year) t isnr
  16. 16. om Permissible Credits NRE/FCNR (B) NRO-Remittances from abroad -Cheques, -Remittances from Abroad - .ctravellers cheques, currency etc. deposited Legitimate dues in India of theduring temporary visit to India -Transfer from Account holder etother NRE/FCNRAccount -Interest on funds in the Account-Interest and maturity of Government resecurities and units of MFs if they werebought in Foreign Currency-Refund of share/debenture subscription if toriginal payment made from NRE is-Refund of amount paid for flat booking ifpaid in foreign currencynr
  17. 17. om Permissible Debits NRE / FCNR (B) NRO .c-Local disbursements -Payment of local expenses-Remittances outside India -Investments-Transfer to NRE / FCNR Account -Remittance of current income out et of self or any other person of India net of taxes-Investment in shares, securities,commercial paper of IndianCompany re-Purchase of immoveable property t isnr
  18. 18. om Bank Accounts -I Non-Resident Foreign Non Resident (External) Currency (Non Ordinary .c Rupee Account Resident) Bank Account AccountPopularly known NRE Account FCNR (B) NRO Account etas AccountCurrency in Rupees Rupees Pound Sterling,which the US Dollar,Account can be re Deutsche Mark, Japanese Yen,maintained Euro tWho Can Open NRI / PIO NRI / PIO Any Person Resident outside is India (i.e. even Foreigners)nr
  19. 19. om Bank Accounts -II Non-Resident Foreign Non Resident .c (External) Currency (Non Ordinary Rupee Account Resident) Bank Account Account etType of Account Current Account, Term (Fixed) Current Account, Savings Account, Deposit Savings Account, Recurring Period of Fixed Recurring re Deposit, Fixed Deposit Deposit is Deposit, Fixed Deposit between 1 and 3 years only tJoint Accounts Only Between Only Between Account be held is NRIs / PIOs NRIs / PIOs jointly with Residentsnr
  20. 20. om Bank Accounts -III Non-Resident Foreign Non Resident (External) Currency (Non Ordinary .c Rupee Account Resident) Bank Account AccountWhen the Non - Account to be NRI can ask for Account to be etResident Re-designated as redemption of the Re-designated asbecomes a Resident Resident Account deposit, or Deposit is Resident Account i.e. normal bank i.e. normal bank allowed account in India re account in India, or to continue till its due date and then - Funds in the redeemed Account can be Deposit is t transferred to converted into is Resident Foreign resident Foreign Currency Account Currency Account on maturitynr
  21. 21. om Issues – Bank Accounts• What happens to the Savings Bank Accounts when a resident becomes a Non- .c Resident?• What happens to the NRE/NRO/FCNR Accounts when a non- resident becomes a resident? et• Can one open more than one Accounts:  With different branches of the same Bank  With different banks re• Is money freely transferable between:  NRE to NRO and vice versa t  NRE to FCNR and vice versa is  NRO to FCNR and vice versa• Can the Accounts be opened and operated by a Power of Attorney (POA)holder? Are there any restrictions on the transactions that a POA holder cannrundertake?
  22. 22. om Remitting Money to IndiaQ: Are there restrictions / limits on sending money to India? .c etA: No. They can send money in any form without limit. reException: Loans to relatives in India (Maximum Amount is USD 250,000) t isnr
  23. 23. omLoans to NRIs• Personal Loans .c– Loan for personal use against Shares, Property etc.• Housing Loans– To purchase residential and commercial property et• Loans against Bank Accounts• Temporary Overdraft• NRI Employees of Indian Companies t re isnr
  24. 24. om Personal Loans -I• Types: .c– Against Security  Security of shares or securities et  Security of immoveable property other than  Security of immoveable property other than agricultural land, plantation or farm house re• Other Loans t isnr
  25. 25. omPersonal Loans – Against Security• Purpose .c  Own personal requirements or for own business purpose  Not to be utilised for business of chit fund, nidhi company, trading in TDR, agricultural or real estate business et• Loan amount not to be credited to NRE Account• Loan amount not to be remitted outside India• Repayment from re  Remittance from outside India  Debit to NRE / FCNR / NRO Account of borrower  Sale of property against which loan is availed t isnr
  26. 26. om Other Loans – I• Purpose .c – Any purpose as per the Loan Policy laid down by the Board of Directors of the Authorised Dealer except: et• Chit Fund, Nidhi Company• Agricultural Loans, Plantation, Real Estate, Farm House•• Trading in TDR re Investment in Capital Market including margin trading and derivatives t isnr
  27. 27. om Other Loans – II• Other Conditions .c • Amount not to be credited to NRE / FCNR Accounts • Loan amount not to be remitted outside India• Repayment: et  Remittance from outside India  Debit to NRE / FCNR / NRO Account of borrower  Sale of property against which loan is availed re t isnr
  28. 28. om Housing Loans• Purpose: Purchase of Residential Property• No. of Properties: No Limit .c• Amount of Loan: No Limit• From Whom Can they Loans be availed et – Banks (SBI, ICICI, Axis etc) or Financial Institutions (HDFC)• Bank Account in India: Not Required• Mortgage: Compulsory. In addition, Bank can also take lien of borrowers other reassets t isnr
  29. 29. om Housing Loans – II• Repayment: The loan can be repaid in any of the following 4 ways: .c Transferring the amounts from your Bank account outside India Making the payments out of funds in NRE / FCNR / NRNR / NRO Accounts inIndia et Rental Income of property which you have acquired Asking a relative in India to make the payment on your behalf re t isnr
  30. 30. om Housing Loans -III• Can Banks keep different terms and conditions for NRI? .c• No. The quantum, repayment period and margin money have to besame for Residents and NRIs• Exception: Rate of Interest can be different et t re isnr
  31. 31. om Loans against Bank Accounts NRE / FCNR (B) NRO .cTo Account Holder / Third Allowed AllowedParties in India (Against security of FD (Against security of FD and for specified and for specified et Purposes as given in Purposes as given in next slide) next slide)Foreign Currency Loan to Allowed (Against Not AllowedAccount Holder / Third security of funds held inParty outside India t re Account for any bonafide purpose)All the above loans are now restricted to Rs 20 Lacs isnr
  32. 32. omGeneral Features of Loans in India• Purpose of Loan  Personal or Business purposes  Investment in firms and companies on non-repatriation basis .c  Purchase of residential house for own use• Loan cannot be used for Relending, Agricultural / plantationactivities, Real estate business et• Third Party can be Individual, Firms or Companies• No consideration e.g. commission can be paid to NRI for agreeing reto pledge his deposits t isnr
  33. 33. om Temporary Overdraft .cRegulation Prohibited CountriesBorrowing or Lending in Rupees Bangladesh, Pakistan etRemittance of Assets Bangladesh, PakistanNon Resident Accounts Bangladesh, PakistanInvestment in Shares Bangladesh, Pakistan, Sri Lanka reAcquisition and Transfer ofImmoveable Property Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan NRE / FCNR (B) NRO t As per Bank’s isMaximum Amount Rs. 50,000 judgementnrPeriod Maximum 2 Weeks As per Bank’s judgement
  34. 34. om NRI Employees of Indian Companies• A Corporate registered in India or Indian Company can grant loans to employees who are NRI / PIO .c• Loan to be accordance with the Staff Welfare Scheme / Staff Housing Loan Scheme ie conditions to be same• Amount to be credited to NRO Account et• Repayment to be made by borrower himself through remittance outside India or debit to NRE / FCNR / NRO Account• Loans can be also given for buying ESOP subject to: re  Maximum of Rs. 20 Lacs  Loan amount not to exceed 90% of purchase price of shares t isnr
  35. 35. om Questions• What happens to the Loan / Overdraft given by the Bank to a Resident if hebecomes a Non-Resident? .c• How does one repay a Loan if the Lender becomes a Non-Resident?• What happens when the borrower becomes a Non-Resident? et t re isnr
  36. 36. om Solutions• An Authorised Dealer may allow continuance of the loan subject to: .c  Period of the loan cannot exceed the period originally granted  Repayment is made by inward remittances or from NRE/FCNR/NRO Accounts• If the Lender becomes Non-Resident, amount should be paid to his NRO etA/c• If the Borrower becomes Non-Resident, he can repay out of NRO / NREAccount t re isnr
  37. 37. om Loans by NRIs• Loans to Individuals• Loans to Relatives• Loans to Companies .c• Loans against Bank Accounts – As discussed in the Bank Accounts section et t re isnr
  38. 38. om Loans to Individuals• NRI can give loan to any Resident• Principal is not repatriable. .c• Loan to be given out of remittance outside India or from NRE/NRO/FCNRAccount et• Maximum Period of Loan: 3 Years• Interest: 2% over the Bank Rate t re isnr
  39. 39. om Loans to Relatives• Indian Resident can borrow only from ‘Close Relatives’• Minimum maturity is 1 Year .c• Maximum Amount is USD 250,000• Loan is Free of Interest et• Loan received from remittance outside India or debit to NRE / FCNR Account• Loan amount if fully repatriable. t re isnr
  40. 40. om Loans to Companies• Company must be incorporated in India• Repatriation and Non Repatriation basis• Company is borrowing by way of Non-Convertible Debentures issued by way of Public .c Offer• Rate of Interest :SBI PLR + 3%• Borrowing Company does not carry out activities of agriculture, real estate, chit fund, et nidhi fund• Period: Not less than 3 years• Additional Conditions– Non-Repatriation basis: Remittance from outside India / NRE / FCNR / NRO Account– Repatriation Basis • re NRO Account not allowed for investment • Percent holding by all NRIs should be within FDI Limit t isnr
  41. 41. om Immoveable Property -Eligibility• Definition of Person of Indian origin excludes citizens of:– Pakistan .c– Bangladesh– Sri Lanka– Afghanistan et– China– Iran– Nepal re t isnr
  42. 42. om Non-Resident IndiaWhat can be Acquired Any immoveable property other than Agricultural property, plantation or farm .c housePayment Mode Remittance from outside India or debit et to non-resident accountTransfer of Agricultural Land, Plantation Only to person resident in Indiaor Farm House reTransfer of Any Other Property To a Person Resident in India t i.e. Indian Citizen, NRI, PIO, Foreigner isnr
  43. 43. om PIO – Acquisition of PropertyType of Property Mode of Status of Transferor Acquisition .cAny immoveable property other Any Mode other Resident (Indian andthan Agricultural property, than Gift and Foreign Citizen)plantation or farm house Inheritance NRI et PIOAny immoveable property other Gift Resident (Only Indianthan Agricultural re Citizen) NRIproperty, plantation or farm PIOhouseAny Property Inheritance Resident (Indian and t Foreign Citizen) NRI is PIOnr
  44. 44. om PIO – Transfer of PropertyType of Property Mode of Status of Transferee Transfer .cAny immoveable property Sale Person Resident inother than Agricultural India ie. Resident. PIOproperty, plantation or farm Foreign Citizen ethouse Resident in IndiaAgricultural property, plantation or Gift, Sale Indian Citizen Resident infarm house India reResidential or Commercial Gift ResidentProperty NRI PIO resident outside t India is Foreign Citizen Resident in Indianr
  45. 45. om Remittance of Sale Proceeds• Purchase in Foreign Currency .c  Amount cannot exceed the remittance originally made to acquire the property et  In case of residential property, the remittance is restricted to 2 such properties• Purchased out of Rupee Funds re  Entire amount, subject to a maximum of USD 1 Mn can be remitted t isnr
  46. 46. om Investment in Securities .c et retisnr
  47. 47. om Definition of Securities• Shares, Stocks• Bonds .c• Debentures• Units of Mutual Fund et• Government Securities• Savings Certificates t re isnr
  48. 48. om Investment in Listed Companies• Share / Convertible Debentures of an Indian Company• Through Registered Broker on a recognised Stock Exchange .c• Single NRI can invest upto 5% of Total Paid up value of shares / debentures• Aggregate investment by all NRIs not to exceed 10% of Total Paid up Value• – This limit can be increased to 24% by the Company by passing a Special Resolution in etGeneral Meeting• NRI has to take delivery of shares• Repatriation Basis: Payment must be made out of foreign remittance, NRE,FCNR Account re• Non-Repatriation Basis: Payment can be made out of NRO Account t isnr
  49. 49. om Investment in Listed or Unlisted Companies• Shares / Convertible Shares of listed or unlisted company .c• Shares can be issued by Public Issue or Private Placement• Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation business et• No limit on % of holding and amount of investment• Payment must be made out of foreign remittance, NRE, FCNR, NRO Account• Amount of sale consideration, net of taxes to be credited to NRO Account re• Principal and gains are not repatriable. t isnr
  50. 50. om Housing & Real Estate• Only NRIs are allowed to invest upto 100% in the following: .c– Development of serviced plots and construction of residential premisesconstruction of residential premises– Development of townships et– City & Regional level Infrastructure facilities including roads and bridges– Manufacture of building materials. re t isnr
  51. 51. om Investment in Other Securities• NRI can without limit on Repatriation or Non-Repatriation basis invest in: .c  Government dated securities, Treasury Bills, Units of Mutual Fund  Bonds issued by PSU  Shares in PSU disinvestment et• NRI can invest without limit on.Non-Repatriation basis: re  National Plan / Certificates t isnr
  52. 52. om Transfer of Shares• NRI can transfer shares or convertible debentures only to other NRI by way of Sale or Gift .c If the Transferee has other venture or tie up or collaboration etc in India in the same,prior permission of Central Government required The above permission is not required for companies in IT sector et• NRIs need prior permission of RBI to transfer shares to person resident inIndia. re t isnr
  53. 53. om Starting a Business in India .c et retisnr
  54. 54. om Proprietary Concern / Firm• NRI / PIO can invest in the capital of Proprietary Concern / Firm .c on the following conditions: Amount received by inward remittance or through non-resident Bank Accountresident Bank Account et Firm is not in the agricultural or plantation activity or in real estate or PrintMedia Amount invested is not eligible for repatriation. t re isnr
  55. 55. om Insurance Policies• General / Life Insurance Policies taken by a Person when he was a Non-Resident can continue after he becomes a Resident .c• If the premium has been paid by remittance from India, the maturity proceedshave to be brought back to India through Banking channel within 7 days of receipt. et t re isnr
  56. 56. om Derivative Contracts• NRI can enter into Rupee Forward Contract to hedge:  Dividend due on shares held in Indian Company  Balances held in FCNR and NRE Accounts .c  Investment made under the Portfolio Investment Scheme• Cross currency exposure in FCNR Account st et• Investment made in India since 1 Jan ‘93• Proposed Foreign Investment in India. t re isnr
  57. 57. om Remittance of Assets• Which assets can be remitted? .c• Deposit with Bank, Firm or Company• Provident Funds, Superannuation benefits• Maturity proceeds / claims from insurance company et• Sale proceeds of shares or securities• Sale proceeds of immoveable property re• Sale proceeds of any other assets held in accordance with FEMA Regulations t isnr
  58. 58. om Normal Remittance – NRI / PIO• Upto US$ 1 Million (Approximately Rs 4.5 Crores) can be remitted out of: .c  Balance in NRO Account  Sale proceeds of Assets  Assets acquired by way of legacy or inheritance et• If remittance is made in multiple instalments, all of them to be madethrough the same Authorised Dealer t re isnr
  59. 59. om Some Provisions Applicable to Residents .c et treisnr
  60. 60. om Special Case: Indians going out• Amounts that can be freely taken out: .c Immigration : USD 100,000 of the limit prescribed by the destinationcountry Employment: USD 100,000 et Education: USD 100,000 per academic year or estimate from theEducational Institution, whichever is higher re t isnr
  61. 61. om Resident Foreign Currency A/c• Who can Open: A person Resident in India (ie all categories including Firms, Companies etc.) .c• Type: Current or Term Deposit• Permissible Credits Foreign Exchange Received:  As pension/any superannuation/other monetary benefits et  On realised on conversion of assets referred in sub-section 6(4) & repatriated to India  FE received as gift or inheritance  FE received as proceeds of Life Insurance claims / maturity / surrender values re• Permissible Debits: This A/c is free from all the restrictions regarding utilisation of FC balance including any restriction on investment in any form, by whatever name called outside India t isnr
  62. 62. om Resident Foreign Currency (Domestic)• Who can Open? Resident Individual (ie No Firms, Companies etc.)• Currency : Any foreign currency• Type: Current Account without interest .c• Permissible Credits Only in the form of currency notes or travellers cheques received by way of: et  While on a visit abroad, payment for services not arising from any business in India  Payment received as honorarium, gift or settlement of lawful obligation from a person on a visit to India  Honorarium or Gift received on a visit outside India re  Unspent amount of foreign exchange taken for foreign travel  Gift from a close relative  Earning from Export of Goods or Services, Honorarium, Royalty or any other lawful means  Disinvestment proceeds from sponsored ADR/GDR issue t  Insurance claim or maturity value of life insurance policy is– Permissible Debits • All Current and Capital Account transactionsnr– No ceiling on amount of balance in the Account
  63. 63. om USD 200,000 Scheme• A Resident Individual can freely remit abroad upto USD 200,000 per .c financial year• Purpose can be any capital or current account transaction• Resident can open a Bank Account with a foreign bank for this purpose et t re isnr
  64. 64. om Thank You Visit .c et retisnr