fema - quick guide for nris [compatibility mode]
DESCRIPTION
A Ready Referencer for Non Residents (NRI) and Persons of Indian Origin (PIO) to handle money matters in India.TRANSCRIPT
Foreign Exchange Management Act
Quick Guide for NRIs
CA Vinit V DeoChartered Accountant
Overview
• Overview of Opportunities in FEMA
• Definition of NRI
• Possession & Surrender of Foreign Exchange
• Bank Accounts
• Loans to NRIs
• Loans by NRIs• Loans by NRIs
• Investment in Immoveable Property
• Investments in India
• Starting a Business
• Insurance Policies
• Derivative Contracts
• Remittance of Assets
• Special Cases of Residents
Person Resident Outside India
• Means a Person who is not a Resident in India
Vinit V DeoChartered Accountant
Definitions - NRI
• Means a person resident outside India who is a citizen of India or a person of Indian Origin
Exception: Applicable only under the Foreign Exchange
Management (Remittance of Assets) Regulations
• Means a person resident outside India who is a citizen of India
Vinit V DeoChartered Accountant
Case Study
• Mr Kulkarni, a Senior Citizen, goes to USA for
medical treatment in March 2007. The Doctors
advise him that the medical treatment will last for
10 months and he decides to stay with his son in
California. He comes back in Jan 07. What his California. He comes back in Jan 07. What his
residential status for:
– FY 2006-07
– FY 2007-08
– FY 2008-09
Vinit V DeoChartered Accountant
Case Study
• Pravin Shah, a software engineer is deputed by
his Company for an overseas assignment in
Australia for a period of 200 months starting 1st
Jan 2007. What is his residential status for:
– FY 2007-08
– FY 2008-09
• Would it make a difference if he was not deputed
by his company but went on his own accord to
work for the Company in Australia?
Vinit V DeoChartered Accountant
Not Permanantly Resident
Means a Person resident in India:
• For employment of a specified duration
(irrespective of the length), OR
• for a specific job or assignment of a duration not • for a specific job or assignment of a duration not
exceeding 3 years
Special Feature:
• Can retain currency without limit travellers
cheques etc acquired/owned when he was a
resident outside India and brought into India
Vinit V DeoChartered Accountant
Definitions - PIO
• Means a citizen of any country other than of a
Prohibited Country,if
a) He at any time held Indian Passport: or
b) He or either of his parents or any of his grand-b) He or either of his parents or any of his grand-
parents were a citizen of India by virtue of the
Constitution of India or the Citizenship
Act,1955.or
c) The person is a spouse of an Indian citizen or
a person referred to in sub-clause (a) or (b).
Vinit V DeoChartered Accountant
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.
Regulation Prohibited CountriesBorrowing or Lending in Rupees Bangladesh,Pakistan
Remittance of Assets Bangladesh,Pakistan
Non Resident Accounts Bangladesh,Pakistan
Investment in Shares Bangladesh,Pakistan, Sri Lanka
Acquisition and Transfer of
Immoveable Property
Bangladesh,Pakistan, Sri Lanka,
Afghanistan, China,Iran,Nepal,
Bhutan
Vinit V DeoChartered Accountant
PIO Card
• Privileges– No Visa Required to come to India– No separate Student / Employment Visa– Exempt from registration requirement if single stay in India does
not exceed 180 days– Parity with NRIs in facilities in Economic, Social and Financial
fieldfield
• Validity – 15 Years from the date of issue
• How to Apply– Submit the prescribed Form accompanied by documentary
evidence that person is PIO– Form to be submitted to the Indian Embassy where the person is
a Resident– Fee is Rs 15,000 for (Rs 7,500 for children upto 18 years of age)
Vinit V DeoChartered Accountant
Possession & Surrender of
Foreign ExchangeForeign Exchange
Vinit V DeoChartered Accountant
Brining and Retention of Foreign
Exchange in India• Brining Foreign Exchange
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 mentioned above(Amounts in excess of above: Currency Declaration Form)
• Retention of Foreign Exchange• Retention of Foreign ExchangePERSON RESIDENT IN INDIA can AT ANY GIVEN TIME retain upto USD 2,000 only if the same are acquired are as follows:– Unspent amount out of foreign exchange purchase for foreign
travel– 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 Person Resident Outside India visiting India– Gift or Honorarium while on a visit outside India
Vinit V DeoChartered Accountant
Surrender of Foreign Exchange
• Periods of Surrender
• 180 days from:• In case of Receipt – Date of Receipt
• In case of any amount is unused – Date of PurchasePurchase
• In case of unspent – Date of return to traveller
• Exchange brought back can be utilised for next visit
• Unspent exchange can also be deposited in RFC (D) Account
Vinit V DeoChartered Accountant
Bank Accounts
Vinit V DeoChartered Accountant
Bank Accounts – Which One?
NRE NRO
Used for international Used for local receipts Used for international
receipts and payments
Used for local receipts
and payments
Fully Repatriable Non-Repatriable (Now
repatriation allowed for certain types of
payments upto USD 1 Mn per year)
Vinit V DeoChartered Accountant
Permissible CreditsNRE/FCNR (B) NRO-Remittances from abroad
-Cheques, travellers cheques, currency etc. deposited during temporary visit to India
-Transfer from other NRE/FCNR Account
- Remittances from Abroad
- Legitimate dues in India of the Account holder
-Interest on funds in the Account
-Interest and maturity of Govt securities and units of MFs if they were bought in Foreign Currency
-Refund of share/debenture subscription if original payment made from NRE
-Refund of amount paid for flat booking if paid in foreign currency
Permissible DebitsNRE / FCNR (B) NRO-Local disbursements
-Remittances outside India
-Transfer to NRE / FCNR Account of self or any other person
-Investment in shares,securities,
-Payment of local expenses
-Investments
-Remittance of current income out of India net of taxes
-Investment in shares,securities, commercial paper of Indian company
-Purchase of immoveable property
Vinit V DeoChartered Accountant
Bank Accounts - INon-Resident (External) Rupee Account
Foreign Currency (Non Resident) Bank Account
Non Resident Ordinary Account
Popularly known as
NRE Account FCNR (B) Account
NRO Account
Currency in which the Account can be maintained
Rupees Rupees Pound Sterling,
US Dollar,
Deutsche Mark,
Japanese Yen,
Euro
Who Can Open NRI / PIO NRI / PIO Any Person
Resident outside
India (i.e. even
Foreigners)
Vinit V DeoChartered Accountant
Bank Accounts - II
Non-Resident (External) Rupee Account
Foreign Currency (Non Resident) Bank Account
Non Resident Ordinary Account
Type of Account Current Account,
Savings Account, Term (Fixed) Deposit
Current Account,
Savings Account, Savings Account,
Recurring
Deposit, Fixed
Deposit
Deposit
Period of Fixed Deposit is between 1 and 3 years only
Savings Account,
Recurring
Deposit, Fixed
Deposit
Joint Accounts Only Between NRIs / PIOs
Only Between NRIs / PIOs
Account be held
jointly with
Residents
Vinit V DeoChartered Accountant
Bank Accounts - IIINon-Resident (External) Rupee Account
Foreign Currency (Non Resident) Bank Account
Non Resident Ordinary Account
When the Non
Resident
becomes a
- Account to be
redesignated as
Resident Account
NRI can ask for
redemption of the
deposit, or
Account to be
redesignated as
Resident Account becomes a
Resident
Resident Account
i.e. normal bank
account in India,
or
- Funds in the
Account can be
transferred to
Resident Foreign
Currency Account
deposit, or
Deposit is allowed
to continue till its
due date and then
redeemed
Deposit is
converted into
resident Foreign
Currency Account
on maturity
i.e. normal bank
account in India
Vinit V DeoChartered Accountant
Issues – Bank Accounts
• What happens to the Savings Bank Accounts when a resident becomes a Non-Resident?
• What happens to the NRE/NRO/FCNR Accounts when a non-resident becomes a resident?
• Can one open more than one Accounts:– With different branches of the same Bank
– With different banks– With different banks
• Is money freely transferable between:– NRE to NRO and vice versa
– NRE to FCNR and vice versa
– 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 can undertake?
Vinit V DeoChartered Accountant
Remitting Money to India
Q:Are there restrictions / limits on sending money to India?
A:No. They can send money in any form without limit. without limit.
Exception: Loans to relatives in India (Maximum Amount is USD 250,000)
Vinit V DeoChartered Accountant
Loans to NRIs
Vinit V DeoChartered Accountant
Loans to NRIs
• Personal Loans– Loan for personal use against Shares,
Property etc.
• Housing Loans• Housing Loans– To purchase residential and commercial
property
• Loans against Bank Accounts
• Temporary Overdraft
• NRI Employees of Indian Companies
Vinit V DeoChartered Accountant
Personal Loans - I
• Types:
– Against Security
• Security of shares or securities
• Security of immoveable property other than • Security of immoveable property other than
agricultural land, plantation or farm house
– Other Loans
Vinit V DeoChartered Accountant
Personal Loans – Against Security
• Purpose– 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 businessbusiness
• Loan amount not to be credited to NRE Account
• Loan amount not to be remitted outside India
• Repayment from– Remittance from outside India
– Debit to NRE / FCNR / NRO Account of borrower
– Sale of property against which loan is availed
Vinit V DeoChartered Accountant
Other Loans – I
• Purpose
– Any purpose as per the Loan Policy laid down
by the Board of Directors of the Authorised
Dealer except:Dealer except:
• Chit Fund, Nidhi Company
• Agricultural Loans, Plantation, Real Estate, Farm
House
• Trading in TDR
• Investment in Capital Market including margin
trading and derivatives
Vinit V DeoChartered Accountant
Other Loans – II
• Other Conditions– Amount not to be credited to NRE / FCNR Accounts
– Loan amount not to be remitted outside India
• Repayment:– Remittance from outside India– Remittance from outside India
– Debit to NRE / FCNR / NRO Account of borrower
– Sale of property against which loan is availed
Vinit V DeoChartered Accountant
Housing Loans
• Purpose: Purchase of Residential Property
• No. of Properties: No Limit
• Amount of Loan: No Limit
• From Whom Can they Loans be availed• From Whom Can they Loans be availed
– Banks (SBI, ICICI etc) or Financial Institutions
(HDFC)
• Bank Account in India: Not Required
• Mortgage: Compulsory. In addition, Bank can
also take lien of borrowers other assets
Vinit V DeoChartered Accountant
Housing Loans – II
• Repayment: The loan can be repaid in any of the following 4 ways:– Transferring the amounts from your Bank
account outside India
– Making the payments out of funds in NRE / FCNR / NRNR / NRO Accounts in India
– Rental Income of property which you have acquired
– Asking a relative in India to make the payment on your behalf
Vinit V DeoChartered Accountant
Housing Loans - III
• Can Banks keep different terms and conditions for NRI?
• No. The quantum, repayment period and margin money have to be same for margin money have to be same for Residents and NRIs
• Exception: Rate of Interest can be different
Vinit V DeoChartered Accountant
Loans Against Bank Accounts
NRE / FCNR (B) NRO
To Account Holder / Third
Parties in India
Allowed
(Against security of FD
and for specified
Purposes as given in
next slide)
Allowed
(Against security of FD
and for specified
Purposes as given in
next slide)
Vinit V DeoChartered Accountant
Foreign Currency Loan to
Account Holder / Third
Party outside India
Allowed (Against
security of funds held in
Account for any
bonafide purpose)
Not Allowed
All the above loans are now restricted to Rs 20 Lacs
General Features of Loans in India
General Features of Loans in India
• Purpose of Loan– Personal or Business purposes
– Investment in firms and companies on non-repatriation basis
– Purchase of residential house for own use
• Loan cannot be used for Relending, Agricultural / plantation activities, Real estate business
• Third Party can be Individual, Firms or Companies
• No consideration e.g. commission can be paid to NRI for agreeing to pledge his deposits
Vinit V Deo
Chartered Accountant
Temporary Overdraft
NRE / FCNR (B) NRO
Maximum Amount Rs 50,000 As per Bank’s
judgement
Vinit V DeoChartered Accountant
Period Maximum 2 Weeks As per Bank’s
judgement
NRI Employees of Indian
Companies• A Body Corporate registered in India or Indian Company
can grant loans to employees who are NRI / PIO
• 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
Vinit V Deo
Chartered Accountant
• Amount to be credited to NRO Account
• 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:– Maximum of Rs 20 Lacs
– Loan amount not to exceed 90% of purchase price of shares
Questions
• What happens to the Loan / Overdraft given by the Bank to a Resident if he become a Non-Resident?
• How does one repay a Loan if the Lender
Vinit V DeoChartered Accountant
• How does one repay a Loan if the Lender becomes a Non-Resident?
• What happens when the borrower becomes a Non-Resident
Solutions
• An Authorised Dealer may allow continuance of
the loan subject to:
– Period of the loan cannot exceed the period originally
granted
– Repayment is made by inward remittances or from
Vinit V DeoChartered Accountant
– 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 A/c
• If the Borrower becomes Non-Resident, he can
repay out of NRO / NRE Account
Loans by NRIs
Loans by NRIs
• Loans to Individuals
• Loans to Relatives
• Loans to Companies
• Loans against Bank Accounts• Loans against Bank Accounts
– As discussed in the Bank Accounts section
Loans to Individuals
• NRI can given loan to any Resident
• Principal is not repatriable
• Loan to be given out of remittance outside India or from NRE/NRO/FCNR Account
Vinit V DeoChartered Accountant
India or from NRE/NRO/FCNR Account
• Maximum Period of Loan: 3 Years
• Interest: 2% over the Bank Rate
Loans to Relatives
• Indian Resident can borrow only from ‘Close Relatives’
• Minimum maturity is 1 Year
• Maximum Amount is USD 250,000
• Loan is Free of Interest• Loan is Free of Interest
• Loan received from remittance outside India or debit to NRE / FCNR Account
• Loan amount if fully repatriable
Vinit V Deo
Chartered Accountant
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 Offer
• Rate of Interest :SBI PLR + 3%
• Borrowing Company does not carry out activities of agriculture, real estate, chit fund, nidhi fund
• Period: Not less than 3 years
Vinit V Deo
Chartered Accountant
• Period: Not less than 3 years
• Additional Conditions– Non-Repatriation basis: Remittance from outside India / NRE /
FCNR / NRO Account– Repatriation Basis
• NRO Account not allowed for investment
• Percent holding by all NRIs should be within FDI Limit
Immoveable Property
Immoveable Property - Eligibility
• Definition of Person of Indian origin excludes citizens of:– Pakistan
– Bangladesh
Vinit V Deo
Chartered Accountant
– Bangladesh
– Sri Lanka
– Afghanistan
– China
– Iran
– Nepal
Non-Resident IndiaWhat can be Acquired Any immoveable property other
than Agricultural property, plantation or farm house
Payment Mode Remittance from outside India or debit to non-resident account
Transfer of Agricultural Land, Only to person resident in IndiaTransfer of Agricultural Land, Plantation or Farm House
Only to person resident in India
Transfer of Any Other Property To:Person Resident in India
i.e. Indian Citizen, NRI, PIO, Foreigner
Vinit V Deo
Chartered Accountant
PIO – Acquisition of PropertyType of Property Mode of
AcquisitionStatus of Transferor
Any immoveable property other than Agricultural property, plantation or farm house
Any Mode other than Gift and Inheritance
Resident (Indian and Foreign Citizen)
NRI
PIO
Any immoveable property Gift Resident (Only Indian
Vinit V DeoChartered Accountant
Any immoveable property other than Agricultural property, plantation or farm house
Gift Resident (Only Indian Citizen)
NRI
PIO
Any Property Inheritance Resident (Indian and Foreign Citizen) NRI
PIO
PIO – Transfer of PropertyType of Property Mode of
TransferStatus of Transferee
Any immoveable property other than Agricultural property, plantation or farm house
Sale Person Resident in India ie. Resident. PIO
Foreign Citizen Resident in India
Agricultural property, Gift, Sale Indian Citizen Agricultural property, plantation or farm house
Gift, Sale Indian Citizen Resident in India
Residential or Commercial Property
Gift Resident
NRI
PIO resident outside India
Foreign Citizen Resident in India
Vinit V Deo
Chartered Accountant
Remittance of Sale Proceeds
• Purchase in Foreign Currency
– Amount cannot exceed the remittance
originally made to acquire the property
– In case of residential property, the remittance
Vinit V Deo
Chartered Accountant
– In case of residential property, the remittance
is restricted to 2 such properties
• Purchased out of Rupee Funds
– Entire amount, subject to a maximum of USD
1 Mn can be remitted
Investment in Securities
Definition of Securities
• Shares, Stocks
• Bonds
• Debentures
• Units of Mutual Fund
Vinit V DeoChartered Accountant
• Units of Mutual Fund
• Government Securities
• Savings Certificates
Investment in Listed Cos.• Share / Convertible Debentures of an Indian Company• Through Registered Broker on a recognised Stock Exchange• 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 General Meeting
• NRI has to take delivery of shares
Vinit V DeoChartered Accountant
• NRI has to take delivery of shares• Repatriation Basis: Payment must be made out of foreign
remittance, NRE, FCNR Account• Non-Repatriation Basis: Payment can be made out of NRO
Account
Investment in Listed or Unlisted Cos.
• Shares / Convertible Shares of listed or unlisted company
• Shares can be issued by Public Issue or Private Placement
• Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation business
Vinit V DeoChartered Accountant
• Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation business
• 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
• Principal and gains are not repatriable
Housing & Real Estate
• Only NRIs are allowed to invest upto 100% in the following:
– Development of serviced plots and
construction of residential premisesconstruction of residential premises
– Development of townships
– City & Regional level Infrastructure facilities
including roads and bridges
– Manufacture of building materials
Vinit V DeoChartered Accountant
Investment in Other Securities
• NRI can without limit on Repatriation or Non-Repatriation basis invest in:– Government dated securities, Treasury Bills,
Units of Mutual Fund
Vinit V DeoChartered Accountant
– Bonds issued by PSU
– Shares in PSU disinvestment
• NRI can invest without limit on Non-Repatriation basis:– National Plan / Certificates
Transfer of Shares• NRI can transfer shares or convertible
debentures only to other NRI by way of Sale or Gift– 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
Vinit V Deo
Chartered Accountant
– The above permission is not required for companies in IT sector
• NRIs need prior permission of RBI to transfer shares to person resident in India
Starting a Business in India
Proprietary Concern / Firm
• NRI / PIO can invest in the capital of Proprietary Concern / Firm on the following conditions:– Amount received by inward remittance or
though non-resident Bank Accountthough non-resident Bank Account
– Firm is not in the agricultural or plantation activity or in real estate or Print Media
– Amount invested is not eligible for repatriation
Vinit V Deo
Chartered Accountant
Insurance Policies
Insurance Policies
• General / Life Insurance Policies taken by a
Person when he was a Non-Resident can
continue after he becomes a Resident
• If the premium has been paid by remittance
from India, the maturity proceeds have to be from India, the maturity proceeds have to be
brought back to India through Banking channel
within 7 days of receipt
Vinit V DeoChartered Accountant
Derivative Contracts
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
– Investment made under the Portfolio Investment
Vinit V Deo
Chartered Accountant
Scheme
• Cross currency exposure in FCNR Account
• Investment made in India since 1st Jan 93
• Proposed Foreign Investment in India
Remittance of Assets
Remittance of Assets
• Which assets can be remitted:
– Deposit with Bank, Firm or Company
– Provident Funds, Superannuation benefits
– Maturity proceeds / claims from insurance
Vinit V DeoChartered Accountant
– Maturity proceeds / claims from insurance
company
– Sale proceeds of shares or securities
– Sale proceeds of immoveable property
– Sale proceeds of any other assets held in
accordance with FEMA Regulations
Normal Remittance – NRI / PIO
• Upto USD 1 Million (Approx Rs 4 Crs) can be remitted out of:– Balance in NRO Account
– Sale proceeds of Assets
– Assets acquired by way of legacy or inheritance
Vinit V DeoChartered Accountant
• If remittance is made in multiple installments, all of them to be made through the same Authorised Dealer
Some Provisions Applicable to
ResidentsResidents
Special Case:Indians going out
• Amounts that can be freely taken out:
– Immigration : USD 100,000 of the limit
prescribed by the destination country
– Employment: USD 100,000
Vinit V DeoChartered Accountant
– Education: USD 100,000 per academic year
or estimate from the Educational Institution,
whichever is higher
Resident Foreign Currency A/c• Who can Open: A person Resident in India (ie all categories
including Firms, Companies etc.)• Type: Current or Term Deposit• Permissible Credits
Foreign Exchange Received:
– As pension/any superannuation/other monetary benefits
– On realised on conversion of assets referred in sub-section 6(4) & repatriated to Indiarepatriated to India
– FE received as gift or inheritance
– FE received as proceeds of Life Insurance claims / maturity / surrender values
• 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
Vinit V Deo
Chartered Accountant
Resident Foreign Currency (Domestic)– Who can Open: Resident Individual (ie No Firms, Companies etc.)
– Currency : Any foreign currency
– Type: Current Account without interest
– Permissible Credits
Only in the form of currency notes or travellers cheques received by way of:
• 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
• Hororarium or Gift received on a visit outside India
Vinit V Deo
Chartered Accountant
• Hororarium or Gift received on a visit outside India
• 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
• Insurance claim or maturity value of life insurance policy
– Permissible Debits• All Current and Capital Account transactions
– No ceiling on amount of balance in the Account
USD 200,000 Scheme
• A Resident Individual can freely remit abroad upto USD 200,000 per financial year
• Purpose can be any capital or current • Purpose can be any capital or current account transaction
• Resident can open a Bank Account with a foreign bank for this purpose
Vinit V Deo
Chartered Accountant