Pmla, fema, it presentation for jito, dubai 20.03.2016

20.03.2016 P. P. Shah & Associates 1
FEMA , Income Tax &
Prevention of Money Laundering Act
Implications for NRIs
JITO, UAE
by: Mr. Paresh P. Shah
P.P. Shah & Associates
Chartered Accountants
Email: ppshahandassociates.com

Overview
 Budget – 2016
 Foreign Exchange Management Act, 1999
 Income – Tax Act, 1961
 Prevention of Money Laundering Act, 2005
 Q & A – Practical aspects

Budget-2016
 Pillars of the Budget – 9 key thrust areas
 Widening of tax base
 Incentives for startups and for new jobs creation
 New initiatives to reduce litigation
 Phasing out of incentives
 Amnesty Scheme
 Equalization levy
 Dispute resolution

20.03.2016 4
 A Person can be Resident (R) or Non Resident
(NR) under both FEMA & I. Tax Acts
 A Person can be Resident under one of the
Acts & Non Resident under the another
 Section 2(v) of FEMA
 Section 6 of the ITA, 1961
Overview – Resident & Non-resident
P. P. Shah & Associates

20.03.2016 5
 Basic Rule:
 If in Year 1, a person stays in India for more than 182 days, then in Year 2,
person will be Resident under FEMA else he will be NR in year 2.
 Exceptions:
 (A) A person who has gone out of India or stays outside India:
i. for employment outside India, or
ii. carrying out business or vocation outside India, or
iii. any other purpose which indicates his intention to stay outside
India for an uncertain period
In case of Purposes Stated at A above person will become Non
Resident from the day he goes abroad.
Resident under FEMA – Emigrating Indians

20.03.2016 6
 Basic Rule:
 If i returning person stays in India for more than 182 days in year of return ,
then in Year 2, such person becomes Resident under FEMA
 Exceptions: However, in following case he is Resident in Year 1 itself from
the date of return –
 If returning person has come to India or stays in India:
i. for employment in India, or
ii. for carrying out business or vocation inside India, or
iii. for any other purpose which indicates his intention to stay
inside India for an uncertain period
Resident under FEMA – Returning Indians

20.03.2016 7
 A person is Resident if:
 The individual is in India for 182 days or more in a year, or
 He is in India for 60 days or more in a year and has been in India for 365
days or more in the preceding four financial years
 However, the above ‘60 days’ will be replaced by ‘182 days’ in case of:
 a citizen of India going abroad for employment
 a citizen of India or Person of Indian origin who is outside India but
comes on a visit to India
 For other persons, test of residential status is control & management in India
or Place of Effective management in India.
 A person who is not a Resident as per above conditions is a Non-Resident
under Income-Tax Act, 1961
Residential Status under Income-Tax Act

8th April 2012 8
FEMA & ITA - Purpose
 Taxation in India – Purpose under ITA
 Permissibility of a transaction in case of NR/R
under FEMA and Taxation in India under ITA
 Duration of the Residential Status
 Current & Capital Account Transactions under
FEMA
 Tax law can determine residential status on
last day but FEMA can decide on a daily basis

20.03.2016 9
Planning of Residential Status
 Departure from India & Arrival into India
 Date of travel
 Purpose of travel
 Previous travel record
 Stay period in the year of arrival/departure
 Procedural issues
 FEMA matters to be considered

Important Definitions under FEMA
 S. 2(v) " person resident in India" means-
 (i) a person residing in India for more than one hundred and eighty- two
days during the course of the preceding financial year but does not
include-
 (A) a person who has gone out of India or who stays outside India, in
either case-
 (a) for or on taking up employment outside India, or
 (b) for carrying on outside India a business or vocation outside India, or
 (c)for any other purpose, in such circumstances as would indicate his
intention to stay outside India for an uncertain period;
 (B) a person who has come to or stays in India, in either case,
otherwise than-
 (a) for or on taking up employment in India, or
 (b) for carrying on in India a business or vocation in India, or
 (c) for any other purpose, in such circumstances as would indicate his
intention to stay in India for an uncertain period;

 S. 2(v) " person resident in India" means – (con’t)
 (ii) any person or body corporate registered or incorporated in India,
 (iii) an office, branch or agency in India owned or controlled by a
person resident outside India,
 (iv) an office, branch or agency outside India owned or controlled by a
person resident in India
 S. 2(w) " person resident outside India" means a person who is not
resident in India

 “ Non-Resident Indian" (as per FEMA Notf. 5) means a person resident
outside India who is a citizen of India or is a Person of Indian Origin (PIO)
 Thus, Non Resident Indian (NRI) means an Indian Citizen or PIO who has
gone out of India or who stays outside India, in either case
 for or on taking up employment outside India, or
 for carrying on outside India a business or vocation outside India, or
 for any other purpose, in such circumstances
 as would indicate his intention to stay outside India for an uncertain
period.

 “ Person of Indian origin" (as per FEMA Notf. 5) means a citizen of any
country other than Bangladesh or Pakistan, if
a) he at any time held Indian passport; or
b) he or either of his parents or any of his grand- parents was a citizen of
India by virtue of the Constitution of India or the Citizenship Act, 1955
(57 of 1955); or
c) the person is a spouse of an Indian citizen or a person referred to in
sub-clause (a) or (b)

 S. 2(e) “capital account transaction" means a transaction which alters the
assets or liabilities, including contingent liabilities, outside India of persons
resident in India or assets or liabilities in India of persons resident outside
India, and includes transactions referred to in sub- section (3) of section 6
 S. 2(j) “current account transaction" means a transaction other than a
capital account transaction and without prejudice to the generality of the
foregoing such transaction includes,-
(i) payments due in connection with foreign trade, other current business,
services, and short- term banking and credit facilities in the ordinary
course of business,
(ii) payments due as interest on loans and as net income from
investments,
(iii) remittances for living expenses of parents, spouse and children
residing abroad, and
(iv) expenses in connection with foreign travel, education and medical
care of parents, spouse and children

Facilities for NRIs under FEMA
 NRIs are granted the following facilities:
 Maintenance of bank accounts in India.
 Investment in shares / convertible debentures of Indian companies
under Foreign Direct Investment Scheme on repatriation basis,
 Investment in shares / convertible debentures of Indian companies
under Portfolio Investment Scheme on repatriation basis.
 Investments on non-repatriation basis out of funds in NRO A/c. or
through inward remittances.
 Investments in immovable properties in India (excluding farm
house, agricultural land or plantation)
 Renting of immovable property is permitted provided rent is
credited to NRO / NRE / FCNR account
 NRIs cannot open a new PPF account though they can continue to
deposit into an existing account. Further, they cannot apply for
extension beyond the maturity period.

Transactions under FEMA
 Capital Account and Current Account transactions
 Immovable Property
 Foreign Direct Investment
 Partnership firms
 Loans from NRE & NRO accounts
 Gifts to residents

Features of NRE A/c.
 Non-Resident External A/c. (‘NRE A/c.’):
 This is a Rupee designated account which can be opened with a
bank in India through overseas remittances through normal
banking channels
 NRE A/c. needs to be designated as resident accounts if and when
the individual becoming resident in India.
 Visitors however are permitted to continue with their NRE accounts
even during the stay.
 NRE A/c. can be in form of Current, Savings, Recurring or Fixed
Deposits.
 Nomination facility is available.
 Loans up to specific limits are permissible against security of funds
held in NRE account.

20.03.2016 18
What are the permissible debits & credits
in NRE A/c.
Permissible Credits Permissible Debits
• Proceeds of remittances to India in
any permitted currency.
• Transfers from other NRE/FCNR
accounts.
• Interest accruing on the funds held
in the account.
• Interest on Government securities
and dividend on units of mutual
funds, provided the securities/units
were purchased by debit to the
account holder's NRE/FCNR account
or out of inward remittance through
normal banking channels.
• Certain types of refunds
• Local disbursements.
• Permissible remittances outside India.
• Transfer to NRE/FCNR accounts of the
account holder or any other person
eligible to maintain such account.
• Investment in shares/securities/
commercial paper of an Indian company
or for purchase of immovable property
in India provided such investment/
purchase is covered by the regulations
made, or the general/special permission
granted, by the Reserve Bank.
• Any other transaction if covered under
general or special permission granted by
the Reserve Bank.

Features of NRO A/c.
 Non-Resident Ordinary A/c. (‘NRO A/c.’):
 When a person resident in India leaves India for another country (other
than Nepal or Bhutan) for employment, conducting business, or any other
purpose, indicating intention to stay outside India for an uncertain period,
his existing accounts are designated as a Non-Resident (Ordinary)
accounts
 NRO A/c. can also be opened with permitted overseas remittances through
normal banking channels and also legitimate dues of the account holder in
India
 NRO A/c. is re-designated as resident account if and when the individual
becoming resident in India.
 Visitors however are permitted to continue with their NRO accounts even
during the stay.
 NRO A/c. can be in form of Current, Savings, Recurring or Fixed Deposits.
 Nomination facility is available.
 Loans are permissible against security of funds held in NRO account.

20.03.2016
20
What are the permissible debits & credits
in NRO A/c.
Permissible Credits Permissible Debits
• Proceeds of remittances from outside
India through normal banking channels
received in foreign currency which is
freely convertible.
• Any foreign currency, which is freely
convertible, tendered by the account
holder during his temporary visit to India.
Rupee funds should be supported by
encashment certificate, if they represent
funds brought from outside India.
• Transfers from rupee accounts of non-
resident banks.
• Legitimate dues in India of the account
holder. This includes 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.
• All local payments in rupees including
payments for investments in India subject to
compliance with the relevant regulations
made by the Reserve Bank.
• Remittance outside India of current income
like rent, dividend, pension, interest, etc. in
India of the account holder.
• Remittance up to USD One million, per
financial year (April-March), for all bona fide
purposes, to the satisfaction of the authorized
dealer bank.
• All remittances of income need to be net of
applicable India taxes

20.03.2016
21
Residential Status under ITA
 S. 6(1) Basic conditions for individuals
 Physical presence test of 182 days, or
 Physical presence test of 60 days in a financial year & 365 days or
more in preceding 4 years to the subject previous year (on an
average 92 days over 4 preceding years)
 Exception in case of citizens going abroad for employment or for an
employment as a member of crew of an Indian ship
 NRI/PIO (on visit to India) as defined under Expln. to S.115C(e) – a
restricted meaning
 S. 6(6) Not ordinarily Resident if Individual is
 Non resident in India for 9 out of 10 previous years or
 his stay in India is less than 730 days in 7 preceding years (on an
average 104 – 105 days over 7 preceding years)
 Other Assessees are resident if management & control is in India except
in case of Companies, management & Control is situated wholly in India
 Returning persons who were in employment are not included in the
exception to S.6(1) P. P. Shah & Associates

20.03.2016 22
Taxation of NRIs - Chapter XIIA
 115C – Definitions
 115D – Computational Provisions
 115E – Tax rates on investment, income & capital
gains
 115F – Capital gains on foreign exchange assets not
to be charged in certain cases
 115G – Filing Returns
 115H – Benefits to Resident/s
 115I – Option of the Assessee
 Planning for Non Residents

20.03.2016 23
Special Provisions for NRI - XIIA
 Eligible Assessee – Only NRIs
 Nature of Income – Investment Income &
LTCG from foreign exchange asset, as
specified
 Specified Asset – Shares, Debentures and
Deposits of Public Company; Public Deposits
and notified securities of Central Government
 Tax Rates: Investment Income @ 20%
Long term capital gain from
specified asset @ 10%

20.03.2016 24
Prevention of Money Laundering Act,
2002 - Overview
 It is an Act to prevent money-laundering and to provide for
confiscation of property derived from, or involved in, money-
laundering and to punish those who commit the offence of money
laundering
 Money laundering has been defined as “any process or activity
connected with proceeds of crime including its concealment,
possession, acquisition or use and projecting or claiming it as
untainted property”
 Whosoever directly or indirectly attempts to indulge or knowingly
assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime including
its concealment, possession, acquisition or use and projecting or
claiming it as untainted property shall be guilty of offence of
money laundering

20.03.2016 25
2002 – Overview (cont’d)
 “Proceeds of crime” means any property derived or obtained,
directly or indirectly, by any person as a result of criminal activity
relating to a scheduled offence or the value of any such property
 “Reporting Entity” means a banking company, financial institution,
intermediary (registered with SEBI) or a person carrying on a
designated business or profession
 Major Acts covered in the Schedule of offences include:
(a) Indian Penal Code, 1860; (b) NDPS Act, 1985;
(c) Unlawful Activities (Prevention ) Act, 1967; (d) Prevention of Corruption Act,
1988;
(e) Customs Act, 1962; (f) SEBI Act, 1992;
(g) Copyright Act, 1957; (h) Trade Marks Act, 1999;
(i) Information Technology Act, 2000; (j) Explosive Substances Act, 1908;
(k) Wild Life (Protection) Act, 1972; (l) Passport Act, 1967;
(m) Environment Protection Act, 1986; (n) Arms Act, 1959.

20.03.2016 26
 PMLA Act amended by the Black Money (Undisclosed Foreign
Income and Assets) and Imposition of Tax Act, 2015 (‘BMA’) to
provide for:
 Amendment of Schedule of offences by inclusion of offence of
wilful attempt to evade any tax, penalty or interest referred to
in Section 51 on BMA thereby making evasion of tax on
foreign undisclosed income & assets a violation of PMLA
 Section 53 of BMA makes every person who abates or induces in
any manner another person in tax evasion liable to rigorous
imprisonment up to seven years with fine.
 Thus, an NRI who colludes with a resident to achieve evasion of
tax may be tried for abatement under Section 53 of BMA.

20.03.2016 27
 Obligations on Reporting Entity under the PMLA Act:
 maintain a record of all transactions covered as per the nature and value of which
may be prescribed, in such manner as to enable it to reconstruct individual
transactions
 verify the identity of its clients in such manner and subject to such conditions as
may be prescribed (‘KYC’)
 identify the beneficial owner, if any, of such of its clients, as may be prescribed
 maintain record of documents evidencing identity of its clients and beneficial
owners as well as account files and business correspondence relating to its clients
for a period of five years in case of record and information relating to transactions;
 maintain the same for a period of five years after the business relationship
between a client and the reporting entity has ended or the account has been
closed, whichever is later
 furnish to the Director (FIU) within such time as may be prescribed information
relating to such transactions, whether attempted or executed, the nature and
value of which may be prescribed

20.03.2016 28
What are the points of consideration for change
of status from Resident to NRI and vice versa
Nature Resident to NRI NRI to Resident
Bank
Accounts
in India
To intimate the concerned bank(s)
about designating existing regular
bank accounts as NRO Accounts.
New NRE & FCNR Bank accounts can
be opened in rupees & foreign
currency respectively. Features have
been discussed in earlier slides.
To intimate the concerned bank(s) about
change of status as NRO Accounts will be
re-designated as regular bank accounts.
NRE / FCNR deposits can be continued till
the date of maturity at the contracted rate
of interest. On maturity, the proceeds can
be transferred to regular bank account or
can be converted to Resident Foreign
Currency Account.
Note: If one has become Resident due to
taking up employment in India, then that
may be included in the letter to the Bank.

20.03.2016 29
Resident
Foreign
Currency
Account
(‘RFC’)
N.A. Though not compulsory, it would be useful to open
RFC bank account and credit (i) the entire amount
of foreign exchange brought to India at time of
return to such account, (ii) entire income from
overseas assets in the form of dividend, rent,
interest, etc, (iii) sale proceeds of such overseas
assets, (iv) balances out of NRE / FCNR deposits.
Note: RFC accounts are free from all restrictions
regarding utilization of foreign currency balances
including any restriction on investment in any
form, by whatever name called, outside India.
Thus RFC balances can be remitted abroad for any
bona fide purpose such as purchase of shares,
immovable properties abroad and can also be
withdrawn freely for local payments in rupees.

20.03.2016 30
Holding of
Domestic and
International
Credit Cards
Can continue to hold such cards and
pay for them from NRO / NRE
accounts
To intimate the concerned bank(s)
about change of status
Stock broking,
PMS & Demat
accounts
To intimate the concerned Broker(s)
and DP about change of status. No
repatriation would be allowed except
through NRO A/c. under US$ 1 mn
scheme
To intimate the concerned Broker(s)
and DP about change of status to
resident
In case of
holding of
shares &
debentures /
deposits of
Indian
Companies
To intimate to the concerned
companies about the change of status
as NRI.
Required to give an undertaking to
such companies stating that “I would
not seek repatriation of capital from
India”. However, repatriation may be
done through NRO A/c. under US$ 1
mn scheme.
companies about the change of
status along with the effective date
of becoming resident.

20.03.2016 31
Holding of
Insurance
Policies in
India
To intimate to the concerned insurer about
change of status.
Not required to take any permission from
RBI for paying premium on such policies
insurer about change of status
Directorships
/ Majority
Holding in
Indian
Company
It is advisable not to continue as Managing
/ Whole time / Executive Director of a
company in India.
It is ideal not to take any remuneration
from the company, though a sitting fees
subject to income tax may be received as
per A/A.
In case of majority share holding of shares
by NRI, such company shall be treated as
an Indian company only and can do
almost anything which an Indian Company
can do.
companies about change of
status and take up position, if
desired, of Managing / Whole
time / Executive Director of a
company in India and also
receive remuneration for the
same.

20.03.2016 32
Partnerships To intimate the concerned firms
about change of status.
If firm is engaged in real estate
business, to resign from same
To intimate to the concerned firms about
change of status or become partner in a
firm that is engaged in real estate
business
Power of
Attorney/s
Can be given for permissible
activities on your behalf
Cancel POA given to the trusted friend or
relative to do things on your behalf during
your stay abroad unless POA is desired /
required to be continued.
Export /
Import of
Jewellery as
baggage
No permission is required to be
obtained for such holdings.
However, permission needs to
be taken while taking such
jewellery out of India.
An Indian passenger who has been
residing abroad for over one year is
allowed to bring jewellery, free of duty in
his bonafide baggage upto an aggregate
value of Rs. 50,000/- (in the case of a
gentleman passenger) or Rs.1,00,000/- (in
the case of a lady passenger).

20.03.2016 33
Export /
Import of
Indian
currency
Export of Indian currency while
emigrating is prohibited.
Import of Indian Currency by a non-
resident is prohibited.
Export /
Import of
Foreign
currency
USD 250,000 may be availed
under Liberalized Remittance
Scheme for purposes of
emigration.
Higher amount may be availed if
it is so required by a country of
emigration.
Can be imported without limit. However,
declaration in Currency Declaration Form is
required to be made to the Customs
officials in case of (a) foreign currency
notes exceeding US$ 5,000/- or
equivalent; (b) aggregate value of foreign
exchange (in the form of currency notes,
bank notes, traveler cheques etc.)
exceeding US$ 10,000/- or its equivalent

20.03.2016 34
Disclosures in Income tax return after change of
status from NRI to Resident
 In case of foreign assets and income, disclosure is required in Schedule
FA of Income Tax Return of the following:
 Any asset held outside India as beneficial owner or otherwise
 Financial interest in any entity located outside India
 Signing authority in any account located outside India
 Details of Immovable Property located outside India
 Details of trusts created outside India in which the person is settlor,
beneficiary or trustee
 Income from any source outside India. It is required to be offered to
tax in India and the schedule in the ITR form in which it is included
is to be mentioned

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