ready reckoner for overseas indiansmea.gov.in/images/pdf/oifcpublication2008readyreckoner.pdf ·...

READY RECKONER FOROVERSEAS INDIANS

ByKnowledge Partner on Taxation & FDI of OIFCCA Anupma AgarwalDirectorPeeyush Aggarwal & Co. Consultants Pvt LtdB-132 Anand ViharDelhi-110092Tel: +9111 22164800, 2216 4700, +9312276731Fax : +91 11 22164800Email : [email protected]:www.indialiaison.com

DISCLAIMER

This Ready Reckoner has been compiled/summarised from information available in officialdocuments/circulars/websites of the Govt. of India, RBI and other reliable sources. Everypossible care has been taken to provide current and authentic information. This ReadyReckoner for Overseas Indians is intended to serve as a guide to them and does not purportto be a legal document. In case of any variation between what has been stated in this ReadyReckoner and the relevant Act, Rules, Regulations, Policy Statements etc., the latter shallprevail.

PREFACE

Overseas Indians have made the country proud by their hard work and achievements intheir adopted countries. Many of the Indian Diaspora who had left the shores of Indiawith only education provided by the country and inherent entrepreneurial capabilities,have established themselves as prominent citizens in their adopted countries asentrepreneurs, businessmen, professionals and skilled workmen. The Overseas IndianCommunity is today the most diverse, eminently successful and best educatedcommunities wherever it resides seeking avenues to contribute to and benefit from India’sprogress. The new emergent India, burgeoning with opportunities across sectors is waitingto benefit from the expertise and experience of her expatriate community.

The Overseas Indian Facilitation Center (OIFC) has been established to facilitate andexpand the engagement of Overseas Indians with India. The Overseas Indian FacilitationCenter (OIFC) is not for profit, public private partnership between the Ministry ofOverseas Indian Affairs (MOIA) and the Confederation of Indian Industry (CII).

OIFC has great pleasure in bringing out ‘Ready Reckoner for Overseas Indians’. Thisbook has been updated till November 30, 2007. It brings together important but otherwisescattered information from the latest press notes, RBI master circulars, websites ofGovernment of India and other reliable sources.

Ready Reckoner for Overseas Indians is divided into three parts. The first part dealswith Foreign Exchange Management Act, 1999, the second part deals with Taxationand third part deals with other important matters affecting the Overseas Indians.

We hope the Reader will find this Ready Reckoner handy and user friendly. We lookforward to your comments and suggestions.

We are grateful to Hon’ble Minister of Overseas Indian Affairs Shri Vayalar Ravi andofficials of the Ministry of Overseas Indian Affairs for their encouragement and guidancein bringing out this book. We acknowledge the efforts made by our knowledge partneron Taxation and Foreign Direct Investment Peeyush Aggarwal & Co. Consultants PvtLimited for their contribution.

Subha RajanCEO, Overseas Indian Facilitation Center

OVERSEAS INDIAN FACILITATION CENTRE (OIFC)

BACKGROUND

Overseas Indians, today constitute significant economic, social and cultural force in theworld. They are estimated at over 25 million spread across 130 countries. On these lines theHon‘ble Prime Minister of India, Dr. Manmohan Singh made a promise at Pravasi BharatiyaDivas 2007, organized in New Delhi in January, to assist and facilitate the Overseas IndianDiaspora by opening a facilitation Centre for them.

“Facilitation Centre is envisaged as a source of investment advisory services for overseasIndian Investors. This proposal is being developed on the understanding that an Indian entity,independent of the Government, though supported by us, and set up in partnership withindustry, could be an effective instrument to liaise with members of the Indian Diaspora onmatters related to investment in our country”. He said.

Following the Prime Minister’s announcement, Ministry of Overseas Indian Affairs (MOIA),formed in the year 2003, started the research work to enable the dream come true. Afternumerous presentations and discussions, MOIA decided to partner with Confederation ofIndian Industry (CII) to jointly launch the Centre namely Overseas Indian Facilitation Centre.CII is partner and host institution of this not-for-profit neutral trust.

OBJECTIVES OF OIFC

Ø Promote overseas Indian investment into India and facilitate business partnership bygiving authentic & real time information

Ø Establish and maintain a Diaspora Knowledge Network by creating a database of OverseasIndians

Ø Function as a clearing house for all investment related information

Ø Assist States to project investment opportunities to overseas Indians in the infrastructureand social sectors. The objectives of the OIFC will be to bring the Indian States, IndianBusiness and potential Overseas Investors on the same platform and to facilitate theinvestors to identify the investment opportunities.

Ø Provide a host of advisory services to NRIs and PIOs. These could include matters suchas consular questions, stay in India, investment and financial issues etc.

SIGNING OF MOU

On 28 May 2007, Ministry of Overseas Indian Affairs (MOIA) had an agreement with theConfederation of Indian Industry (CII) in New Delhi. CII and MOIA signed a Memorandumof Understanding (MOU) and launched the Overseas Indian Facilitation Centre. The MOUwas signed between Joint Secretary of MOIA and Director General of CII.

Speaking at the launch of the Centre Mr Vayalar Ravi, Hon‘ble Minister, MOIA mentionedthat Centre is opened for the “Overseas Indians to enable them benefit from the numerousinvestment opportunities in India”. He added that the Ministry has given CII full freedom torun the Centre. OIFC would be a one-stop shop centre to help the Overseas Indians to investin India.

The website (www.oifc.in) was also launched on the occasion by the Hon‘ble Minister.

ORGANISATION STRUCTURE

The trust will have a two-tier body for its management. The body will include a GoverningCouncil and an Executive Directorate. The Governing Council will provide a broad policyframework for the programmes and activities of the trust in consonance with the objectivesof trust. The Executive Directorate/CEO will evolve strategies and implement theprogrammes / projects for achieving the goals set by the Governing Council.The Chairman of the trust would be Secretary, MOIA and the Co- Chairman would be ChiefMentor, CII.

OIFC SERVICES

OIFC would be focusing on providing real time services to the NRIs and PIOs.

HANDHOLDING SERVICES OIFC provides a wide range of consultative, advisory and handholding services in broadsectors like

• Capital Market Investment

• Manufacturing, Service Sector Investment

• Taxation Issue

• Real Estate Investment, etc

INFORMATION

The prime focus of OIFC would be to provide information services to the NRIs and PIOsround the clock. This would include the following:

Ø One stop shop for all investment related information

Ø Focus on Sector specific information and location

Ø Providing specific project investment information

Ø To explore investment opportunities in India.

CUSTOMISED

OIFC would be providing customized services, with the focus on the following:

Ø Finding sector and state specific investment project for the individual investors

Ø Preparing feasibility study reports related to different projects

Ø Assisting overseas road shows to attract FDI

Ø Facilitating investors through various forums

BUSINESS TO BUSINESS PARTNERSHIPS

B2B partnerships could focus on the following:

Ø Preparing sector wise and state wise database of Indian business

Ø Preparing database of potential Overseas Indian Investors

Ø Creating a virtual market place for the Overseas Indians

Ø Organizing sector and region specific investment interaction meet

DIASPORA KNOWLEDGE NETWORK

A strong Diaspora network would enable individual, Government of India & Associationsof Overseas Indians to shake hands across the virtual space and identify any project inwhich they could partner.

These projects may not necessarily be confined to industrial and financial sectors but alsocould be in the social development sectors.

It would help in promoting joint collaborations in Science and Technology by enablingoverseas Indians scientist to explore the R&D opportunities in India.

CONSULAR

The long-term objective of OIFC is to also provide consular services to the NRIs and PIOs.This has been a major cause of concern for the Non Resident Indians.

The services would be on paid up basis and would include facilities such as taking care ofVisas, Passport, OCI card of NRIs and PIOs etc.

Later on services such as admission related issues of Overseas Indian Children & Marriagecould also be focused upon.

The Governing Council is in the process of discussion and making advices on strengtheningOIFC services.

KNOWLEDGE PARTNERS

In order to provide quality services it was decided that the need of the hour was to work withorganisations, which have expertise in sectors, considered most important investment hubby the Overseas Indians. To start with, after numerous meetings, we have finalized thefollowing knowledge partners. They are:

• Edelweiss, Levi Consultancy, Client Associates for Investment Opportunities andWealth Management

• Cushman & Wakefield, Knight Frank, DGS Realtors for Real Estate.• Peeyush Aggarwal and Co. Consultants Pvt Ltd for Taxation & FDI.

CONTENTS

PART IFEMA Provisions and Overseas Indians

1. Foreign Direct Investment 22. Portfolio Investments 323. Acquisition & Transfer of Immovable Property in India 364. Establishment of Branch/Liaison/Project office in India 495. Investment in Partnership Firm / Proprietary Concern 566. Remittance Facility for NRIs / PIOs / Foreign Nationals 577. Bank Accounts 608. Miscellaneous Remittances from India 79

PART IITax Provisions and Overseas Indians

9. Residential Status for Tax Purposes 10810. Chargeable Income 11411. Special Provisions Relating to certain Income of NRIs 11712. Tax Exemption from Income Tax 11813. Tax Exemption from Wealth Tax 11914. Tax Exemption from Gift Tax 11915. Presumptive Tax Provisions 12116. Tax Incentive for Industries 12317. Authority for Advance Rulings 12518. Double Tax Avoidance Agreements 128

PART IIIOther Important Matters and Overseas Indians

19. Overseas Citizenship of India (OCI) 13020. PIO Card 14421. Baggage Rules and Visa Rules 14622. Foreign Contribution Regulation Act, 1976 15223. Special Economic Zones 16924. List of Important Websites 17425. Contact Details 17626. Feedback Form 177

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FOREIGN DIRECT INVESTMENT

PART - IFEMA Provisions

andOverseas Indians

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READY RECKONER FOR OVERSEAS INDIANS

FOREIGN DIRECT INVESTMENTS

FOREIGN INVESTMENT IN INDIA

Foreign Investment in India is governed bythe FDI policy announced by theGovernment of India and the provision ofthe Foreign Exchange Management Act(FEMA) 1999. Reserve Bank has issuedNotification No. FEMA 20/2000-RB datedMay 3, 2000, which contains the Regulationin this regard. This notification has beenamended from time to time.

Entry Routes for Investment in India

Foreign Investment is freely permitted inalmost all sectors. Foreign Direct Investmentcan be made under two routes-AutomaticRoute and Government Route. Under theAutomatic Route, the foreign investor or theIndian company does not require anyapproval from the Reserve Bank orGovernment of India for the investment.Under the Government Route, prior approvalof Government of India, Ministry of Finance,Foreign Investment Promotion Board (FIPB)is required.

Prohibition on Investment in India

Foreign Investment in any form is prohibitedin a company or a partnership firm or aproprietary concern or any entity, whetherincorporated or not (such as Trusts) whichis engaged or proposes to engage in thefollowing activities:

i. Business of chit fund, orii. Nidhi Company, oriii. Agricultural or plantation activities, oriv. Real estate business, or construction

of farm housesv. Trading in Transferable Development

Rights (TDRs)

It is clarified that Real Estate Business doesnot include development of townships,construction of residential/commercialpremises, roads or bridges. It is furtherclarified that partnership firms/proprietorship concerns having investmentas per FEMA regulations are not allowed toengage in Print Media sector.

In addition to the above, investment in theform of FDI is also prohibited in certainsectors such as:

i. Retail Tradingii. Atomic Energyiii. Lottery Businessiv. Gambling and Betting

Agriculture (excluding Floriculture,Horiculture, Development of seeds, AnimalHusbandry, Pisiculture and Cultivation ofvegetables, mushrooms etc. under controlledconditions and services related to agro andallied sectors) and Plantation (Other than Teaplantations).

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reserved for small scale sector, and

c. It complies with the sectoral capsspecified in Annexure 2.

It is clarified that the company /SSI Unitwould be reckoned as having given up itsSSI status, if the investment in plant andmachinery exceeds the limits prescribedunder the Micro, Small and MediumEnterprises Development Act, 2006.

Investment in EOU/ FTZs/ EPZs / HTPsand STPs

An SSI Unit which is an Export OrientedUnit or Unit in Free Trade Zone or in ExportProcessing Zone or in a SoftwareTechnology Park or in an ElectronicHardware Technology Park.

Issue of shares / convertible debentures/preference shares exceeding 24% of the paidup capital upto the sectoral caps specified inAnnexure-2.

Investment in Asset ReconstructionCompanies (ARC)

Person resident outside India Other thanForeign Institional Investors (FIIs), caninvest in the equity capital of AssetReconstruction companies (ARCs)registered with Reserve bank under theGovernment Route. Automatic Route is notavailable for such investments. Suchinvestments have to be strictly in the natureof FDI and investments by FIIs are notpermitted. FDI is restricted to 49% of thepaid up capital of the ARC.

Eligibility for Investing in India

A person resident outside India (other thana citizen of Pakistan or Bangladesh) or anentity incorporated outside India, (other thanan entity incorporated in Pakistan orBangladesh) can invest in India, subject tothe FDI policy of the Government of India.

Erstwhile OCBs, who have convertedthemselves into companies incorporatedoutside India, can make fresh investment inIndia under the FDI Scheme provided theyare not under the adverse notice of ReserveBank/SEBI.

Type of Instruments

Indian companies can freely issue equityshares/convertible debentures and preferenceshares subject to valuation norms prescribedunder FEMA Regulations.

Investment in Small Scale IndustrialUnits

A foreign investor can invest in an Indiancompany which is a small-scale industrialunit provided it is not engaged in any activity,which is prohibited under the FDI policy.Such investments are subject to a limit of24% of paid up capital of the Indiancompany/SSI unit. An SSI Unit can issueequity shares / fully convertible preferenceshares /fully convertible debentures morethan 24% of its paid up capital if:

a. It has given up its small scale status,

b. It is not engaged or does not proposeto engage in manufacture of items

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However, FIIs with SEBI can invest in theSecurity Receipts (SRs) issued by ARCsregistered with Reserve Bank. FIIs can investupto 49% each tranche of scheme of SRs,subject to the condition that investment bysingle FII in each tranche of scheme of SRsshallnot exceeds 10% of the issue.

Investment in Infrastructure Companiesin the Securities Market

Foreign Investment is permitted ininfrastructure companies in securities marketnamely stock exchanges, depositories andclearing corporations, in compliance withSEBI Regulation and subject to thefollowing conditions:

i. Foreign Investment upto 49% of thepaid up capital, is allowed in thesecompanies with a separate ForeignDirect Investment (FDI) cap of 26%and Foreign Institutional Investment(FII) cap of 23%;

ii. FDI will be allowed with specific priorapproval of FIPB; and

iii. FIIs can invest only through purchasein the secondary market.

Investment from Nepal & Bhutan

NRIs resident in Nepal & Bhutan as well ascitizens of Nepal and Bhutan are permittedto invest in shares and convertibledebentures of Indian companies under FDIscheme on repatriation basis, subject to thecondition that the amount of considerationfor such investment shall be paid only byway of inward remittance in free foreign

exchange through normal banking channelsby debit to the NRE/FCNR (B) accounts ofNRIs.

Issue of Rights / Bonus Shares

FEMA provision allow Indian companies tofreely issue Right /Bonus shares to existingnon-resident shares-holders, subject toadherence to sectoral cap, if any. Howeversuch issue of bonus / rights shares have tobe in accordance with other law/ statues likethe Companies Act 1956, SEBI (Disclosureand Investor Protection) guidelines (in caseof listed companies) etc. The price of sharesoffered on rights basis by the Indian companyto non resident shareholders shall not belower than the price at which such sharesare offered to resident shareholders.

Rights Issue to Erstwhile OCBs

As such entitlement of rights shares is notautomatically available to Overseascorporate Bodies (OCBs). OCBs have beende-recognized as a class of investors witheffect from September 16, 2003. Thereforecompanies desiring to issue rights shares tosuch erstwhile OCBs will have to takespecific prior permission from the ReserveBank.

However, bonus shares can be issued toerstwhile OCBs.

Renunciation of Rights by Residents toNon-Residents

Existing non-resident shares-holders areallowed to apply for issue of additionalshares/preference shares/convertible

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owned subsidiary abroad, other then citizensof Pakistan. Shares under ESOPs can beissued directly or through a Trust subject tothe condition that:

(i) The scheme has been drawn in termsof relevant regulations issued by theSecurities and Exchange Board of India; and

(ii) The face value of the shares to beallowed under the scheme to the non-residentemployees does not exceed 5 percent of thepaid-up capital of the issuing company.

If the company is not listed, it has to followthe provisions of the Companies Act, 1956.The Indian company can issue ESOPs toemployees who are resident outside India,other than citizens of Pakistan andBangladesh. The issuing company isrequired to report the details of such issuesto the concerned Regional Office of theReserve Bank, within 30 days from the dateof issue of shares under ESOPs.

Reporting of FDI

Reporting of Inflow

An Indian company receiving investmentfrom outside India for issuing shares /convertible debenture / preference sharesunder the FDI Scheme, should report thedetails of the inflow to the Reserve Bank notlater than 30 days from the date of receipt.Details to be reported are:

(i) Name and address of the foreigninvestors,

(ii) Date of receipt of funds in foreigncurrency and its rupee equivalent,

debenture Over and above their rightsentitlements. The investee company can allotthe additional rights shares out of un-subscribed shares; subject to the conditionthat the overall issue of shares to non-residents in the total paid up capital of thecompany does not exceed the sectoral caps.

Acquisition of Shares Under Scheme ofAmalgamation / Merger

Mergers & amalgamations of companies inIndia are usually governed by an order issuedby a competent court on the basis of thescheme submitted by the companiesundergoing mergers/ amalgamation. Oncethe scheme of merger or amalgamation oftwo or more Indian companies has beenapproved by a court in India, the transfereecompany or new company is allowed to issueshare to the shareholder of the transferorcompany resident outside India subject to thecondition that:

(i) The percentage of shareholding ofpersons resident outside India in thetransferee or new company does notexceed the sectoral cap.

(ii) The transferor company or thetransferee or the new company is notengaged in activities, which areprohibited in terms of FDI policy.

Issue of Shares Under Employees StockOption Scheme

Listed Indian companies are allowed to issueshares under the Employees Stock OptionScheme (ESOPs), to its employees oremployees of its joint venture of wholly

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(iii) Name and address of the AuthorisedDealer through whom the funds havebeen received, and

(iv) Details of Government approval for theinvestment, if any.

Reporting of Issue of Shares

After issue of shares /convertible debentures/preference shares, the Indian companyhas to file Form FC-GPR enclosed inAnnexure- 6 not later than 30 days from thedate of issue. The form can be downloadedfrom the Reserve Bank’s websiteh t t p : / / w w w. r b i . o r g . i n / S c r i p t s / B SViewFemaForms.aspx.

Part A of Form FC-GPR has to be duly filledup and signed by the Authorised Signatoryand submitted to the Authorised Dealer ofthe company, who will forward it to theReserve Bank.

While forwarding the Form, the AuthorisedDealer will enclose a KYC Report on theforeign investor. Along with Part A of FC-GPR, the following documents has to beattached by the company:

i. A certificate from the CompanySecretary of the company certifyingthat

a) All the requirements of theCompanies Act, 1956 have beencomplied with;

b) Terms and conditions of theGovernment approval, if any,have been complied with;

c) The company is eligible to issueshares under these Regulation;and

d) The company has all originalcertificates issued by authorizeddealers in India evidencingreceipt of amount ofconsideration.

ii. A certificate from Statutory Auditorsor Chartered Accountant indicating themanner of arriving at the price of theshares issued to the persons residentoutside India.

Both the above reports have to be submittedto the concerned Regional Office of theReserve Bank under whose jurisdiction theregistered office of the company is situated.

Part B of FC-GPR should be filed on anannual basis with the Reserve Bank. Thisfiling has to be done in the month of Juneevery year, for all outstanding investment byway of FDI as well as Portfolio / otherinvestment by way of re-invested earningsfor the previous April to March period. (Forexample, all Indian companies who havereceived FDI, Portfolio investments, otherinvestments (such as bonds, debentures etc.)from foreign investors during the periodApril 2006 to March 2007, have report inPart B of Form FC-GPR in the month of June2007, along with their retained earningsduring the period.)

The above mentioned three stage reportingmechanism has to be followed wherever

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there is inflow of funds through normalbanking channels or debit to NRE/FCNRaccount for investment purpose. Moreover,issue of bonus/ rights shares or stock optionsto persons resident outside India directly orstock options to persons resident outsideIndia directly or on amalgamation/mergerwith an existing Indian company, as well asissue of shares on conversion of ECB/royalty/lump sum technical know-how feehas to be reported in Form FC-GPR.

Issue Price

Price of shares issued to persons residentoutside India under the FDI scheme, shallbe worked out on the basis of SEBIguidelines in case of listed companies. Incaseof unlisted companies, valuation of shareshas to be done by a Chartered Accountant inaccordance with the guidelines issued by theerstwhile Controller of Capital Issues.

Foreign Currency Account

Indian companies, which are eligible to issueshares to persons resident outside India underthe FDI Scheme, will be allowed to retainthe shares subscription amount in a foreigncurrency account, with the prior approval ofRBI.

FOREIGN VENTURE CAPITALINVESTMENT

Investments by Venture Capital Funds

A SEBI registered Foreign Venture CapitalInvestor (FVCI) with specific approval fromRBI under FEMA Regulations can invest in

Indian Venture Capital Undertaking (IVCU)or Indian Venture Capital Fund (IVCF) or ina Scheme floated by such IVCFs subject tothe condition that the VCF should also beregistered with SEBI.

An IVCU is defined as a companyincorporated in India whose shares are notlisted on a recognized stock exchange inIndia and which is not engaged in an activityunder the negative list specified by SEBI. AVCF is defined as a fund established in theform of a trust, a company including a bodycorporate and registered under the Securitiesand Exchange Board of India (VentureCapital Fund) Regulations, 1996 which hasa dedicated pool of capital raised in a mannerspecified under the said Regulations andwhich invests in Venture CapitalUndertakings in accordance with the saidRegulations.

FVCIs can purchase equity/ equity linkedinstruments/ debt /debt instruments,debentures of and IVCU or of a VCF throughinitial public offer or private placement inunits of schemes / funds set up by a VCF. Atthe time of granting approval, RBI permitsthe FVCI to open a foreign currency accountor rupee account with a designated branchof an AD bank.

The purchase / sale of shares, debentures andunits can be at a price that is mutuallyacceptable to the buyer and the seller.

Authorized Dealers can offer forward coverto FVCIs to the extent of total inwardremittance. In case the FVCI has made anyremittance by liquidating some investments,original cost of the investments has to bededucted from the eligible cover.

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Purchase of Other Securities by FIIs

Foreign Institutional Investors can buy datedGovernment securities / treasury bills, listednon-convertible debentures / bonds issuedby Indian companies and units of domesticmutual funds either directly from the issuerof such securities or through a registeredstock broker on a recognized stock exchangein India. These purchases are subject to limitsnotified by SEBI.

Investment by MDBs

A Multilateral Development Bank (MDB),which is specifically permitted byGovernment of India to float rupee bonds inIndia, can purchase Government datedsecurities.

Foreign Investment in Tier I and Tier IIInstruments Issued by; Banks in India

FIIs registered with SEBI and NRIs havebeen permitted to subscribe to the perpetualDebt Capital instruments (eligible forinclusion as Tier I capital) and Debt Capitalinstruments (eligible for inclusion as upperTier II capital), issued by banks in India,subject to the following conditions.

a) Investment by all FIIs in Perpetual debtinstruments (Tier I) should not exceedan aggregate ceiling of 49 per cent ofeach issue, and investment byindividual FII should not exceed thelimit of 10 per cent of each issue.

b) Investments by all NRIS in perpetualDebt instruments (Tier I) should notexceed an aggregate ceiling of 24 percent of each issue and investments bya single NRI should not exceed 5percent of the issue.

OTHER FOREIGN INVESTMENTS

Purchase of Other Securities by NRIs

On Non-Repatriation Basis:

NRIs can purchase shares/ convertibledebentures issued by an Indian company onnon-repatriation bases without any limit.Amount of consideration for such purchaseshall be paid by inward remittance throughnormal banking channels from abroad or outof funds held in NRE / FCNR / NRO accountmaintained with the AD bank. NRI can also,without any limit, purchase on non-repatriation basis dated Governmentsecurities, treasury bills, units of domesticmutual funds, units of Money MarkerMutual Funds. Government of India hasnotified that NRIs are not permitted to makeInvestments in Small Savings Schemesincluding PPF. In case of investment on non-repatriation basis, the sale proceeds shall becredited to NRO account. The amountinvested under the scheme and the capitalappreciation thereon will not be allowed tobe repatriated abroad.

On Repatriation Basis:

A Non- resident Indian can purchase onrepatriation bases, without limit,Government dated securities (other thanbearer securities) or treasury bills or units ofdomestic mutual funds; bonds issued by apublic sector undertaking (PSU) in India andshares in Public Sector Enterprises beingdisinvested by the Government of India,provided the purchase is in accordance withthe terms and conditions stipulated in thenotice inviting bids.

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c) Investment by FIIs in Debt capitalinstruments (Tier II) shall be within thelimits stipulated by SEBI for FIIsinvestment in corporate debt.

d) Investment By NRIs In Debt capitalinstruments (Tier II) shall be inaccordance with the extant policy forinvestment by NRls in other debtinstruments.

The issuing banks are required to ensurecompliance with the conditions stipulatedabove at the time of issue. They are alsorequired to comply with the guidelinesnotified by the Department of BankingOperations and Development (DBOD),Reserve Bank of India, from time to time.

The issue-wise details of amount raised asperpetual Debt Instruments qualifying forTier I capital by the bank from FIIs / NRIsare required to be reported in the prescribedformat within 30 days of the issue to theReserve Bank.

Investment by FIIs in Upper Tier IIInstruments raised in Indian Rupees will be

outside the limit prescribed by SEBI forinvestment by FIIs in these instruments willbe subject to a separate ceiling of USD 500million.

The details of the secondary market sales /purchase by FIIs and the NRIs in theseinstruments on the floor of the stockexchange are to be reported by the custodiansand designated banks respectively, to theReserve Bank of India through the soft copyof the LEC Returns.

Investments by Overseas CorporateBodies (OCBs)

With effect from November 29, 2001, OCBsare not permitted to invest under the PIS inIndia. Further, the OCBs which have alreadymade investments under the PortfolioInvestment Scheme are allowed to continueholding such share / convertible debenturestill such time these are sold on the stockexchange. OCBs have been de-recognizedas a class of investors in India with effectfrom September 16, 2003.

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(A) List of activities for which Automatic Route of RBI for investment fromperson resident outside India is not available.

1 Petroleum Refining (except for private sector oil refining), Natural Gas /LNGPipelines

2 Investing companies in Infrastructure & Services Sector

3 Defence and Strategic Industries

4 Atomic Minerals

5 Print Media

6 Broadcasting

7 Postal Services

8 Courier Services

9 Development of Integrated Township

10 Tea Sector

11 Establishment & Operation of satellite

12 Asset Reconstruction Companies

(B) List of activities or items for which FDI is prohibited.

1 Retail Trading

2 Atomic Energy

3 Lottery Business

4 Gambling & Betting

5 Housing & Real Estate business

6 Agriculture (excluding floriculture, Horticulture, Development of seeds, AnimalHusbandry, Pisiculture & Cultivation of vegetables, Mushrooms etc. undercontrolled conditions & services related to agro & allied sectors) and Plantations(other than Tea plantations)

ANNEXURE-1

SECTORS/ACTIVITIES PROHIBITED/RESTRICTEDUNDER FDI POLICY

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Annexure-2

SECTORAL CAP ON INVESTMENTS BY PERSONS RESIDENTOUTSIDE INDIA

S.No. Sector Investment Description of Activity / Items /cap conditions

1. Private sector 74% Subject to guidelines issued by RBIbanking from time to time

2. Non-Banking 100% FDI / NRI investments allowed in theFinancial Companies following 19 NBFC activities shall be as

per the levels indicated below:

(a) Activities Covered

1. Merchant Banking

2. Under writing

3. Portfolio Management Services

4. Investment Advisory Services

5. Financial Consultancy

6. Stock broking

7. Asset Management

8. Venture Capital

9. Custodial Services

10. Factoring

11. Credit Reference Agencies

12. Credit Rating Agencies

13. Leasing & Finance

14. Housing Finance

15. Forex broking

16. Credit Card Business

17. Money changing Business

18. Micro credit

19. Rural credit

(b) Minimum capitalisation normsfor fund based NBFCs

1. For FDI upto 51% US $ 0.5 millionto be brought in upfront.

2. If the FDI is above 51% & upto 75%US $ 5 million to be brought upfront.

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3. If the FDI is above 75% and upto100%, US $ 50 million out of which$ 7.5 million to be brought in upfrontand the balance in 24 months.

(c) Minimum capitalisation norms fornon fund based activities

Minimum capitalisation norm of US $ 0.5million is applicable in respect of non-fund based NBFCs with foreigninvestment.

(d) Foreign investors can set up 100%operating subsidiaries without thecondition to disinvest a minimum of25% of its equity to Indian entities,subject to bringing in US $ 50 millionas at (b) (3) above (without anyrestriction on number of operatingsubsidiaries without bringing inadditional capital)

(e) Joint Venture operating NBFCs thathave 75% or less than 75% foreigninvestment will also be allowed to setup subsidiaries for undertaking otherNBFC activities subject to thesubsidiaries also complying with theapplicable minimum capital inflowi.e. (b) (1) & (b) (2) above.

(f) FDI in the NBFC sector is put onautomatic route subject tocompliance with guidelines of theRBI .RBI would issue appropriateguidelines in this regard.

3. Insurance 26% FDI upto 26% in the Insurance sector isallowed on the automatic route subjectto obtaining license from InsuranceRegulatory & development authority.

4. Telecommunication 49% (i) In basic, cellular, Value addedServices, and Global MobilePersonal Communication bySatellite, FDI is limited to 49%

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subject to licensing and securityrequirements & adherence by thecompanies (who are investing & thecompanies in which the investmentis being made) to the licensecondition for foreign equity cap &lock in period for transfer andaddition of equity and other licenseprovisions.

(ii) ISP with gateways, radio paging andend-to-end bandwith, FDI ispermitted upto 74% with FDI,beyond 49% requiring Governmentapproval. These services would besubject to licensing and securityrequirements.

(iii)No equity cap is applicable tomanufacturing activities.

(iv)FDI upto 100% is allowed for thefollowing activities in the telecomsector.

(a) ISPs not providing gateways (bothfor satellite and submarine cables)

(b) Infrastructure Providers providingdark fibre (IP Category 1)

(c) Electronic Mail, and

(d) Voice Mail

The above would be subject to thefollowing conditions:

(a) FDI upto 100% is allowed subject tothe condition that such companieswould divest 26% of their equity infavour of Indian Public in 5 years, ifthese companies are listed in otherparts of the world.

(b) The above services would besubject to licensing and securityrequirements, wherever required

15



(c) Proposal for FDI beyond 49% shallbe considered by FIPB on case-to-case basis.

5. (i) Petroleum Refining 100% FDI permitted upto 100% incase of(private Sector) private Indian companies

(ii) Petroleum Product 100% Subject to the existing sectoral policyMarketing and regulatory framework in the oil-

marketing sector.

(iii) Oil Exploration in 100% Subject to and under the policy ofboth small & Government on private participation inmedium sized field

(a) Exploration of oil and

(b) the discovered fields of national oilcompanies.

(iv) Petroleum product 100% Subject to and under the Governmentpipelines Policy & regulations thereof.

6. Housing and Real 100% Only the NRIs are allowed to invest inEstate the areas listed below:

(a) Development of serviced plots andconstruction of built up residentialpremises.

(b) Investment in real estate coveringconstruction of residential andcommercial premises includingbusiness centers and offices.

(c) Development of townships.

(d) City and regional level urbaninfrastructure facilities including bothroads and bridges.

(e) Investment in manufacture ofbuilding material.

(f) Investment in participatory venturesin (a) to (e) above.

(g) Investment in housing financeinstitution which is also opened toFDI as an NBFC.

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7. Coal & lignite (i) Private Indian companies setting upor operating power projects as wellas coal & lignite mines for captiveconsumption are allowed FDI upto100%.

(ii) 100% FDI is allowed for setting upprocessing plants subject to thecondition that the company shall notdo coal mining and shall not sellwashed coal or sized coal from itscoal processing plants in the openmarket and shall supply the washedor sized coal to those parties whoare supplying raw coal to coalprocessing plants for washing orsizing.

(iii) FDI upto 74% is allowed forexploration or mining of coal orlignite for captive consumption.

(iv) In all the above cases, FDI is allowedupto 50% under the automatic routesubject to the condition that suchinvestment shall not exceed 49% ofthe equity of a PSU.

8. Venture Capital Fund (VCF) Offshore Venture Capital Funds /and Venture Capital companies are allowed to invest incompany (VCC) domestic Venture Capital undertaking

as well as other companies throughautomatic route, subject to only SEBIregulations and sector specific caps onFDI.

9. Trading Trading is permitted under automaticroute with FDI upto 51% provided it isprimarily export activities, and theundertaking is an export house/tradinghouse/ star trading house/ super tradinghouse. However, under the FIPB route:

(i) 100% FDI is permitted in case oftrading companies for the followingactivities:

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(a) Exports

(b) Bulk imports with export/ex-bondedwarehouses sales;

(c) Cash and carry wholesale trading.

(d) Other import of goods or servicesprovided at least 75% is forprocurement and sale of the samegroup and not for third party use oronward transfer/distribution/sales.

(ii) The following kinds of trading arealso permitted, subject to provisionof EXIM policy.

(a) Companies for providing after salesservices i.e. not trading per se.

(b) Domestic trading of products of JVsis permitted at the wholesale levelfor such trading companies whowish to market manufacturedproducts on behalf of their jointventures in which they have equityparticipation in India.

(c) Trading of hi tech items requiringspecialized after sales service

(d) Trading of items for social sector.

(e) Trading of hi-tech medical anddiagnostic items

(f) Trading of items sourced from thesmall scale sector under which,based on technology provided andlaid down quality specification, acompany can market that itemunder its brand name.

(g) Domestic sourcing of products forexports.

(h) Test marketing of such items forwhich a company has approval formanufacture provided such testmarketing facility will be for a periodof two years, and investment in

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setting up manufacturing facilitiescommences simultaneously withtest marketing.

(i) FDI upto 100% permitted for e-commerce activities subject to thecondition that such companies woulddivest 26% of their equity in favourof the Indian public in five years, ifthese companies are listed in otherparts of the world. Such companieswould engage only in business tobusiness (B2B) e-commerce andnot in retail trading.

10. Power 100% FDI allowed upto 100% in respect ofproject relating to electricity generation,transmission and distribution, otherthan atomic reactor power plants. Thereis no limit on the project cost andquantum of foreign direct investment.

11. Drugs & 100% FDI permitted upto 100% for manu-Pharmaceuticals facture of drugs and pharmaceuticals

provided the activity does not attractcompulsory licensing or involve use ofrecombinant DNA technology andspecific cell / tissue targetedformulations. FDI proposals for themanufacture of licensable drugs andpharmaceuticals and bulk drugsproduced by recombinant DNAtechnology and specific cell/tissuetargeted formulations will require priorGovernment approval.

12. Road and highways, 100% In project for construction and main-Ports and harbours tenance of roads, highways, vehicular

bridges, toll roads, vehicular tunnels,ports and harbours.

13. Hotel & Tourism 100% The term hotels include restaurants,beach resorts and other touristcomplexes providing accommodationand/or catering and food facilities totourists. Tourism related industry include

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travel agencies, tour operating agenciesand tourist transport operatingagencies, units providing facilities forcultural, adventure and wild lifeexperience to tourists, surface, air andwater transport facilities to tourists,leisure, entertainment, amusement,sports and health units for tourists andConvention/Seminar units andorganizations.

For foreign technology agreements,automatic approval is granted if

(i) Upto 3% of the capital cost of theproject is proposed to be paid fortechnical and consultancy

(ii) Upto 3% of the net turnover ispayable for franchising andmarketing/publicity support fee, andUpto 10% of gross operating profitis payable for management fee,including incentive fee.

14. Mining 74% (i) For exploration and mining ofdiamonds and precious stones FDIis allowed upto 74% under automaticroute

100% (ii) For exploration and mining of goldand silver and minerals other thandiamonds and precious stones,metallurgy and processing FDI isallowed upto 100% under automaticroute

(iii) Press Note 18 (1998 series) dated14/12/98 would not be applicable forsetting up 100% owned subsidiariesin so far as the mining sector isconcerned, subject to a declarationfrom the applicant that he has noexisting joint venture for the samearea and/or the particular mineral.

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15. Advertising 100% Advertising sector - FDI upto 100%allowed on the automatic route

16. Films 100% Film Sector (Film production, exhibitionand distribution including relatedservices/products)

FDI upto 100% allowed on theautomatic route with no entry levelcondition

17. Airports 74% Govt. approval required beyond 74%

18. Mass Rapid Transport 100% FDI upto 100% is permitted on theSystems automatic route in mass rapid transport

system in all metros includingassociated real estate development

19. Pollution Control & 100% In both manufacture of pollution controlManagement equipment and consultancy for

integration of pollution control systemis permitted on the automatic route

20. Special Economic 100% All manufacturing activities excepts:Zones (i) Arms and ammunition, Explosives

and allied items of defenceequipments, Defence aircrafts andwarships,

(ii) Atomic substances, Narcotics andPsychotropic Substances andhazardous Chemicals,

(iii) Distillation and brewing of Alcoholicdrinks and

(iv) Cigarette/cigars and manufacturedtobacco substitutes.

21. Any other Sector/ 100% If not included in Annexure AActivity

22. Air Transport Services 100% for No direct or indirect equity participation(Domestic Airlines) NRIs 49% by foreign airlines is allowed

for others

23. Townships, housing, 100% The investment shall be subject to thebuilt-up infrastructure following guidelines:and construction-development projects.

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The sector wouldinclude, but not berestricted to, housing,commercial premises,hotels, resorts,hospitals, educationalinstitutions,recreational facilities,city and regionallevel infrastructure

(a) Minimum area to be developedunder each project shall be asunder:

(i) In case of development ofserviced housing plots - 10hectares

(ii) In case of constructiondevelopment project - 50,000 sq.mtrs.

(iii) In case of combination project,any one of the above twoconditions.

(b) The investment shall be subject tothe following conditions:

(i) Minimum capitalization of US$10 Million for wholly ownedsubsidiaries and US $5 Millionfor joint ventures with Indianpartners. The funds would haveto be brought in within sixmonths of commencement ofbusiness of the Company.

(ii) Original investment cannot berepatriated before a period ofthree years from completion ominimum capitalization.However, the investor may bepermitted o exit earlier with priorapproval of the Governmentthrough the FIPB.

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(c) At least 50% of the project must bedeveloped within a period of five yearsfrom the date of obtaining all statutoryclearances. The investor shall not bepermitted to sell undeveloped plots.

(d) The project shall conform to the normsand standards, as laid down in theapplicable building control regulations,bye-laws, rules, and other regulationsof the State Government /Municipal /Local Body concerned.

(e) The investor shall be responsible forobtaining all necessary approvals,including those of the building/ layoutplans, developing internal andperipheral areas and otherinfrastructure facilities, payment ofdevelopment, external developmentand other charges and complying withall other requirements as prescribedunder applicable rules / bye-laws /regulations of the State Government/ Municipal / Local Body concerned.

(f) The State Government / Municipal /Local Body concerned, whichapproves the building / developmentplan, shall monitor compliance of theabove conditions by the developer.

Note: For the purpose of these guidelines,"underdeveloped plots" will mean whereroads, water supply, street lighting,drainage, sewerage, and otherconveniences, as applicable underprescribed regulations, have not beenmade available. It will be necessary thatthe investor provides this infrastructureand obtains the completion certificatefrom the concerned local body / serviceagency before he would be allowed todispose of serviced housing plots

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FREQUENTLY ASKED QUESTIONS(FAQs)

Q.1. What are the forms in whichbusiness can be conducted by aforeign company in India?

A.1 A foreign company planning to setup business operations in India hasthe following options:

• As an Incorporated entity byincorporating a company underthe Companies Act, 1956through

• Joint Ventures; or• Wholly Owned Subsidiaries

As an office of a foreign entitythrough

• Liaison Office / RepresentativeOffice

• Project Office• Branch Office

Q. 2. How does a foreign companyinvest in India? What are theregulations pertaining to issue ofshares by Indian companies toforeign collaborators/ investors?

A. 2 Automatic Route

FDI up to 100% is allowed under theautomatic route in all activities/sectors except the following whichrequire prior approval of theGovernment:

i. Where provisions of PressNote 1 (2005 Series) issued bythe Government of India areattracted.

ii. Where more than 24% foreignequity is proposed to beinducted for manufacture ofitems reserved for the SmallScale sector.

iii. FDI in sectors/activities to theextent permitted underAutomatic Route does notrequire any prior approvaleither by Government or theReserve Bank of India.

iv. The investors are only requiredto notify the Regional Officeconcerned of the Reserve Bankof India within 30 days ofreceipt of inward remittancesand file the requireddocuments along with formFC-GPR with that Officewithin 30 days of issue ofshares to non-residentinvestors.

Government Route

FDI in activities not covered under theautomatic route requires prior Governmentapproval and are considered by InvestmentPromotion Board (FIPB), Ministry ofFinance. Application can be made in FormFC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applicationscarrying all relevant details are also accepted.No fee is payable.

General Permission of RBI under FEMA

Indian companies having foreign investmentapproval through FIPB route do not requireany further clearance from Reserve Bank ofIndia for receiving inward remittance and

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issue of shares to the non-resident investors.The companies are required to notify theconcerned Regional Office of the ReserveBank of India of receipt of inwardremittances within 30 days of such receiptand submit form FC-GPR within 30 days ofissue of shares to the non-resident investors.

Q.3. Which are the sectors where FDIis not allowed in India, under theAutomatic Route as well asGovernment Route?

A.3. FDI is prohibited under Governmentas well as Automatic Route for thefollowing sectors:

i) Retail Trading (except singlebrand product retailing)

ii) Atomic Energy

iii) Lottery Business

iv) Gambling and Betting

v) Business of Chit Fund

vi) Nidhi Company

vii) Agricultural or plantationactivities (cf Notification No.FEMA 94/2003-RB datedJune 18, 2003).

viii) Housing and Real Estatebusiness (except developmentof townships, construction ofr e s i d e n t i a l / c o m m e r c i a lpremises, roads or bridges tothe extent specified inNotification No. FEMA 136/2005-RB dated July 19, 2005)

ix) Trading in TransferableDevelopment Rights (TDRs).

Q.4. What should be done afterinvestment is made under theAutomatic Route or withGovernment approval?

A.4 A two-stage reporting procedure hasbeen introduced for this purpose.

• On receipt of money forinvestment:

• Within 30 days of receipt ofmoney from the non-residentinvestor, the Indian companywill report to the Regionaloffice of the Reserve Bank ofIndia, under whose jurisdictionits Registered Office is located,containing details such as:

• Name and address of theforeign investor/s

• Date of receipt of funds andtheir rupee equivalent

• Name and address of theauthorised dealer throughwhom the funds have beenreceived, and

• Details of the Governmentapproval, if any.

Upon issue of shares to non-residentinvestors:

• Within 30 days from the dateof issue of shares, a report inForm FC-GPR, PART Atogether with the followingdocuments should be filed withthe concerned Regional Officeof the Reserve Bank of India.

• Certificate from the Company

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Secretary of the companyaccepting investment frompersons resident outside Indiacertifying that the company hascomplied with the procedurefor issue of shares as laid downunder the FDI scheme asindicated in the NotificationNo. FEMA 20/2000-RB dated3rd May 2000 as amendedfrom time to time

• The proposal is within thesectoral policy / cappermissible under theautomatic route of RBI and itfulfills all the condition laiddown for investments underthe Automatic route namely

a) Non-resident entity/ies (otherthan individuals) to whom ithas issued shares does / do nothave any existing joint ventureor technology transfer or trademark agreement in India in thesame field.

b) The company is not investingin an SSI unit & the investmentlimit of 24 % has beenobserved/ requisite approvalshave been obtained.

c) Shares have been issued onrights basis and the shares areissued to non-residents at aprice that is not lower than thatat which shares are/were issuedto residents.

OR

d) Shares issued are bonus shares.

OR

e) Shares have been issued undera scheme of merger andamalgamation of two or moreIndian companies orreconstruction by of demergeror otherwise of an Indiancompany, duly approved by acourt in India.

• Shares have been issued interms of SIA/FIPB approvalNo. ……dated…

Certificate from Statutory Auditorsor Chartered Accountant indicatingthe manner of arriving at the priceof the shares persons resident outsideIndia.

Q.5. What are the guidelines fortransfer of existing shares fromnon-residents to residents orresidents to non-residents?

A.5 Transfer from Non-Residents toResidents

The term ‘transfer’ is defined underFEMA as including “sale, purchase,acquisition, mortgage, pledge, gift,loan or any other form of transfer ofright possession or lien”. (Section 2(ze) of FEMA, 1999).

The FEMA Regulations give specificpermission covering the followingforms of transfer i.e. transfer by wayof sale and gift. These permissionsare discussed below:

Transfer by Way of Sale

A person resident outside India canfreely transfer share/convertible

26


debenture by way of sale to a personresident in India as under

• Any person resident outsideIndia (other than NRls/OCBs)can transfer by way of sale theshares/convertible debenturesto any person resident outsideIndia; subject to the conditionthat the acquirer or transfereedoes not have any previousventure or tie-up in India in thesame field or sector.

• A non-resident Indian (NRI) oran erstwhile OverseasCorporate Body may transferby way of sale, the shares/convertible debentures held byhim to another NRI only.

• Any person resident outsideIndia may sell share/convertibledebenture acquired inaccordance with FEMARegulations on a recognizedStock Exchange in Indiathrough a registered broker.

Transfer by Way of Gift

A person resident outside India canfreely transfer share/convertibledebenture by way of gift to a personresident in India as under

• Any person resident outsideIndia, (not being a non-residentIndian or an erstwhile overseascorporate body), can transfer byway of gift the shares/convertible debentures to anyperson resident outside India;subject to the condition that the

acquirer or transferee does nothave any previous venture or tieup in India in the same field orsector.

• A non-resident Indian (NRI)may transfer by way of gift, theshares/convertible debenturesheld by him to another NRIonly.

• Any person resident outsideIndia may transfer share/convertible debenture to aperson resident in India by wayof gift.

TRANSFER FROM RESIDENT TONON-RESIDENT

Transfer by Way of Sale-GeneralPermission under Regulation 10 ofNotification No. FEMA 20/2000-RB datedMay 2000.

A person resident in India may transfer to aperson resident outside India any share/convertible debenture of an Indian Companywhose activities fall under the AutomaticRoute for FDI subject to the Sectoral Limits,by way of sale subject to complying withpricing guidelines, documentation andreporting requirements for such transfers, asmay be specified by the Reserve Bank ofIndia from time to time.

This general permission is not availablewhere:

• Indian Company whose shares orconvertible debentures are proposed tobe transferred is in financial servicesector. Financial services sector meansservice rendered by banking and non-

27


banking companies regulated by theReserve Bank, Insurance companiesregulated by Insurance Regulatory andDevelopment Authority (IRDA) andother companies regulated by any otherfinancial regulator, as the case may be.

• The transfer falls within the provisions ofSEBI (Substantial Acquisition of Sharesand Takeovers) Regulations, 1997

Transfer by Way of Gift

A person resident in India can transfer byway of gift shares to a person resident outsideIndia in the following ways:

• A person resident in India whoproposes to transfer to a personresident outside India [other thanerstwhile OCBs] any security by wayof gift, shall make an application tothe Central Office of the ForeignExchange Department, Reserve Bankof India furnishing the followinginformation, namely:

• Name and address of the transferor andthe proposed transferee

• Relationship between the transferorand the proposed transferee

• Reasons for making the gift. The giftsare permissible up to a limit of:

(i) 5% of the paid up capital of thecompany per donee, and

(ii) Amount does not exceedUSD 25,000 per calendar year foreach donor. The valuation ofthese shares shall be inaccordance with pricingguidelines prescribed.

Q.6. What if the transfer from residentto non-resident does not fall underthe above facility?

A.6. In case the transfer does not fit intoany of the above, either the transferor(resident) or the transferee (non-resident) can make an application forthe Reserve Bank’s permission forthe transfer. The application has tobe accompanied with the followingdocuments;

• A copy of FIPB approval (ifrequired).

• Consent letter from transferorand transferee clearlyindicating the number ofshares, name of the investeeCompany and the price atwhich the transfer is proposedto be effected.

• The present /post transfershareholding pattern of theIndian investee companyshowing the equityparticipation by residents andnon-residents category-wise.

• Copies of the Reserve Bankof India’s approvals/acknowledged copies of FC-GPR evidencing the existingholding of non-residents.

• If the sellers/transferors areNRls / OCBs, the copies of theReserve Bank of India’sapprovals evidencing theshares held by them onrepatriation / non-repatriationbasis.

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• Open Offer document filedwith SEBI if the acquisition ofshares by non-resident is underSEBI Takeover Regulations.

• Fair Valuation Certificate fromChartered Accountantindicating the value of sharesas per the following guideline.

• In the case of unlisted sharesthe fair value is worked out asper the erstwhile Controller ofCapital Issue/s.

• For listed shares, the priceworked out is not less than thehigher of average weekly highand low quotations for 6months and average of dailyhigh and low quotation or twoweeks preceding 30 days priorto the date of makingapplication to FIPB.

Q.7. Are the investments and profitsearned in India repatriable?

A.7. All foreign investments are freelyrepatriable except for the caseswhere NRls choose to investspecifically under non-repatriableschemes. Dividends declared onforeign investments can be remittedfreely through an Authorised Dealer.

Q.8. What are the guidelines on issueand valuation of shares in case ofexisting companies?

Α.8. • Allotment of shares onpreferential basis shall be asper the requirements of theCompanies Act, 1956, whichwill require special resolution

in case of a public limitedcompany.

• In case of listed companies,valuation shall be as per theReserve Bank of India /SEBIguidelines as follows:

• The issue price shall be eitherat:

a) The average of the weekly highand low of the closing pricesof the related shares quoted onthe stock exchange during thesix months preceding therelevant date or

b) The average of the weekly highand low of the closing pricesof the related shares quoted onthe stock exchange during thetwo weeks preceding therelevant date.

In case of unlisted companies,valuation shall be done in accordancewith the guidelines issued by theerstwhile Controller of CapitalIssues.

Q.9. What are the regulationspertaining to issue of ADRs/GDRsby Indian companies?

A.9. Indian companies are allowed toraise capital in the internationalmarket through the issue of ADRs/GDR. They can issue ADRs/GDRswithout obtaining prior approvalfrom RBI if it is eligible to issueADRs/GDRs in terms of the Schemefor issue of foreign currencyConvertible Bonds and OrdinaryShares (Through Depository Receipt

29


Mechanism) Scheme, 1993 andsubsequent guidelines issued byMinistry of Finance, Government ofIndia.

After the issue of ADRs/GDRs, thecompany has to file a return in theproforma given in Annexure ‘C’ tothe RBI Notification No. FEMA.20/2000-RB dated May 3, 2000. Thecompany is also required to file aquarterly return in a form specifiedin Annexure ‘D’ of the sameregulations.

There are no end-use restrictions onGDR/ADR issue proceeds, exceptfor an express ban on investment inreal estate stock markets.

Q. 10. What is meant by Sponsored ADR& Two-way fungibility Scheme ofADR/GDR?

A.10. Sponsored ADR/GDR: An Indiancompany may sponsor an issue ofADR/GDR with an overseasdepository against shares held by itsshareholders at a price to bedetermined by the Lead Manager.The Operative guidelines for thesame have been issued vide A.P.(DIR Series) Circular No.52 datedNovember 23, 2002.

Two-way Fungibility Scheme:Under the limited Two-wayfungibility Scheme, a registeredbroker in India can purchase sharesof an Indian company on behalf of aperson resident outside India for thepurpose of converting the shares sopurchased into ADRs/GDRs. Theoperative guidelines for the same

have been issued vide A.P. (DIRSeries) Circular No.21 datedFebruary 13,2002. The Schemeprovides for purchase and re-conversion of only as many sharesinto ADRs/GDRs which are equal toor less than the number of sharesemerging on surrender of ADRs/GDRs which have been actually soldin the market. Thus, it is only alimited two-way fungibility whereinthe headroom available for freshpurchase of shares from domesticmarket is restricted to the number ofconverted shares sold in the domesticmarket by non-resident investors. Solong ADRs/GDRs are quoted atdiscounts to the value of shares indomestic market; an investor willgain by converting the ADRs/GDRsinto underlying shares and sellingthem in the domestic market. In caseof ADRs/GDRs being quoted atpremium, there will be demand forreverse fungibility i.e. purchase ofshares domestic market for re-conversion into ADRs/GDRs. Thescheme is operationalised throughthe Custodian of securities andstockbrokers under SEBI.

Q.11. Can Indian companies issueForeign Currency ConvertibleBonds (FCCBs)?

A.11. FCCBs can be issued by Indiancompanies in the overseas market inaccordance with Scheme for Issue offoreign Currency Convertible Bondsand Ordinary Shares (ThroughDepository Receipt Mechanism)Scheme, 1993.

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The FCCB issue needs to conformto External Commercial Borrowingguidelines, issued by RBI videNotification No. FEMA 3/2000dated May 3, 2000 as amended fromtime to time.

Q.12. Can I invest through PreferenceShares? What are the regulationsapplicable in case of suchinvestments?

A.12. Foreign investment throughpreference shares is treated as foreigndirect investment. Foreigninvestment in preference shares isconsidered as part of share capitaland fall outside the ExternalCommercial Borrowing (ECB)guidelines/cap.

Preference shares to be treated asforeign direct equity for purpose ofsectoral caps on foreign equity,where such caps are prescribed,provided they carry a conversionoption. If the preference shares arestructured without such conversionoption, they would fall outside theforeign direct equity cap.

Q.13. Can shares be issued againstLumpsum Fee, Royalty and ECB?

A.13. Issue of equity shares against lumpsum fee, royalty and externalcommercial borrowings (ECBs) inconvertible foreign currency arepermitted, subject to meeting allapplicable tax liabilities and sectorspecific guidelines.

Q.14. Other than issue of shares underAutomatic /Government Route,what other general permissionsare available under NotificationNo.FEMA 20 dated 3-5-2000?

A.14 Issue of shares under ESOP by Indiancompanies to its employees oremployees of its joint venture orwholly owned subsidiary abroadwho are resident outside Indiadirectly or through a Trust up to 5%of the paid up capital of the company.

Issue and acquisition of shares bynon-residents after merger or de-merger or amalgamation of Indiancompanies.

Issue shares or preference shares orconvertible debentures on rightsbasis by an Indian company to aperson resident outside India.

Q.15. Can I invest in unlisted sharesissued by a company in India?

A.15 As per the regulations/guidelinesissued by the Reserve Bank of India/Government of India, investment canbe made in unlisted shares of Indiancompanies.

Q.16. Can a foreigner set up apartnership / proprietorshipconcern in India?

Only NRls/PIOs are allowed to setup partnership/proprietorshipconcerns in India. Even for NRls/PIOs investment is allowed on non-repatriation basis.

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Q.17. Can I invest in Rights sharesissued by an Indian company at adiscount?

A.17. There are no restrictions underFEMA for investment in Rightsshares at a discount, provided therights shares so issued are beingoffered at the same price to residentsand non-residents.

Q.18. What are the payment parametersfor foreign technology transferunder the Automatic Route ofReserve Bank of India? Howshould royalty be calculated?

A.18. Payments for foreign technologycollaboration by Indian companiesare allowed under the automaticroute subject to the following limits:

• Lump sum payments notexceeding US$ 2 million.

• Royalty payable being limitedto 5 per cent for domestic salesand 8 per cent for exports,without any restriction on theduration of the royaltypayments.

• The royalty limits are net oftaxes and are calculatedaccording to standardconditions.

• The royalty will be calculatedon the basis of the net ex-factory sale price of theproduct, exclusive of exciseduties minus cost of thestandard bought-out

components and the landedcost of imported components,irrespective of the source ofprocurement including oceanfreight, insurance, customduties, etc.

• RBI has delegated the powersto ADs to make payment ofroyalty under such agreements.The requirement of registrationof the agreement with theRegional Office of ReserveBank of India has been doneaway with.

Q.19. What should be done, if AutomaticRoute of Reserve Bank of India fortechnology transfer is notavailable?

A.19. Proposals, which do not satisfy theparameters prescribed for automaticroute of RBI, require clearance fromDepartment of Industrial Policy andPromotion, Ministry of Commerceand Industry, Government of India.

Q.20. What are the regulations forForeign Venture CapitalInvestment?

A.20. A SEBI registered Foreign VentureCapital Investor with generalpermission from the Reserve Bankof India can invest in a VentureCapital Fund or an Indian VentureCapital Undertaking, in the mannerand subject to the terms andconditions specified in schedule 6 ofRBI Notification No. FEMA 20/2000-RB dated May 3, 2000 asamended from time to time.

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PORTFOLIO INVESTMENTS

PORTFOLIO INVESTMENTS BY NRIS

Portfolio Investment Scheme

Non-Resident Indians (NRIs) are eligible topurchase shares and convertible debenturesissued by Indian companies under thePortfolio Investment Scheme (PIS).NRIs canapproach the designated branch of anyAuthorized Dealer (AD) bank authorized byRBI to administer the Portfolio InvestmentScheme for permission to open a NRI/NROaccount under the Scheme for routinginvestments.

Investments by Non-Resident Indians(NRIs)

NRIs are allowed to invest in shares of listedIndian companies in recognized StockExchange under the PIS. NRIs can invest onrepatriation and non-repatriation basis underPIS route upto 5% of the paid up capital ofthe company/ paid-up value of each seriesof debentures of listed Indian companies.The aggregate paid-up value of shares/convertible debentures purchased by allNRIs cannot exceed 10% of the paid-upcapital of the company. The aggregate ceilingof 10% can be raised to 24%, if the GeneralBody of the Indian company passes a specialresolution to that effect.The NRI investor hasto take delivery of the shares purchased andgive delivery of shares sold.Payment forpurchase of shares and/or debentures on

repatriation basis has to be made by way ofinward remittance of foreign exchangethrough normal banking channels or out offunds held in NRE/FCNR accountmaintained in India. If the shares arepurchased on non-repatriation basis, theNRIs can also utilize their funds in NROaccount in addition to the above. The linkoffice of the designated branch of an ADbank shall furnish to the Reserve Bank, areport on a daily basis on PIS transactionsundertaken by it, such report can befurnished on-line or on a floppy to RBI.

Shares Purchased by NRIs on the StockExchange Under PIS cannot beTransferred by Way of Sale Under PrivateArrangement or By Way of Gift to aPerson Resident in India or Outside Indiawithout Prior Approval of RBI.

NRIs are allowed to invest in ExchangeTrade Derivative Contracts approved bySEBI from time to time out of Rupee fundsheld in India on non-repatriation basissubject to the limits prescribed by SEBI.

Monitoring of Investment Position by RBICaution List

Reserve Bank monitors the investmentposition of NRIs in listed Indian companies,reported by Custodian Banks on a daily basisin Forms LEC (NRI).When the total holdingsof NRIs under the Scheme reach the trigger

33


limit, which is 2% below the applicable limit,Reserve Bank will issue a notice to alldesignated branches of Authorized Dealerbanks stating that any further purchases ofshares of the particular Indian company willrequire prior approval of Reserve Bank. (Forcompanies with paid-up capital of Rs. 1000Crores and above, the trigger limit is 0.5%below the applicable limit).

Ban List

Once the shareholding by NRIs reaches theoverall ceiling / sectoral cap / statutory limit,Reserve Bank puts the company on the BanList. Once a company is placed on the Banlist, no NRI can purchase the shares of theCompany under the portfolio InvestmentScheme.


FOREIGN PORTFOLIOINVESTMENT

Q. 1. What are the regulationsregarding Portfolio Investmentsby Foreign Institutional Investors(FIIs)?

A.1. • Investment by FIIs is regulatedunder SEBI (FII) Regulations,1995 and Regulation 5(2) ofFEMA Notification No 20dated May 3, 2000. FIIsinclude Asset ManagementCompanies, Pension Funds,Mutual Funds, and InvestmentTrusts as Nominee Companies,

Incorporated / InstitutionalPortfolio Managers or theirPower of Attorney holders,University Funds, EndowmentFoundations, Charitable Trustsand Charitable Societies.

• SEBI acts as the nodal point inthe registration of FIIs. TheReserve Bank of India hasgranted General Permission toSEBI Registered FIIs to investin India under the PortfolioInvestment Scheme (PIS).

• Investment by .individual. FIIscannot exceed 10% of paid upcapital. Investment by foreignregistered as sub accounts ofFIIs cannot exceed 5% of paidup capital. All FIIs and theirsub-accounts taken togethercannot acquire more than 24%of the paid up capital of anIndian Company. An IndianCompany can raise the 24%ceiling to the Sectoral Cap /Statutory Ceiling, asapplicable, by passing aresolution by its Board ofDirectors followed by passinga Special Resolution to thateffect by their General Body.

Q.2. What are the regulationsregarding Portfolio Investmentsby NRls/PIOs?

A.2. • Non Resident Indian (NRls)

34


and Persons of Indian Origin(PIOs) can purchase/sellshares/convertible debenturesof Indian Companies on StockExchanges under PortfolioInvestment Scheme. For thispurpose, the NRI/PIO has toapply to a designated branch ofa bank, which deals inPortfolio Investment. All sale/purchase transactions are to berouted through the designatedbranch.

• An NRI or a PIO can purchaseshares up to 5% of the paid upcapital of an Indian company.All NRls/PIOs taken togethercannot purchase more than10% of the paid up value of thecompany. (This limit can beincreased by the Indiancompany to 24% by passing aGeneral Body resolution).

• The sale proceeds of therepatriable investments can becredited to the NRE/NRO etc.accounts of the NRI/PIO,whereas the sale of non-repatriable investment can becredited only to NRO accounts.

The sale of shares will be subject topayment of applicable taxes.

Investment in Government Securities andCorporate Debt

Q.3. Can a Non-resident Indian investin Government Securities/Treasury bills and Corporatedebt?

A.3. Under the FEMA Regulations onlyNRls and SEBI registered FIIs arepermitted to purchase GovernmentSecurities/Treasury bills andcorporate debt. The details are asunder;

I. A Non-resident Indian canpurchase,

a) Government dated securities(other than bearer securities) ortreasury bills or units ofdomestic mutual funds;

b) bonds issued by a public sectorundertaking (PSU) in India;

c) Shares in Public SectorEnterprises being disinvestedby the Government of India.

They can also invest, on non-repatriation basis, in datedGovernment securities (otherthan bearer securities), treasurybills, units of domestic mutualfunds, units of Money MarketMutual Funds in India, orNational Plan/Savings

35


Certificates on non repatriationbasis. The guidelines for theseschemes are framed by theconcerned Governmentagencies.

II. A SEBI registered ForeignInstitutional Investor maypurchase, on repatriation basis,dated Government securities/treasury bills, non-convertibledebentures/bonds issued by anIndian company and units ofdomestic mutual funds eitherdirectly from such securities orthrough a registeredstockbroker on a recognisedstock exchange in India. TheFIIs is required to ensure that,

a) The FII allocation of its totalinvestment between equity anddebt instruments (includingdated Government Securitiesand Treasury Bills in the Indiancapital market) should notexceed the ratio of 70:30.

b) In case the FII is set-up as a100% debt FII, it can invest theentire corpus in datedGovernment Securitiesincluding Treasury Bills, non-convertible debentures/bondsissued by an Indian companysubject to limits, if any,stipulated by SEBI in thisregard.

The Investment in GovernmentSecurities/Treasury Bills andCorporate debt is subject to a ceilingdecided in consultation with theGovernment of India. Investmentlimit for the FIIs as a group inGovernment securities currently isUSD 3.2 Billion. The limit forInvestment in Corporate debt is USD1.5 billion. At present, the FIIs canalso invest in Innovative instrumentssuch as upper tier-II capital upto alimit of USD 500 million.

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ACQUSITION AND TRANSFER OFIMMOVABLE PROPERTY IN INDIA

ACQUISITION AND TRANSFER OFIMMOVABLE PROPERTY IN INDIA

A person resident outside India who is acitizen of India (NRI) can acquire by way ofpurchase, any immovable property in Indiaother than agricultural land/plantationproperty/farm house. He can transfer anyimmovable property other than agriculturalor plantation property or farm house to:

a) A person resident outside India who isa citizen of India or

b) A person of Indian origin residentoutside India or

c) A person resident in India.He maytransfer agricultural land/ plantationproperty / farm house acquired by wayof inheritance, only to Indian citizenspermanently residing in India.Paymentfor acquisition of property can be madeout of:

i. Funds received in India throughnormal banking channels by wayof inward remittance from anyplace of India or

ii. Funds held in any non-residentaccount maintained inaccordance with the provisionsof the Foreign Exchange

Management Act, 1999 and theregulations made by ReserveBank Of India from time totime.Such payment can not bemade either by traveller’s chequeor by foreign currency notes orby other mode than thosespecially mentioned above.

A person resident outside India who is aperson of Indian Origin (PIO) can acquireany immovable property in India other thanagricultural land / farm house / plantationproperty:-

i. By way of purchase out of fundsreceived by way of inward remittancethrough normal banking channels or bydebit to his NRE/ FCNR(B)/ NROaccount.

ii. By way of gift from a person residentin India or a NRI or a PIO.By way ofinheritance from any a person residentin India or a person resident outsideIndia who had acquired such propertyin accordance with the provisions ofthe foreign exchange law in force orFEMA regulations at the time ofacquisition of the property.

A PIO may transfer any immoveableproperty other than agricultural land /Plantation property / farm house in Indiaa)

37

ACQUISITION & TRANSFER OF IMMOVABLE PROPERTY IN INDIA

By way of sale to a person resident in India.b)By way of gift to a person resident in Indiaor a Non resident Indian or a PIO.A PIO maytransfer agricultural land / Plantationproperty / farm house in India by way of saleor gift to person resident in India who is acitizen of India.

PURCHASE / SALE OF IMMOVABLEPROPERTY BY FOREIGNEMBASSIES / DIPLOMATS /CONSULATE GENERAL

Foreign Embassy / Consulate as well asDiplomatic personnel in India are allowedto purchase / sell immovable property inIndia other than agricultural land / plantationproperty / farm house provided (i) clearancefrom Government of India , Ministry ofExternal Affairs is obtained for suchpurchase / sale, and (ii) the consideration foracquisition of immovable property in Indiais paid out of funds remitted from abroadthrough banking channel.

ACQUISITION OF IMMOVABLEPROPERTY FOR CARRYING ON APERMITTED ACTIVITY

A branch, office or other place of business,(excluding a liaison office) in India of aforeign company established with requisiteapprovals wherever necessary, is eligible toacquire immovable property in India whichis neccessary for or incidental to carrying onsuch activity provided that all applicablelaws, rules, regulations or directions in forceare duly complied with. The entity/

concerned person is required to file adeclaration in the form IPI with ReserveBank, within ninety days from the date ofsuch acquisition. The non-resident is eligibleto transfer by way of mortgage the said thesaid immovable property to an AD bank asa security for any borrowing.

REPATRIATION OF SALE PROCEEDS

In the event of sale of immovable propertyother than agricultural land / farm house /plantation property in India by NRI / PIO,the authorized dealer will allow repatriationof sale proceeds outside India provided;i.The immovable property was acquired by theseller in accordance with the provisions ofthe foreign exchange law in force at the timeof acquisition by him or the provisions ofFEMA Regulations;ii. The amount to berepatriated does not exceed (a) the amountpaid for acquisition of the immovableproperty in foreign exchange receivedthrough normal banking channels or out offund held in Foreign currency Non-ResidentAccount or (b) the foreign currencyequivalent as on the date of payment, of theamount paid where such payment was madefrom the funds held in Non-ResidentExternal account for acquisition of theproperty.iii. In the case of residentialproperty, the repatriation of sale proceeds isrestricted to not more than two suchproperties.In the case of sale of immovableproperty purchased out of Rupee funds, ADsmay allow the facility of repatriation of fundsout of balances held by NRIs/PIO in theirNon-resident Rupee (NRO) accounts upto

38


can freely purchase immovableproperty in India:

i) Non-Resident Indian (NRI)-that is a citizen of Indiaresident outside India

ii) Person of Indian Origin (PIO)-that is an individual (not beinga citizen of Pakistan orBangladesh or Sri Lanka orAfghanistan or China or Iranor Nepal or Bhutan), who

1. at any time, held Indianpassport, or

2. who or either of whose fatheror grandfather was a citizen ofIndia by virtue of theConstitution of India or theCitizenship Act, 1955 (57 of1955).

The general permission, however,covers only purchase of residentialand commercial property and not forpurchase of agricultural land /plantation property / farm house inIndia.

Q.2. Whether NRI/PIO can acquireagricultural land/plantationproperty/farm house in India?

A2. No. Since general permission is notavailable to NRI/PIO to acquireagricultural land/ plantation property/ farm house in India, such proposalswill require specific approval ofReserve Bank and the proposals are

US$ 1 million per financial year subject toproduction of undertaking by remitter and acertificate from the Chartered Accountant inthe formats prescribed by the CBDT.

PRIOR PERMISSION FORACQUISITION OR TRANSFER OFIMMOVABLE PROPERTY IN INDIABY CITIZEN OF CERTAINCOUNTRIES

No person being a citizen of Pakistan,Bangladesh, Sri Lanka, Afghanistan, China,Iran, Nepal or Bhutan shall acquire ortransfer immovable property in India, otherthan lease, not exceeding five years withoutprior permission of Reserve Bank. Foreignnationals of non Indian origin residentoutside India are not permitted to acquire anyimmovable property in India unless suchproperty is acquired by way of inheritancefrom a person who was resident in India.Foreign Nationals of non Indian origin whohave acquired immovable property in Indiaby way of inheritance with the specificapproval of RBI can not transfer suchproperty without prior permission of RBI.


ACQUISITION OF IMMOVABLEPROPERTY IN INDIA

Q.1 Who can purchase immovableproperty in India?

A.1 Under the general permissionavailable, the following categories

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considered in consultation with theGovernment of India.

Q.3. Do any documents need to be filedwith Reserve Bank of India afterpurchase?

A3. No. An NRI / PIO who has purchasedresidential/commercial propertyunder general permission, is notrequired to file any documents withthe Reserve Bank.

Q.4. How many residential/commercialproperties can NRI/PIO purchaseunder the general permission?

A4. There are no restrictions on thenumber of residential/commercialproperties that can be purchased.

Q.5. Can a foreign national of non-Indian origin be a second holderto immovable property purchasedby NRI/PIO?

A5. No.

Q.6. Can a foreign national of non-Indian origin resident outsideIndia purchase immovableproperty in India?

A6. No. A foreign national of non-Indianorigin, resident outside India cannotpurchase any immovable property inIndia. But, he/she may takeresidential accommodation on leaseprovided the period of lease does notexceed five years. In such cases,there is no requirement of taking any

permission of or reporting to ReserveBank

Q.7 Can a foreign national who is aperson resident in India purchaseimmovable property in India?

A7. Yes, but the person concerned wouldhave to obtain the approvals, andfulfill the requirements if any,prescribed by other authorities, suchas the concerned State Government,etc However, a foreign nationalresident in India who is a citizen ofPakistan, Bangladesh, Sri Lanka,Afghanistan, China, Iran, Nepal andBhutan would require prior approvalof Reserve Bank. Such requests areconsidered by Reserve Bank inconsultation with the Government ofIndia.

Q.8 Can an office of a foreign companypurchase immovable property inIndia?

A8. A foreign company which hasestablished a Branch Office or otherplace of business in India, inaccordance with FERA / FEMAregulations, can acquire anyimmovable property in India, whichis necessary for or incidental tocarrying on such activity. Thepayment for acquiring such aproperty should be made by way offoreign inward remittance throughproper banking channel. Adeclaration in form IPI should be

40


filed with Reserve Bank withinninety days from the date ofacquiring the property. Such aproperty can also be mortgaged withan Authorised Dealer as a securityfor other borrowings. On winding upof the business, the sale proceeds ofsuch property can be repatriated onlywith the prior approval of ReserveBank. Further, acquisition ofimmovable property by entities whohad set up Branch Offices in Indiaand incorporated in Pakistan,Bangladesh, Sri Lanka, Afghanistan,China, Iran, Nepal and Bhutan wouldrequire prior approval of ReserveBank to acquire such immovableproperty. However, if the foreigncompany has established a LiaisonOffice, it can not acquire immovableproperty. In such cases, LiaisonOffices can take property by way oflease not exceeding 5 years.

Q.9 Whether immovable property inIndia can be acquired by way ofgift?

A9. (a) Yes, NRls and PIOs can freelyacquire immovable property by wayof gift either from

i) a person resident in India or

ii) an NRI or

iii) a PIO.

However, the property can only becommercial or residential.Agricultural land/plantation

property/ farm house in India cannotbe acquired by way of gift.

(b) A foreign national of non-Indianorigin resident outside India cannotacquire any immovable property inIndia through gift.

Q.10. Whether a non-resident caninherit immovable property inIndia?

A.10. Yes, a person resident outside Indiai.e.

i) an NRI

ii) a PIO and

iii) a foreign national of l1on-lndian origin can inherit andhold immovable property inIndia from a person who wasresident in India. However, acitizen of Pakistan,Bangladesh, Sri Lanka,Afghanistan, China, Iran,Nepal and Bhutan should seekspecific approval of ReserveBank.

Q.11. From whom can the non-residentinherit immovable property?

A.11. A person resident outside India (i.e.NRI or PIO or foreign national ofnon-Indian origin) can inheritimmovable property from

(a) a person resident in India.

(b) a person resident outside India.

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However, the person from whom theproperty is inherited should haveacquired the same in accordance withthe foreign exchange regulationsapplicable at that point of time.

TRANSFER OF IMMOVABLEPROPERTY IN INDIA

(i) TRANSFER BY SALE

Q.12 Can an NRI/ PIO/foreign nationalsell his residential / commercialproperty?

A.12. (a) NRI can sell property in Indiato-

i) a person resident in India or

ii) an NRI or

iii) a PIO.

(b) PIO can sell property in Indiato-

i) a person resident in India.

ii) an NRI or

iii) a PIO - with the prior approvalof Reserve Bank

(c) Foreign national of non-Indianorigin including a citizen ofPakistan or Bangladesh or SriLanka or Afghanistan or Chinaor Iran or Nepal or Bhutan cansell property in India with priorapproval of Reserve Bank to

i) a person resident in India

ii) an NRI

iii) a PIO

Q.13. Can an agricultural land/plantation property/farm house inIndia owned/held by a non-resident be sold?

A.13. (a) NRI/ PIO may sell agriculturalland /plantation property/farmhouse to a person resident inIndia who is a citizen of India.

(b) Foreign national of non-Indianorigin resident outside Indiawould need prior approval ofReserve Bank to sellagricultural land/plantationproperty/ farm house in India

(ii) TRANSFER BY GIFT

Q.14. Can a non-resident gift hisresidential/commercial property?

A.14. Yes.

(a) NRI/ PIO may gift residential/commercial property to

(i) person resident in India or

(ii) an NRI or

(iii) PIO.

(b) foreign national of non-Indianorigin needs prior approval ofReserve Bank.

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Q.15. Can an NRI/PIO/Foreign nationalholding an agricultural land/plantation property/farm house inIndia gift the same?

A.15. (a) NRI/PIO can gift but only to aperson resident in India who isa citizen of India.

(b) foreign national of non-Indianorigin needs prior approval ofReserve Bank

(iii) TRANSFER THROUGHMORTGAGE

Q.16. Can residential/commercialproperty be mortgaged?

A.16. i) NRI/ PIO can mortgage to:

(a) an authorised dealer/ housingfinance institution in India-without the approval ofReserve Bank.

(b) a party abroad - with priorapproval of Reserve Bank.

ii) a foreign national of non-Indianorigin can mortgage only withprior approval of Reserve Bank

iii) a foreign company which hasestablished a Branch Office orother place of business inaccordance with FERA/FEMAregulations has generalpermission to mortgage theproperty with an authorizeddealer in India.

Mode of payment for purchase

Q.17. How can an NRI/PIO makepayment for purchase ofresidential/commercial propertyin India?

A.17. Payment can be made by NRI/ PIOout of

(a) funds remitted to India throughnormal banking channel or

(b) funds held in NRE/ FCNR (B)/NRO account maintained inIndia

No payment can be made either bytraveller’s cheque or by foreigncurrency notes.

No payment can be made outsideIndia.

Q.18 What shall be the option if thereis refund of application money/payment made by the buildingagencies/seller because of non-allotment of flat/plot/cancellationof bookings/ contracts?

A.18. The amount of refund, together withinterest (net of income tax) can becredited to NRE account. This issubject to condition that the originalpayment was made by way of inwardremittance or by debit to NRE /FCNR (B) account.

Q.19. Can NRI/PIO avail of loan froman authorised dealer for acquiringflat/ house in India for his own

43


residential use against the securityof funds held in his NRE FixedDeposit account/ FCNR (B)account?

A.19. Yes, such loans are subject to theterms and conditions as laid downin Schedules 1 and 2 to NotificationNo. FEMA 5/2000-RB dated May 3,2000 as amended from time to time.However, banks cannot grant freshloans or renew existing loans inexcess of Rupees 20 lakh againstNRE and FCNR(B) deposits eitherto the depositors or to third parties[cf. A.P. (DIR Series) Circular No.29 dated January 31, 2007].

Such Loans can be Repaid

(a) by way of inward remittancethrough normal bankingchannel or

(b) by debit to his NRE / FCNR(B) / NRO account or

(c) out of rental income from suchproperty.

(d) by the borrower’s closerelatives, as defined in section6 of the Companies Act, 1956,through their account in Indiaby crediting the borrower’sloan account.

Repatriation

(a) In case the amount has beenreceived from inwardremittance or debit to NRE /

FCNR (B)/NRO account foracquiring the property or forrepayment of the loan, theprincipal amount can berepatriated outside India.

For this purpose, repatriationoutside India means thebuying or drawing of foreignexchange from an authoriseddealer in India and remitting itoutside India through normalbanking channels or creditingit to an account denominatedin foreign currency or to anaccount in Indian currencymaintained with an authoriseddealer from which it can beconverted in foreign currency

(b) in case the property is acquiredout of Rupee resources and/orthe loan is repaid by closerelatives in India ( as definedin Section 6 of the CompaniesAct, 1956), the amount can becredited to the NRO account ofthe NRI/PIO. The amount ofcapital gains, if any, arising outof sale of the property can alsobe credited to the NROaccount.

NRI/PIO are also allowed by theAuthorised Dealers to repatriate anamount up to USD 1 million perfinancial year out of the balance inthe NRO account for all bonafidepurposes to the satisfaction of the

44


authorised dealers, subject to taxcompliance.

Q.20. Can NRI/PIO, avail of housingloan in rupees from an authoriseddealer or housing financeinstitution in India approved bythe National Housing Bankfor purchase of residentialaccommodation or for thepurpose of repairs / renovation/improvement of residentialaccommodation? How can suchloan be repaid?

A.20. Yes, NRI/PIO can avail of housingloan in rupees from an AuthorisedDealer or housing finance institutionsubject to certain terms andconditions. (Please refer toRegulation 8 of Notification No.FEMA 4/2000-RB dated 3.5.2000and AP. (DIR) Series Circular No. 95dated April 26, 2003).

Such a loan can be repaid

(a) by way of inward remittancethrough normal bankingchannel or

(b) by debit to his NRE / FCNR(B) / NRO account or

(c) out of rental income from suchproperty.

(d) by the borrower’s closerelatives, as defined in section6 of the Companies Act, 1956,through their account in India

by crediting the borrower’sloan account.

Q.21. Can NRI/PIO avail of housingloan in rupees from his employerin India?

A21. Yes, subject to certain terms andconditions (Please refer toRegulation 8A of Notification

No FEMA 4/2000-RB dated May 3,2000 and AP. (DIR Series) CircularNo.27 dated October 10, 2003).

REPATRIATION OF SALE PROCEEDSOF RESIDENTIAL/COMMERCIALPROPERTY PURCHASED BY NRI/PIO

Q.22. Can NRI/PIO repatriate the saleproceeds of immovable property?If so, what are the terms?

A.22. NRI/ PIO may repatriate the saleproceeds of immovable property inIndia

(a) If the property was acquiredout of foreign exchangesources i.e. remitted throughnormal banking channels I bydebit to ‘NRE I FCNR (B)account

The amount to be repatriated shouldnot exceed the amount paid for theproperty:

1. in foreign exchange receivedthrough normal bankingchannel or

45


2. by debit to NRE account(foreign currency equivalent,as on the date of payment) ordebit to FCNR (B) account.

Repatriation of sale proceeds ofresidential property purchased byNRI/ PIO out of foreign exchange isrestricted to not more than two suchproperties.

Capital gains, if any, may be creditedto the NRO account from where theNRI/PIO may repatriate an amountup to USD one million, per financialyear, as discussed below.

(b) If the property was acquiredout of Rupee sources, NRI orPIO may remit an amount upto USD one million, perfinancial year, out of thebalances held in the NROaccount (inclusive of saleproceeds of assets acquired byway of inheritance orsettlement), for all the bonafidepurposes to the satisfaction ofthe Authorized Dealer bankand subject to tax compliance.

Q.23. Can an NRI/PIO repatriate theproceeds in case the sale proceedwas deposited in NRO account?

A23. From the NRO account, NRI/PIOmay repatriate up to USD one millionper financial year (April-March),which would also include the saleproceeds of immovable property.

Q.24. If a Rupee loan was taken by NRI/PIO from Authorised Dealer orhousing finance institution forpurchase of residential propertycan an NRI/ PIO repatriate thesale proceeds of such property?

A.24. Yes, provided the loan has beensubsequently repaid by remittingfunds from abroad or by debit toNRE/FCNR (B) accounts (Please seeAP. (DIR) Series Circular No. 101dated 5.5.2003)

Q.25. If the property was purchasedfrom foreign inward remittance orfrom NRE I FCNR (B) account,can the sale proceeds of propertybe repatriated immediately?

A.25. Yes.

Q.26. Is there any restriction on numberof residential properties in respectof which sale proceeds can berepatriated by NRI/ PIO?

A.26. Yes, sale proceeds of not more thantwo residential properties can berepatriated.

Q.27. If the immovable property wasacquired by way of gift by the NRI/PIO, can he repatriate abroad thefunds from sale?

A.27. The sale proceeds of immovableproperty acquired by way of giftshould be credited to NRO accountonly. From the balance in the NROaccount, NRI/PIO may remit up to

46


USD one million, per financial year,subject to the satisfaction ofAuthorised Dealer and payment ofapplicable taxes.

Q.28 If the immovable property wasreceived as inheritance by theNRI/PIO can he repatriate the saleproceeds?

A.28. Yes, general permission is availableto the NRls/PIO to repatriate the saleproceeds of the immovable propertyinherited from a person resident inIndia. NRls/PIO may repatriate anamount not exceeding USD onemillion, per financial year, onproduction of documentary evidencein support of acquisition / inheritanceof assets, an undertaking by theremitter and certificate by aChartered Accountant in the formatsprescribed by the Central Board ofDirect Taxes vide their Circular No.10/2002 dated October 9,2002. [cf.A P. (DIR Series) Circular No.56dated November 26, 2002].

In case of a foreign national, saleproceeds can also be repatriated evenif the property is inherited from aperson resident outside India. Butthis is allowed only with priorapproval of Reserve Bank. Theforeign national has to approachReserve Bank with documentaryevidence in support of inheritance ofthe immovable property and the

undertaking and the CA Certificateas mentioned above.

The general permission forrepatriation of sale proceeds ofimmovable property is not availableto a citizen of Pakistan, Bangladesh,Sri Lanka, China, Afghanistan andIran and he has to seek specificapproval of Reserve Bank.

As FEMA specifically permitstransactions only in Indian Rupeeswith citizens of Nepal and Bhutan,the question of repatriation of thesale proceeds in foreign exchange toNepal and Bhutan would not arise.

PROVISIONS FOR FOREIGNE M B A S S I E S / D I P L O M A T S /CONSULATE GENERALS

Q.29. Can Foreign Embassies/Diplomats/Consulate Generalpurchase sell immovable propertyin India?

A.29. Yes, Foreign Embassies / Diplomats/ Consulate Generals can purchaseand sell any immovable propertyother than agricultural land /plantation property / farm house inIndia with prior clearance from theGovernment of India, Ministry ofExternal Affairs. The paymentshould be made by foreign inwardremittance through normal bankingchannel.

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A.32. The sale proceeds may be creditedto NRO account.

Q.33. Can the sale proceeds of theimmovable property referred to inQ.No.31 be remitted abroad?

A.33. Yes, provided the amount to beremitted does not exceed USD onemillion per financial year, for allbonafide purposes to the satisfactionof Authorised Dealers and subject totax compliance.

Q.34. Can foreign nationals of non-Indian origin resident in India oroutside India who had earlieracquired immovable propertyunder FERA with specificapproval of Reserve Bankcontinue to hold the same? Canthey transfer such property?

A.34. Yes, they may continue to hold theimmovable property. However, theycan transfer the property only withthe prior approval of Reserve Bank.

Q.35. Is a resident in India governed bythe provisions of Foreign ExchangeManagement (Acquisition andtransfer of immovable property inIndia) Regulations, 2000?

A.35. A person resident in India who is acitizen of Pakistan or Bangladesh orSri Lanka or Afghanistan or China orIran or Nepal or Bhutan is governedby the provisions of ForeignExchange Management (Acquisitionand Transfer of Immovable Property

OTHER ISSUES

Q.30. Can NRI/PIO rent out theresidential commercial propertypurchased out of foreignexchange/rupee funds?

A.30. Yes, NRI/PIO can rent out theproperty without the approval of theReserve Bank. Rent received can becredited to NRO, NRE account orremitted abroad. Powers have beendelegated to the Authorised Dealersto allow repatriation of currentincome like rent, dividend, pension,interest, etc. of NRls/PIO who do notmaintain an NRO account in Indiabased on an appropriate certificationby a Chartered Accountant, certifyingthat the amount proposed to beremitted is eligible for remittance andthat applicable taxes have been paid/provided for. [cf. AP. (DIR Series)Circular No. 45 dated May 14, 2002].

Q.31. Can a person who had boughtimmovable property when he wasa resident, continue to hold suchproperty even after becoming anNRI’PIO?

A.31. Yes, he can continue to hold theresidential/commercial property /agricultural land/ plantation property/ farm house in India without theapproval of the Reserve Bank.

Q.32. In which accounts can the saleproceeds of such immovableproperty be credited?

48


in India) Regulations, 2000 i.e. hewould require prior approval ofReserve Bank for acquisition andtransfer of immovable property inIndia even though he is resident inIndia. Such requests are consideredby Reserve Bank in consultation withthe Government in India.

DEFINITIONS

Q.36. Where are the terms a ‘personresident in India’ and a ‘personresident outside India’ defined?

A.36. Section 2 (v) and Section 2 (w) ofthe FEMA, 1999 defines ‘personresident in India’ and a ‘personresident outside India’ respectively.

Q.37. What is meant by a personresident in India?

A.37. Under FEMA, a person resident inIndia is defined as a person residingin India for more than one hundredand eighty-two days during thecourse of the preceding financial year(AprilMarch) and who has come toor stays in India either for taking upemployment, carrying on business orvocation in India or for any otherpurpose, that would indicate hisintention to stay in India for anuncertain period. In other words, tobe treated as ‘a person resident inIndia’ under FEMA, a person has notonly to satisfy the condition of theperiod of stay (being more than 182days during the course of thepreceding financial year) but has also

to comply with the condition of thepurpose / intention of stay.

Q.38. What is meant by a personresident outside India?

A.38. The Act defines a ‘a person residentoutside India’ as a person who is nota person resident in India’ (Asdefined in Q.No. 37 above)

Q.39. Who can determine whether aperson is resident in India or not?

A.39. Reserve Bank does not determine theresidential status. Under FEMA,residential status is determined byoperation of law. The onus is on anindividual to prove his / her residentialstatus, if questioned by any authority.

Q.40. If a foreign national is a personresident in India as per theprovisions of Section 2 (v) (i)B ofthe FEMA, 1999, does he requireapproval of Reserve Bank topurchase any immovable propertyin India?

A.40 A foreign national resident in Indiadoes not require approval fromReserve Bank from FEMA angle, butapprovals if any required in terms ofregulations prescribed by otherauthorities such as the concernedState Government etc. will have to beobtained by him / her. However, aforeign national resident in India whois a citizen of Pakistan, Bangladesh,Sri Lanka, Afghanistan, China, Iran,Nepal and Bhutan requires specificprior approval of Reserve Bank.

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ESTABLISHMENT OF BRANCH/LIAISON/PROJECT OFFICE IN INDIA

ESTABLISHMENT OF BRANCH/LIAISON/PROJECT OFFICES IN

INDIA

APPLICATION TO RBI

Companies incorporated outside India,desirous of opening a Liaison/Branch officein India have to make an application in formFNC-1 to the Reserve Bank of India, alongwith the following documents:

English version of the certificate ofincorporation / Registration orMemorandum & Articles of Associationattested by Indian Embassy/ Notary Publicin the country of Registration.Latest AuditedBalance Sheet of the applicant entity.

LIAISON OFFICES

Companies which are incorporated outsideIndia can establish liaison office in India withthe specific approval of the Reserve Bank.A Liaison Office (also known asRepresentative office) can undertake onlyliaison activities, i.e. it can act as a channelof communication between Head Officeabroad and parties in India. It is not allowedto undertake any business activity in Indiaand cannot earn any income in India.Expenses of such offices are to be metentirely through inward remittances offoreign exchange from the Head Office

outside India. The role of such offices is,therefore, limited to collecting informationabout possible market opportunities andproviding information about the companyand its products to the prospective Indiancustomers. Permission to set up such officesis initially granted for a period of 3 yearsand this may be extended from time to timeby the Regional Office of RBI under whosejurisdiction the office is set up. A LiaisonOffice can undertake the following activitiesin India:

1) Representing in India the parentcompany/group companies.

2) Promoting export import from/to India.

3) Promoting technical/financialcollaborations Between Parent/groupcompanies and companies in India.

4) Acting as a communication channelbetween the Parent company andIndian companies.

Liaison/representative offices have to file anAnnual Activity Certificate from a CharteredAccountant to the Regional Office of RBI.The Certificate is obtained to ensure that theLiaison Office has undertaken only thoseactivities that have been approved by RBI.

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Technology and development ofsoftware in India.

(7) Rendering technical support to theproducts Supplied by parent/groupcompanies.

(8) Foreign airline / shipping Company.

*Retail trading activities of any nature is notallowed for a Branch Office in India.

A branch office is not allowed to carry outmanufacturing, processing activities in India,directly or indirectly. Branch Offices haveto submit Annual Activity Certificate froma chartered Accountant to RBI. The branchoffices are permitted to acquire property fortheir own use and to carry out the permitted/incidental activities but not for leasing orrenting out the property. However, entitiesfrom Pakistan, Bangladesh, Sri Lanka,Afghanistan, Iran or China are not allowedacquire immovable property in India evenfor a Branch Office. These entities areallowed to take such property on lease basisonly. Entities from Nepal are allowed toestablish only Liaison Offices in India.Profits earned by the Branch Offices arefreely remittable from India, subject topayment of applicable taxes.

BRANCH OFFICE IN SEZS

RBI has given general permission to foreigncompanies for establishing branch/unit inSpecial Economic Zones (SEZs) toundertake manufacturing and serviceactivities. The general permission is subjectto the following conditions:

LIAISON OFFICE OF FOREIGNINSURANCE COMPANIES

Foreign Insurance companies can establishLiaison Offices in India after obtainingapproval from the Insurance Regulatory andDevelopment Authority. Such Insurancecompanies have been given generalpermission under FEMA for establishingLiaison Offices in India.

BRANCH OFFICES

Companies incorporated outside India andengaged in manufacturing or tradingactivities are allowed to set up BranchOffices in India with specific approval of theReserve Bank. Such Branch Offices arepermitted to represent the parent/groupcompanies and undertaking the followingactivities in India:

(1) Export/import of goods*

(2) Rendering professional or consultancyServices.

(3) Carrying out research work, in whichthe Parent company is engaged.

(4) Promoting technical or financialcollaborations between Indiancompanies and parent or overseasgroup company.

(5) Representing the parent company inIndia and acting as buying/sellingagent in India.

(6) Rendering services in Information

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(c) the project has been cleared by anappropriate authority; or

(d) a company or entity in India awardingthe contract has been granted TermLoan by a Public Financial Institutionor a bank in India for the project.

However, if the above criteria are not met,the foreign entity has to approach RBI toobtain approval.

Opening of Foreign Currency Account

ADs can open non-interest bearing ForeignCurrency Account for Project Office in Indiasubject to the following:

a) The Project Office has beenestablished in India, with the general/specific permission of Reserve Bank,having the requisite approval from theconcerned project SanctioningAuthority,

b) The contract under which the projecthas been sanctioned, specificallyprovides for payment in foreigncurrency,

c) Each Project has only one ForeignCurrency Account,

d) The permissible debits to the accountshall be payment of project relatedexpenditure and credits shall be foreigncurrency receipts from the ProjectSanctioning Authority, and remittancesfrom parent/group company Abroad orbilateral/multilateral internationalfinancing agency.

1) such units are functioning in thosesectors where 100 Per cent FDI ispermitted,

2) such units comply with part XI of thecompanies Act (Section 592 to 602),

3) Such units function on a stand-alonebasis,

4) In the event of winding-up of businessand for remittance of winding-upproceeds, the branch shall approach anAuthorized Dealer in ForeignExchange with the documentsmentioned in the paragraph below—”Closure of Office”—except the copyof RBI approval.

BRANCHES OF BANKS

Foreign Banks do not require approval formRBI under FEMA, if such Bank has obtainednecessary approval under the provisions ofthe Banking Regulation Act,1949

PROJECT OFFICES

Reserve Bank has granted generalpermission to foreign companies to establishProject Offices in India, provided they havesecured a contract form an Indian companyto execute a project in India, and

(a) the project is funded directly by inwardremittance from abroad; or

(b) the project is funded by bilateral ormultilateral International FinancingAgency; or

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e) The responsibility of ensuring that onlythe approved debits and credits areallowed in the Foreign CurrencyAccount shall rest solely with theconcerned branch of the AD. Further,the account shall be subject to 100 percent scrutiny by the ConcurrentAuditor of the respective AD banks.

f) The Foreign Currency Account has tobe closed at the completion of theProject.

Intermittent Remittances by ProjectOffices in India

AD branch can permit intermittentremittances by Project Offices pendingwinding up/completion of the projectprovided they are satisfied with the bonafidesof the transaction and subject to thefollowing:

a) The Project Office submits anAuditors/Chartered AccountantsCertificate to the effect that sufficientprovisions have been made to meet theliabilities in India including Income-Tax etc.

b) An undertaking from the ProjectOffices that the remittance will not, inany way, affect the completion of theproject in India and that any shortfallof funds for meeting any liability inIndia will be met by inward remittancefrom abroad.

Inter Project transfer of funds requiresprior permission of the concerned

Regional Office of the Reserve Bankunder whose jurisdiction the ProjectOffice is situated.

General Conditions

Partnership/Proprietary concerns set upabroad are not allowed to establish Branch/Liaison Office in RBI.

Branch/Liaison/Project Offices are allowedto open non-interest bearing current accountsin RBI. Such Offices are required toapproach their Authorised Dealers foropening the accounts.Transfer of assets ofLiaison/Branch Office to subsidiaries orother Liaison/Branch Offices is allowed withspecific approval of the Central Office ofRBI.

Closure of Officers

At the time of winding up of the LiaisonOffices, the company has to approach therespective Regional Office with documentssuch as:

• Copy of the Reserve Bank’spermission for establishing the Officein India

• Auditor’s certificate-Indicating themanner in which remittable amounthas been arrived and supported by astatement of assets and liabilities of theapplicant, and indicating the mannerof disposal of assets.

Confirming that all liabilities in Indiaincluding arrears of gratuity and otherbenefits to employees etc. of the

53


branch/office have either fully met oradequately provided for;

Confirming that no income accruingfrom sources outside India (includingproceeds of exports) has remainedunrepatriated to India;

• No-objection or Tax clearancecertificate from Income taxauthority for the remittance; and

• Confirmation from the applicantthat no legal proceedings in anyCourt in India are pending andthere is no legal impediment tothe remittance.

Once Regional Office’s approval isobtained, Authorised Dealers canallow remittance of surplus.

At the time of closure of BranchOffices, the entities have to approachthe Central Office for approval, withthe same set of documents asmentioned above.


Q.1. How can foreign companies openLiaison/Project/Branch office inIndia?

A.1. Foreign company can set up Liaison/Branch Offices in India afterobtaining approval from ReserveBank of India. Reserve Bank of Indiahas given general permission toforeign companies to establish

Project Offices in India subject tocertain conditions.

Q.2. What is the procedure to befollowed for obtaining ReserveBank’s approval for openingLiaison Office/ RepresentativeOffice?

A.2 A Liaison office can carry on onlyliaison activities, i.e. it can act as achannel of communication betweenHead Office abroad and parties inIndia. It is not allowed to undertakeany business activity in India andcannot earn any income in India.Expenses of such offices are to bemet entirely through inwardremittances of foreign exchangefrom the Head Office abroad. Therole of such office is therefore,limited to collecting informationabout possible market opportunitiesand providing information about theCompany and its products to theprospective Indian customers.

The companies desirous of openinga liaison office in India may makean application in form FNC-1 alongwith the documents mentionedtherein to Foreign InvestmentDivision, Foreign ExchangeDepartment, Reserve Bank of India,Central office Mumbai. This form isavailable at www.rbi.org.in

Permission to set up such offices isinitially granted for a period of 3

54


years and this may be extended fromtime to time by the Regional Officein whose jurisdiction the office is setup. Liaison/Representative officeshave to file an Activity Certificate onan annual basis from a CharteredAccountant to the concernedRegional Office of the Reserve Bankof India, stating that the Liaisonoffice has undertaken only thoseactivities permitted by Reserve Bankof India.

Q.3. What is the procedure for settingup Project Office?

Α.3 • Foreign companies are grantedprojects in India by Indianentities. General Permissionhas been granted by ReserveBank of India VideNotification No. FEMA 95/2003-RB dated July 2, 2003 toforeign companies to openProject Office/s in Indiaprovided they have securedfrom an Indian company, acontract to execute a project inIndia, and

• the project is funded directly byinward remittance fromabroad; or

• the project is funded by abilateral or multilateralInternational FinancingAgency; or

• the project has been cleared byan appropriate authority; or

• a company or entity in Indiaawarding the contract has beengranted Term Loan by a PublicFinancial Institution or bank inIndia for the project.

• However, if the above criteriaare not met, or if the parententity is established inPakistan, Bangladesh, SriLanka, Afghanistan, lran orChina, such applications haveto be forwarded to CentralOffice of the Foreign ExchangeDepartment of the ReserveBank at Mumbai for approval.

Q.4. What is the procedure for setting upBranch office?

Reserve Bank permits companies engagedin manufacturing and trading activitiesabroad to set up Branch Office in India forthe following purposes:

• To represent the parent company/otherforeign companies in various mattersin India e.g. acting as buying/sellingagents in India.

• To conduct research work in the areain which the parent company isengaged.

• To undertake export and importactivities and trading on wholesalebasis

55


• To promote possible technical andfinancial collaborations between theIndian companies and overseascompanies

• Rendering professional or consultancyservices

• Rendering services in Informationtechnology and development ofsoftware in India

• Rendering technical support to theproducts supplied by the parent/Groupcompanies. .

• A branch office is not allowed to carryout manufacturing, processingactivities directly/ indirectly. A Branchoffice is also not allowed to undertake

Retail Trading activities of any naturein India. Branch Offices have to submitActivity Certificate from charteredAccountant on an annual basis to theCentral Office of FED. For annualremittance of profit Branch office maysubmit required documents to anauthorised dealer.

• Permission for setting up branchoffices is granted by the Reserve Bankof India. Reserve Bank of Indiaconsiders the track record of theApplicant Company, existing traderelations with India, the activity of thecompany proposing to set up office inIndia as well as financial position ofthe company while scrutinising theapplication.

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INVESTMENT IN PARTNERSHIPFIRM / PROPRIETARY CONCERN

INVESTMENT IN PARTNERSHIPFIRM/PROPRIETARY CONCERN

A non-resident Indian or a person of Indianorigin resident outside India can invest byway of contribution to the capital of a firmof a proprietary concern in India on non-repatriation basis provided

i) Amount is invested by inwardremittance or out of NRE/ FCNR/NRO account maintained with ADbank.

ii) The firm or proprietary concern is notengaged in any agricultural/plantationor real estate business (i.e. dealing inland and immovable property with aview to earning profit or earningincome there from) or print mediasector.

iii) Amount invested shall not be eligiblefor repatriation outside India.

INVESTMENTS WITHREPATRIATION BENEFITS

NRIs/PIO may seek prior permission ofReserve Bank for investment in soleproprietorship concerned/partnership firmwith repatriation benefits. The application

will be decided in consultation with theGovernment of India.

INVESTMENT BY NON-RESIDENTSOTHER THAN NRIS/PIO

A person resident outside India other thanNRIs/PIO may make an application and seekprior approval of Reserve bank for makinginvestment by way of contribution to thecapital of a firm or a proprietorship concernor any association of persons in India. Theapplication will be decided in consultationwith the Government of India.

RESTRICTIONS

An NRI or PIO is not allowed to invest in afirm or proprietorship concern engaged inany agricultural/plantation activity or realestate business i.e. dealing in land andimmovable property with a view to earningprofit or earning income therefrom orengaged in Print Media.

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REMITTANCE FACILITY FOR NRIS / PIOS / FOREIGN NATIONALS

REMITTANCE FACILITY FOR NRIs/PIOs/FOREIGN NATIONALS

REMITTANCE OF CURRENTINCOME

Remittance of current income like rent,dividend, pension, interest etc. of NRIs/PIOeven those who do not maintain NROaccount is freely allowed, on the basis ofappropriate certification by a CharteredAccountant certifying that the amountproposed to be remitted is eligible forremittance and that applicable taxes havebeen paid / provided for.

NRIs/PIO have the option to credit thecurrent income to their Non-Resident(External) Rupee account, provided theauthorized dealer bank is satisfied that thecredit represents current income of the non-resident account holder and income taxthereon has been deducted / provided for.

REMITTANCE OF ASSETS BY AFOREIGN NATIONAL OF NON-INDIAN ORIGIN

A foreign national of non-Indian origin whohas retired from employment in India or whohas inherited assets from a person residentin India or who is a widow of an Indiancitizen who was resident in India, may remitan amount not exceeding USD one million,per financial year(April-March), onproduction of documentary evidence in

support of acquisition /inheritance of assets,an undertaking by the remitter and certificateby a Chartered Accountant in the formatsprescribed by the Central Board of DirectTaxes vide their Circular NO.10/2002 datedOctober 9, 2002.

These remittance facilities are not availableto citizen of Nepal and Bhutan.

REMITTANCE OF ASSETS BY NRO/PIO

A Non-Resident Indian (NRI) or a Person ofIndian Origin (PIO) may remit an amountup to USD one million, per financial year,out of the balances held in his Non-Resident(Ordinary) Rupee(NRO) account /sale proceeds of assets (inclusive of assetsacquired by way of inheritance ofsettlement), for all bonafide purposes, to thesatisfaction of the authorized dealer bank,on production of an undertaking by theremitter and certificate by a CharteredAccountant in the formats prescribed by theCentral Board of Direct Taxes vide theirCircular NO.10/2002 dated October 9, 2002.

NRI/PIO may remit sale proceed ofimmovable property purchased by him outof Rupee funds or as a person resident inIndia as indicated above without any lock-in-period.

58


In respect of remittance of sale proceed ofassets acquired by way of inheritance oflegacy or settlement for which there is nolock-in-period, NRI/PIO may submitdocumentary evidence in support ofinheritance or legacy of assets, anundertaking by the remitter and certificateby Chartered Accountant in the prescribedformats. Settlement is also a mode ofinheritance from the parent, the onlydifference being that the property under thesettlement passes to the beneficiary on thedeath of owner/parent without any legalprocedures/hassles and helps in avoidingdelay and inconvenience in applying probate,etc.

The remittance facility in respect of saleproceeds of immovable property is notavailable to citizen of Pakistan, Bangladesh,Sri Lanka, China, Afghanistan, Iran, Nepaland Bhutan.

The facility of remittance of sale proceedsof other financial assets is not available tocitizen of Pakistan, Bangladesh, Nepal andBhutan.

REPATRIATION OF SALE PROCEEDSOF RESIDENTIAL PROPERTYPURCHASED BY NRIS/PIO OUT OFFOREIGN EXCHANGE

Repatriation of sale proceeds of residentialproperty purchased by NRI/PIO is permittedto the extent of the amount paid foracquisition of immovable property in foreignexchange received through banking

channels. The facility is restricted to notmore than two such properties.

Authorized dealer banks may permitrepatriation of amounts representing therefund of application / earnest money/purchase consideration made by the housebuilding / seller on account of non-allotmentof flat/ plot/ cancellation of booking/ dealsfor purchase of residential/ commercialproperty, together with interest, if any (netof income tax payable thereon), provided theoriginal payment was made out of NRE/FCNR (B) account of the holder, orremittance from outside India throughnormal banking channels and the authorizeddealer bank is satisfied about the genuinenessof the transaction. Such funds may also becredited to the NRE/FCNR (B) account ofthe NRI/PIO, if they so desire.

Authorized dealer banks may allowrepatriation of sale proceeds of residentialaccommodation purchased by NRIs/PIO outof funds raised by way of loans from theauthorized dealer banks/housing financeinstitutions to the extent of such loans repaidby them out of foreign inward remittancesreceived through normal banking channel orby debit to their NRE/FCNR (B) accounts.

FACILITIES FOR STUDENTS

Students going abroad for studies are treatedasNon-Resident Indians (NRIs) and areeligible for allthe facilities available to NRIsunder FEMA.

59

REMITTANCE FACILITY FOR NRIS / PIOS / FOREIGN NATIONALS

INTERNATIONAL CREDIT CARDS

Authorized dealer banks have beenpermitted to issue International Credit Cardsto NRIs/PIO, without prior approval ofReserve Bank. Such transactions may besettled by inward remittance or out ofbalances held in the cardholder’s FCNR (B)/NRE /NRO accounts.

As Non-Residents, they will be eligible toreceive remittances from India

(i) up to USD100,000 from close relativesin India on self declaration towardsmaintenance, which could includeremittances towards their studies alsoand

(ii) up to USD 1 million per financial year,out of sale proceeds of assets/balancesin their account maintained with an ADbank in India.

All other facilities available to NRIs underFEMA are equally applicable to the students.

Educational and other loans availed of bythem as residents in India will continue tobe available as per FEMA regulations.

INCOME-TAX CLEARANCE

The remittances will be allowed to be madeby the authorized dealer banks on productionof an undertaking by the remitter and aCertificate from a Chartered Accountant inthe formats prescribed by the Central Boardof Direct Taxes, Ministry of Finance,Government of India in their Circular No.10/2002 dated October 9, 2002. [cf. A.P.(DIRSeries) Circular] No.56 dated November 26,2002.

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BANK ACCOUNTS

NON RESIDENT ORDINARY RUPEE(NRO) ACCOUNT SCHEME

1. Definitions

Non-Resident Indian (NRI): NRI for thispurpose is defined in Regulation 2 of FEMANotification No. 5 dated May 3, 2000. Interms of this Notification, an NRI is a personresident outside India who is a citizen ofIndia or is a person of Indian origin.

Person of Indian Origin (PIO): PIO for thispurpose is defined in Regulation 2 of FEMAibid as a citizen of any country other thanBangladesh or Pakistan, if (a) he at any timeheld Indian passport; or (b) he or either ofhis parents or any of his grand parents was acitizen of India by virtue of the Constitutionof India or the Citizenship Act, 1955 (57 of1955); or (C) the person is a spouse of anIndian citizen or a person is a spouse of anIndian citizen or a person referred to in subclause (a) or (b).

2. Eligibility

a) Any person resident outside India (asper Regulation 2 of FEMA), may openNRO account with an authoriseddealer or an authorised bank for thepurpose of putting through bonafidetransactions denominated in Rupees,not involving any violation of theprovision of FEMA rules, Regulation

made thereunder.

b) Opening of accounts by individuals/entities of Bangladesh /Pakistannationality /ownership requires priorapproval of Reserve Bank.

3. Types of Accounts

NRO accounts may be opened/maintainedin the form of current, saving, recurring orfixed deposit accounts. Rate of interestapplicable to these accounts and guidelinesfor opening, operating and maintenance ofsuch accounts shall be in accordance withdirectives/instructions issued by ReserveBank from time to time.

4. Joint Accounts with Residents /NonResidents

The accounts may be held jointly withresidents and /or with non-residents.

5. Permissible Credits/ Debits

A. Credits

1. Proceeds of remittances from outsideIndia through normal banking channelsreceived in foreign currency, which isfreely convertible.

2. Any foreign currency, which is, freelyconvertible tendered by the accountholder during his temporary visit toIndia. Foreign currency exceedingUSD 5000/-or equivalent in form of

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BANK ACCOUNTS

cash should be supported by CurrencyDeclaration Form. Rupee funds shouldbe supported by EncashmentCertificate, if they represent fundsbrought from outside India.

3. Transfers from rupee accounts of non-resident banks.

4. Legitimate dues in India of the accountholder. This includes current incomelike rent, dividend, pension, interest,etc. as also sale proceeds of assetsincluding immovable propertyacquired out of rupee/foreign currencyfunds or by way of legacy/inheritance.

B. Debit

1. All local payments in rupees includingpayments for investments in Indiasubject to compliance with the relevantregulations made by the Reserve Bank.

2. Remittance outside India of currentincome like rent, dividend, pension,interest, etc. in India of the accountholder.

3. Remittance upto USD One millionpermitted financial year (April –March), for all bonafide purposes, tothe satisfaction of the authorised dealerbank.

6. Remittance of assets

6.1. Remittance of assets by a foreignnational of non Indian origin

A citizen of foreign state, not being a citizenof Nepal or Bhutan or a Person of Indian

Origin, who has retired from an employmentin India, or has inherited the assets from aperson referred to in sub section (5) ofsection 6 of the FEMA; or is a widowresident outside India and has inheritedassets of her deceased husband who was anIndian citizen resident in India, may remitan amount, not exceeding USD 1,000,000(US Dollar One Million only) per financialyear on production of, documentary evidencein support of acquisition, inheritance orlegacy of assets by the remitter and anundertaking by the remitter and certificateby Chartered Accountant in the formatsprescribed by the Central Board of DirectTaxes vide their Circular No 10/2002 datedOctober 9, 2002.

6.2 Remittance of Assets by an NRI/PIO

a) NRI/PIO may remit an amount, notexceeding USD 1,000,000 permittedfinancial year, out of the balances heldin NRO accounts/sale proceeds ofassets /the assets in India acquired byhim by way of inheritance /legacy, onproduction of documentary evidencein support of acquisition, inheritanceor legacy of assets by the remitter, andan undertaking by the remitter andcertificate by a Chartered Accountantin the formats prescribed by the CentralBoard of Direct Taxes vide theirCircular No 10/2002 dated October9,2002.

b) NRI/PIO may within the overall limitof USD 1 million as stated above, remitsale proceeds of assets acquired under

62


a deed of settlement made by either ofhis parents or a close relative (asdefined in section 6 of the CompaniesAct, 1956) and the settlement takingeffect on the death of the settler, onproduction of the original deed ofsettlement and an undertaking by theremitter and certificate by a CharteredAccountant in the formats prescribedby the Central Board of Direct Taxesvide their Circular No. 10/2002 datedOctober 9, 2002.

6.3 Assets Acquired in India Out ofRupee Funds

NRI/PIO may remit sale proceeds ofimmovable property purchased by himassociation a resident or out of Rupee fundsas NRI/PIO, without any lock –in-period,subject to the above limit of USD 1 millionpermitted financial year.

6.4 Restrictions

a) The remittance facility in respect ofsale proceeds of immovable propertyis not available to citizens of Pakistan,Bangladesh, Sri Lanka, China,Afghanistan, Iran, Nepal and Bhutan.

b) The facility of remittance of saleproceeds of other financial assets is notavailable to citizens of Pakistan,Bangladesh, Nepal and Bhutan.

7. Foreign Nationals of Non-IndianOrigin on a Visit to India

NRO account (current /saving) can beopened by a Foreign national of non-Indianorigin visiting India, with funds remitted

from, outside India through banking channelor by sale of foreign exchange brought byhim to India. The balance in the NROaccount may be converted by the authoriseddealer/bank into foreign currency forpayment to the account holder at the time ofhis departure from India provided theaccount has been maintained for a period notexceeding six months and the account hasnot been credited with any local funds, otherthan interest accrued thereon.

8. Grant of Loans / Overdrafts byAuthorised Dealer / Bank toAccount Holders and Third Parties

a) Loans to non resident account holdersand to third parties may be granted inRupees by authorised dealer/bankagainst the security of fixed depositssubject to the following terms andconditions:

(i) The loans shall be utilised onlyfor meeting borrower’spersonal requirements and /orbusiness purpose and not forcarrying on agricultural /plantation activities or real estatebusiness or for re lending.

(ii) Regulations relating to marginand rate of interest as stipulatedby Reserve Bank from time totime shall be complied with.

(iii) The usual norms andconsiderations as applicable inthe case of advances to trade/industry shall be applicable for

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BANK ACCOUNTS

such loans /facilities granted tothird parties

b) Authorised dealer /bank may permitoverdraft in the account of the accountholder subject to his commercialjudgment and compliance with theinterest rate etc. directives.

9. Change of Residential Status ofAccount Holder

(a) From Resident to Non-resident

When a person resident in India leaves Indiafor a country (other than Nepal or Bhutan)for taking up employment or for carrying onbusiness or vocation outside India or for anyother purpose indicating his intention to stayoutside India for an uncertain period, hisexisting account should be designated as aNon Resident (Ordinary) Account.

When a person resident in India leaves forNepal or Bhutan for taking up employmentor for carrying on business or vocation orfor any other purpose indicating his intentionto stay in Nepal or Bhutan for an uncertainperiod, his existing account will continue asa resident account. Such account should notbe designated as a Non-Resident (Ordinary)Account (NRO).

(b) From Non Resident to Resident

NRO accounts may be re-designated asresident rupee accounts on the return of theaccount holder to India for taking upemployment, or for carrying on business orvocation or for any other purpose indicatinghis intention to stay in India for an uncertain

period. Where the account holder is only ona temporary visit to India, the account shouldcontinue to be treated as non-resident duringsuch visit.

10. Treatment of Loans/Overdraft inthe Event of Change in the ResidentStatus of the Borrower

In case of person who had availed ofloan or overdraft facilities whileresident in India and who subsequentlybecome a person resident outside India,the authorised dealer / bank may attheir discretion and commercialjudgment allow continuance of theloan / overdraft facilities. In such cases,payment of interest and repayment ofloan may be made by inwardremittance or out of legitimateresources in India of the personconcerned.

11. Payment of funds to Non–Resident/ Resident Nominee

The amount due /payable to non-residentnominee from the NRO account of adeceased account holder shall be credited toNRO account of the nominee with anauthorised dealer/bank in India. The amountpayable to resident nominee from the NROaccount of a deceased account holder shallbe credited to resident account of thenominee with a bank in India.

12. Operation of NRO Account byPower of Attorney Holder.

Powers have been delegated to theauthorised dealers /banks to allow operations

64


on an NRO account by Power of Attorneygranted in favour of a resident by the non-resident individual account holder providedsuch operations are restricted to (i) all localpayments in rupees including payments foreligible investments subject to compliancewith relevant regulations made by theReserve Bank; and (ii) remittance outsideIndia of current income in India of the nonresident individual account holder, net ofapplicable taxes.

The resident Power of Attorney holder is notpermitted to repatriate outside India fundsheld in the account other than to the nonresident individual account holder nor tomake payment by way of gift to a residenton behalf of the non resident account holderor transfer funds from the account to anotherNRO account.

13. Facilities to a Person Going Abroadfor Studies

Persons going abroad for studies are treatedas Non Resident Indians (NRIs) and areeligible for all the facilities available to NRIs.Educational and other loans availed of bythem as permitted FEMA regulations.

14. International Credit Cards

Authorised dealer banks have been permittedto issue International Credit Cards to NRI /PIO, without prior approval of ReserveBank. Such transactions may be settled byinward remittance or out of balances held inthe cardholder’s FCNR/NRE/NROAccounts.

15. Income – Tax

The remittances (net of applicable taxes) willbe allowed to be made by the authoriseddealer banks on production of an undertakingby the remitter and a Certificate from aChartered Accountant in the formatsprescribed by the Central Board of DirectTaxes, Ministry of Finance, Government ofIndia in their Circular No. 10/2002 datedOctober 9, 2002 [cf’ A.P.(DIR Series )Circular No. 56 dated November 26, 2002.}

REPATRIABLE ACCOUNTS

NON-RESIDENT (EXTERNAL)RUPEE ACCOUNT (SAVINGS,CURRENT AND TIME DEPOSIT) (NREACCOUNTS)

Opening of an Account

Persons of Indian nationality or originresident abroad may open, with authorisedbanks in India, Non-resident (External)Accounts (NRE Accounts), designated inrupees. These accounts can be maintainedin the form of savings, current or termdeposit accounts. Opening of NRE Accountsjointly in the names of two or more non-residents is permitted, provided all theaccount holders are persons of Indiannationality or origin. For opening theseaccounts, the funds are required to beremitted to India through any bank from thecountry of residence of the prospectiveaccount holder.

The account holder has to furnish an

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BANK ACCOUNTS

undertaking on the account opening formthat he would promptly send an intimationto his bank if and when he returns to Indiafor permanent residence.

Prior to 16th September, 2003 OCBs wereallowed to open and maintain NRE bankaccount in India. However, it may be notedthat vide Circular No. 14 dated. 16-9-2003read with Notification No.101/2003RBdated. 3/10/2003, OCBs are not permittedto open or maintain NRE accounts in India.

Advantages

Non-residents can enjoy the followingadvantages by maintaining NRE Accounts:

1. Term deposits for one year and abovemade by non-residents carry interest atrates higher than those available toresidents in India.

2. The interest on deposits and any otherincome accruing on the balances in theaccounts are free of Indian Income-tax.

3. The balances in the accounts are freeof Wealth-tax as well.

4. Gifts out of NRE account to closerelatives are exempt. However, gifts topersons other than relatives over andabove Rs. 50,000 in a year would betaxable in the hands of the recipient.Exemptions are provided for gifts onoccasion of marriage, or incontemplation of death or under a willor by way of inheritance.

5. The entire credit balance (inclusive ofinterest earned thereon) can berepatriated outside India at any timewithout reference to Reserve Bank.

6. Local disbursement from theseaccounts can be made freely.

7. Purchase of Units of Unit Trust of India(UTI), Mutual Funds, Central and StateGovernment securities and NationalSavings Certificates can be made freelyfrom the balances in these accounts.

8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI,securities or certificates originallypurchased out of the funds in theaccounts can be freely credited to theseaccounts by banks, without referenceto Reserve Bank

9. Account holders are supplied a specialseries of cheque leaves for operationon these accounts.

10. Account holders can avail of loans/overdrafts from banks against securityof fixed deposits from out of their NREaccounts.

Types of Account

All types of accounts, viz. current, savingsand term deposit, etc., can be opened underNon-Resident (External) Accounts Scheme.A Non-resident can open a joint account withother nonresidents provided all the accountholders are persons of Indian nationality or

66


origin. Opening of a joint account by a non-resident with a person resident in Indiapermitted under NR (E) Scheme.

Non-resident account holders can grantpower of attorney (POA) or such otherauthority to residents in India for operatingtheir NR(E) accounts in India. Such authorityis however, restricted to withdrawals forlocal payments and remittance to the accountholder himself. In cases where the accountholder or a bank designated by him is eligibleto make investments in India, the Power ofAttorney holder is permitted by the AD/bankto operate the account to facilitate suchinvestment. RBI has permitted banks/authorised dealers to allow remittanceabroad to the non-resident account holder byhis constituted attorney under a specificpower in this regard. The resident power ofattorney holder can not repatriate Funds heldin accounts outside India under anycircumstances (other than to the accountholder himself) or make payment of gifts onbehalf of the account holder, or transfer fundsfrom the said account to another NREaccount.

Such account can also be opened by aneligible non resident Indian during histemporary visit to India, against tender offoreign currency traveller cheques/currencynotes, provided the bank is satisfied that theprospective account holder has not ceasedto be a non-resident. The amount so tenderedwould be endorsed on the CurrencyDeclaration Form (CDF) where applicable ,before crediting the rupee equivalent thereto.

The initial deposit in NR(E) account can bemade in an of the following ways:

• By proceeds of foreign exchangeremittances from abroad throughbanking channels in an approvedmanner.

• By proceeds of foreign currency notesand traveller cheques brought intoIndia by non-resident while on atemporary visit to India.

• By transfer from an existing Non-Resident (External) FCNR account ofthe same person.

Operation of Accounts

There are certain restrictions on operationof NR(E) accounts and Form A2/A4 are tobe completed for a few transactions. Theseforms may be completed either by theresident party to the transaction or by thebank after obtaining necessary informationfrom the resident party account holder.

Credits in the Account, i.e. Amounts thatcan be Deposited into the Account

Transaction where Form A4 is not to beCompleted.

1 Proceeds of remittances to India in anypermitted currency.

2 Transfer from FCNR accounts of thesame account holder.

3 Interest accruing on balances in Non-resident (External) or FCNR accountsof the account holder.

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BANK ACCOUNTS

Transactions where Form A4 is to beCompleted.

1. Proceeds of foreign exchangeremittances, drafts, personal cheques,etc., in the name of the account holder.

2. Proceeds of foreign currency travellerscheques, drafts and personal chequesdrawn by account holder on a foreigncurrency account maintained abroad byhim (including instruments expressedin Indian rupees for whichreimbursement will be received inforeign currency or in rupees from theaccount of a non-resident bank)deposited by account holder during histemporary visit to India; providedauthorised dealer is satisfied that theaccount holder is still ordinarilyresident abroad, the travellers’cheques/drafts are standing in the nameof account holder and have not beenendorsed in his favour and in the caseof travellers’ cheques, they aredischarged by the account holder in thepresence of the bank officials.

3. Proceeds of foreign currency/banknotes tendered by account holderduring his temporary visits to India,provided these are tendered toauthorised dealer in person by accountholder himself and the authoriseddealer is satisfied that account holderis still ordinarily resident outside India.

Notes

• Purchases of travellers cheques/

currency notes/bank notes made interms of 2 and 3 above should beendorsed on the reverse of CurrencyDeclaration Form (CDF) whereverapplicable. A photocopy of CDFshould be kept on record by authoriseddealer.

• Foreign currency notes/bank notes andtravellers’ cheques tendered by Powerof Attorney holder of any person otherthan account holder should not becredited to NRE Account.

• Form A4 is to be completed only fortransactions of Rs. 1,00,000 and above.

Other Credits

• Refund of share/debenturesubscriptions to new issues of Indiancompanies or portion thereof, if theamount of subscription was paid fromthe same account or from other NRE/FCNR account of the account holderor by remittances from outside Indiathrough normal banking channels.

• Refund of application/earnest money/purchase consideration made by thehouse building agencies/ seller onaccount of non-allotment of flat/plot/cancellation of booking/deals forpurchase of residential/commercialproperty together with interest, if any(net of Income-tax payable thereon),provided the original payment wasmade out of NRE/FCNR account orremittance from outside India throughnormal banking channels.

68


• Current Income like rent/dividend,pension, interest, etc., of NRI can becredited to NRE Account by authoriseddealer, if the credit represents currentincome of the NRI account holder andincome tax thereon has been deducted/paid/provided for, as the case may be.If NRI/PIOs do not have a taxableincome in India, then a simpledeclaration, in duplicate, from theNRls/PIOs to the effect that he/She isnot a tax-payer in India, is to besubmitted to the authorised dealer.

Debits in the Account, i.e. Amounts thatcan be Withdrawn from the Account.

Transactions where Form A4 is not to beCompleted are as Follows.

• All local payments except for purposesof investment.

• Transfer to any other NR(E) or FCNRaccount of the same person.

• Transfer to NR(E) accounts of personsother than the account holder for bonafide personal purposes.

Transactions where Form A4 is Requiredto be Completed are as Follows:

• Payments for permissible investmentsby the account holder.

• Payments towards purchase price ofimmovable property by account holder.

• Any other transaction if covered undergeneral or special permission grantedby Reserve Bank.

Note

Form A4 is required to be filled in andretained for scrutiny by auditors of banks.

Transaction Required to be Reported onForm A2

• Remittances abroad.

• Sale of foreign currency, travellercheques etc. to account holder himselfor his representative provided that theyhold a ticket showing journey datewhich shall not be later than thirty daysfrom the date of sale.

All other transactions of credit/debit to theseaccounts not covered under the aboveprovisions require prior approval of ReserveBank. Form A4 is to be completed induplicate in such cases and forwarded toReserve Bank through the bank with whomthe account is maintained. The transactioncan be put through the account only after acopy thereto duly approved by Reserve Bankis received by bank.

Interest Rates on Deposits

Interest Rate on NRE Term DepositAccounts

The Interest rates on NRE Term Deposit forone to three years, w.e.f. April 18, 2004should not exceed the LlBOR/ SWAP ratesfor US Dollars of corresponding maturity.The interest rates as determined above forthree-year deposits would also be applicablein case the maturity period exceeds threeyears. The changes in interest rates will also

69

BANK ACCOUNTS

also be repaid out of local rupeeresources in the NRO account of theborrower. The interest on such loansshall be in accordance with directivesissued by Reserve Bank from time totime;

ii. The purpose of making directinvestment in India on non-repatriationbasis by way of contributions to thecapital of Indian firms/ companiessubject to compliance with theprovisions of the Foreign ExchangeManagement (Transfer of Indiansecurity by a person resident outsideIndia) Regulations, 2000 and ForeignExchange Management (Investment inProprietary or a Partnership Firm)Regulation, 2000.

iii. The purpose of acquisition of flat/house in India for own residential use.

To Third Parties

Authorised dealers banks may grant any typeof fund based and or non-fund basedfacilities to resident individuals/firms/companies in India against the collateral offixed deposits held in NRE account subjectto the following conditions:

i. There should be no direct or indirectforeign exchange consideration for thenon-resident depositor agreeing topledge his deposits to enable theresident individual/firm/company toobtain such facilities.

ii. Regulations relating to margin, interestrate, purpose of loan, etc. as stipulated

apply to NRE deposits renewed after theirpresent maturity period.

Interest Rate on NRE Savings DepositAccounts

The interest rates on NRE savings depositsshould not exceed the LIBOR/SWAP rate forsix months maturity on US dollar depositsand may be fixed quarterly on the basis ofthe LIBOR/SWAP rate of US dollar on thelast working day of the preceding quarter.For the quarter April-June 2005, the USdollar LIBOR/SWAP rate as on the lastworking day of March 2005 would beapplicable.

Loans against Security of Funds Held inthe Account

To Account Holder

Authorised dealers and banks maintainingsuch accounts are permitted to grant loansin India to the account holder for :-

i. Personal purposes or for carrying onbusiness activities except for thepurpose of relending or carrying onagricultural/plantation activities or forinvestment in real estate business. Theauthorised dealer/bank should ensurethat the advances are fully secured bythe fixed deposited and regulationsrelating to normal margin, interest rate,etc. are complied with. Repaymentshall be made whether by adjustmentof the deposit or by fresh inwardremittances from outside India throughnormal banking channels. The loan can

70


by Reserve Bank from time to timeshould be complied with.

iii. The loan should be utilised forpersonal purpose or for carrying onbusiness activities other thanagricultural/plantation activities or realestate business. The loan should notbe utilised for relending.

iv. The usual norms and considerations asapplicable in the case of advances totrade/ industry shall be applicable tosuch credit facilities as well.

Loans Outside India

Authorised dealers may allow their branches/correspondents outside India to grant anytype of fund based and/or non-fund basedfacilities to or in favour of non-residentdepositor or to third parties at the request ofdepositor for bona fide purpose against thesecurity of funds held in the NRE accountsin India and also agree to remittance of thefunds from India, if necessary, for liquidationof the outstanding.

Change of Status from Non-Resident toResident

Immediately upon return of account holderto India and on his becoming resident inIndia, NR(E) account will be redesignatedas resident rupee account or converted toRFC account at the option of the accountholder. However, if the account holder is onlyon a short visit to India, the account willcontinue to be treated as NR(E) account evenduring his stay in India. In respect of funds

held in fixed deposits in NR(E) Accounts,interest will be payable at the rate originallyfixed, provided the deposit is held for thefull term, even after conversion into residentaccount.

International Credit Cards

NRI/PIOs can be issued international creditcards provided the charges for the use of thecard are by way of inward remittances frombalances in NRO/NRE/FCNR (B) Accounts.

Disadvantages of NR(E) Accounts

• NR(E) accounts are opened in Indianrupees and all foreign exchangeremittances received for credit of theseaccounts are first converted into Indianrupees at buying rates by banks. Anywithdrawal in foreign currency will bepermitted by bank by converting Indianrupees in the account into foreigncurrency at selling rate, at the cost/lossof account holder.

• Exchange rates are subject tofluctuation on day-to-day basis andIndian rupee had depreciated againstall major foreign currencies in recentpast. Balances held in Indian rupees inNR(E) accounts are thus exposed toexchange fluctuation risk.

Foreign Currency (Non-Resident)Account Bank Scheme (FCNRB)

Introduction

Deposits under FCNR scheme were acceptedby banks for maturities from 6 months to 3

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BANK ACCOUNTS

years. Acceptance of deposits for shortermaturities was discontinued, in a phasedmanner and with effect from 15th February,1994, deposits under FCNR scheme can beaccepted only for a maturity period of 3years. However, to enable the NRI depositorsto continue with foreign currency depositsof shorter maturities, a new scheme knownas Foreign Currency (Non-resident)Accounts (Banks) Scheme [FCNR (Banks)]was introduced, with effect from 15th May,1993. There is basically no differencebetween these two schemes except for theperiod of deposits.

For the banks accepting deposits under thisscheme, there are a few changes. Exchangerisk cover from Reserve Bank will not beavailable and will have to be borne by thebanks themselves. There will be noobligation under the ‘Statutory LiquidityRatio’ or priority sector lending. There is alsono obligation for Cash Reserve Ratio.Resources mobilised under the scheme canbe invested by the banks without any interestrate stipulation, though, non-residentdepositors are not affected by suchprovisions.

Eligibility

NRIs are eligible to open and maintain theseaccounts with authorised dealer. However,opening of FCNR(B) accounts in names ofNRls of Bangladesh/Pakistan nationality/ownership require approval of ReserveBank.

Types of Accounts

1. FCNR(B) account can only be openedin the form of term deposits. Thedeposits are accepted for termsexceeding one year but less than threeyears.

2. A non-resident can open a jointaccount with the other non-residentprovided all the account holders arepersons of Indian nationality or origin.

3. Opening of a joint account by a non-resident with a person resident in Indiais not permitted.

Opening of Accounts

1. Accounts can be opened with fundsremitted from outside India throughnormal banking channels or fundsreceived in rupees by debit to accountof a non-resident bank maintained withauthorised dealer in India or fundswhich are of repatriable nature in termsof regulations made by Reserve Bank.

2. Accounts can also be opened bytransfer of funds from existing NRE/FCNR accounts.

3. Remittances from outside India foropening of or crediting to theseaccounts should be made in thedesignated currency in which theaccount is desired to be opened/maintained.

Without prejudice to the foregoing, ifthe remittance is made in a currency

72


other than designated currency(including funds received in rupees bydebit to account of a non-residentbank), it should be converted into thelatter currency by authorised dealer atthe risk and cost of the remitter andaccount should be opened/credited indesignated currency only.

4. In case depositor with any convertiblecurrency other than designatedcurrency desires to place a deposit inthese accounts, authorised dealers mayundertake with the depositor a fullycovered swap in that currency againstthe desired designated currency, sucha swap being possible between any twodesignated currencies.

5. Where the funds are received in Indianrupees for opening these accounts shallbe converted by authorised dealer intodesignated foreign currency at cleanT.T. selling rate for that currency rulingon date of conversion.

Designated Currencies

Deposit of funds in accounts may beaccepted in Pound Sterling, US Dollar,Japanese Yen, Euro and such othercurrencies as may be designated by ReserveBank from time to time.

Operations of Accounts

(i) Debits in Accounts

All debits as are permissible under NREAccount scheme , are also permissible fromthis account.

(ii) Credits in Account

a. All the credits as are permissible underNRE Account scheme are alsopermissible from this account.

b. The maturity proceeds of NRNRdeposits credited to NRE Account canalso be subsequently transferred toFCNR(B) Account.

c. Non-Resident Indians/Persons ofIndian Origin can credit refund ofapplication/earnest money/purchaseconsideration made by the housingbuilding agencies/seller on account ofnon-allotment of flat/plot/cancellationof bookings/deals for purchase ofresidential, commercial property,together with interest, if any (net ofincome tax payable thereon), to NRE/FCNR account, provided, originalpayment was made out of NRE/FCNRaccount of account holder orremittance from outside India throughnormal banking channels andauthorised dealer is satisfied aboutgenuineness of the transaction.

(iii) Maturity proceeds of deposit

Principal Amount and Interest will bepayable in the same designated currency. Thedepositor, thus, will not be exposed to anyexchange risk fluctuation. The depositor willhave option to convert the foreign currencyamount of designated currency into any otherconvertible currency at appropriate rate ofexchange. For the purpose of payment inrupees, the amount shall be converted at

73

BANK ACCOUNTS

clean T.T buying rate ruling on the date ofwithdrawal.

(iv) Interest

Interest is payable either half-yearly or onannual basis at option of the depositor.Interest can be either credited to a newFCNR(B) Account or his existing/new NRE/NRO Account.

Rate of Interest

a) In respect of deposits of one year andabove, interest shall be paid within theceiling rate of LIBOR/SWAP ratesfor the respective currency/corresponding maturities minus 25basis points. On floating rate deposits,interest shall be paid within the ceilingof SWAP rates for the respectivecurrency/maturity minus 25 basispoints. For floating rate deposits, theinterest reset period shall be sixmonths. However, in respect of Yendeposits, banks have the freedom to setthe FCNR (B) deposit rates, which maybe equal or less than LIBOR.

b) The LIBOR/SWAP rates as on the lastworking day of the preceding weekwould form the base for fixing ceilingrates for the interest rates that wouldbe offered effective the followingweek.

c) Banks would have the option to choosethe current SWAP rates quoted on anyonline screen based informationsystems while offering FCNR(B)deposits.

Loans/Overdrafts against Security ofFunds Held in Account

a. The terms and conditions as applicableto NRE deposits in respect of loans andoverdrafts in India to depositor and tothird parties as also loans outside Indiaagainst security of deposits, shall applymutatis mutandis to FCNR(B) depositsas well.

b. Authorised dealers are permitted togrant foreign currency loans against thesecurity of funds held in FCNR(B)deposit account only to the accountholder.

The margin requirement shall be notionallycalculated on the rupee equivalent ofdeposits.

Change of Resident Status of AccountHolder

On change of residential status from residentto non-resident, balances held in EEFC andRFC (D) Accounts are allowed to be creditedto FCNR(B) Account at the option/requestof the account holder. When an accountholder becomes a person resident in India,deposits may be allowed to continue tillmaturity at contracted rate of interest, if sodesired by him. However, except for theprovisions relating to rate of interest andreserve requirements as applicable toFCNR(B) deposits; for all other purposes,such deposits shall be treated as residentdeposits from the date of return of theaccount holder to India. Authorised dealersshould convert the FCNR(B) deposits onmaturity into resident rupee deposit accountsor RFC account (if the depositor is eligible

74


to open RFC account), at the option of theaccount holder and interest on the newdeposit (rupee account or RFC account) shallbe payable at the relevant rates applicablefor such deposits.

Miscellaneous

The terms and conditions as applicable toNRE accounts in respect of joint accounts,repatriation of funds, opening of accountsduring temporary visit, operation by powerof attorney holder, loans/overdrafts againstsecurity of funds held in accounts, shall applymutatis mutandis to FCNR(B) accounts.

International Credit Cards (ICC) to NRIs/PIOs

• NRI/PIOs can obtain InternationalCredit Cards without prior approval of

Reserve Bank of India subject to theconditions that the charges for the useof ICC are paid out of inwardremittances of balances in their NREAccounts/Foreign Currency Non-Resident Accounts.

• However, the Reserve Bank has madefurther relaxation vide Circular No. 59dated December 9, 2002 where bythe NRI/PIOs are allowed to settle/debt the charges/expenses throughcredit card up to the limit of thecard out of funds held in NRO accountas well. The debits shall also besubject to the conditions for use ofthe International Credit Cards byresidents.

FEATURES OF VARIOUS DEPOSIT SCHEMES AVAILABLE TO NON-RESIDENT INDIANS (NRIS)

Particulars Foreign Currency Non-Resident Non-Resident(Non-Resident) (External) Rupee Ordinary RupeeAccount (Banks) Account Scheme Account SchemeScheme [FCNR(B) (NRE Account) (NRO) AccountAccount]

Who can open NRIs NRIs Any person residentan account (individual/entities of (individual/entities of outside India other

Bangladesh/ Pakistan Bangladesh/ Pakistan than a person residentnationality/ownership nationality/ ownership Nepal and Bhutanrequire prior approval require prior approval (individual/entities ofof RBI) of RBI) Bangladesh/ Pakistan

nationality/ ownershipas well as erstwhileOCBs require priorapproval of RBI)

Joint account In the names of two In the names of two or May be held jointlyor more non-resident more non-resident with residentsindividuals individuals

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BANK ACCOUNTS


Nomination Permitted Permitted Permitted

Currency in which Pound Sterling, US Indian Rupees Indian Rupeesaccount is Dollar, Jap Yen,denominated Euro, Canadian

and Australian Dollar

Repatriable Repatriable Repatriable Not repatriable exceptfor the following inaccount –1) Currentincome 2) Upto USD 1million per financialyear (April-March), forany bonafide purposeout of the balances inNRO account /saleproceeds of assets inIndia acquired by wayof inheritance /legacyinclusive of assetsacquired out ofsettlement subject tocertain conditions

Type of Account Term deposit only Saving, Current, Saving, Current,Recurring, Fixed Recurring, FixedDeposit Deposit

Period for fixed For terms not less At the discretion of As applicable todeposit than 1 year and not the bank resident accounts.

more than 5 years.

Rate of interest Subject to cap: Subject to cap: Banks are free toLIBOR /SWAP rates Fixed Deposits: determine interest ratesfor the respective LIBOR /SWAP rates, for term deposits.currency/ as on the last workingcorresponding day of the previousmaturities minus 25 month, for US dollarbasis points of corresponding

maturities plus 50 basispoints with effect from

76


close of business onJanuary 31, 2007.Saving Bank AccountInterest rate shall be atthe rate applicable todomestic savingsaccount with effectfrom close of businessin India on 17-1-2005.

Operations by Operations on the Operations on thePower of account in terms of account in terms ofAttorney in Power of Attorney is Power of Attorney isfavour of a restricted to restricted toresident by the withdrawals for withdrawals fornon-resident permissible local permissible localaccount holder payments or payments or remittance

remittance to the to the account holderaccount holder himself through normalhimself through banking channels.normal bankingchannels.

Loansa. In India

To the Account Permitted upto Rs. 20 Permitted upto Rs. 20 Permittedholder lakhs lakhs

To Third Parties Permitted upto Rs. 20 Permitted upto Rs. 20 Permittedlakhs lakhs

b. Abroad

To the Account Permitted upto Rs. 20 Permitted upto Rs. 20 Not Permittedholder lakhs lakhs

To Third Parties Permitted upto Rs. 20 Permitted upto Rs. 20 Not permittedlakhs lakhs

c. ForeignCurrencyLoans in India


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BANK ACCOUNTS

To the Account Not permitted Not permitted Not permittedholder

To Third Parties Not permitted Not permitted Not permitted

Purpose of Loana. In India i. Personal purpose i. Personal purpose *Personal requirementTo the Account or for carrying on or for carrying on and/ or businessholder business activities.* business purpose.*

activities.*

ii. Direct investment ii. Direct investment inin India on non- India on non-repatriation basis repatriation basisby way of by way ofcontribution to contribution to thethe capital of capital of IndianIndian firms/ firms/ companies.companies.

iii. Acquisition of flat iii. Acquisition of flat/house in India for /house in India forhis own residential his own residentialuse. use.

To Third Party Fund based and /or Fund based and /or Personal requirementnon-fund based non-fund based facilities and/ or businessfacilities for personal for personal purposes purpose. *purposes or for or for carrying oncarrying on business business activities* activities*

b. AbroadTo the account Fund based and /or Fund based and /or Not permittedholder and third non-fund based non-fund basedparty facilities for bonafide facilities for bonafide

purposes. purposes.

* The loans cannot be utilised for the purpose if Regulation-lending or for carrying on agricultureor plantation activities or for investment in real estate business.


78


Note:

a) When a person resident in India leaves India for Nepal and Bhutan for taking up employment or for carrying onbusiness or vocation or for any other purpose indicating his intention to stay in Nepal and Bhutan for an uncertainperiod, his existing account will continue as a resident Rupee account. Such account should not be designated asNon-Resident (Ordinary) Account (NRO).

b) ADs may open and maintain NRE/FCNR (B) Accounts of the persons resident in Nepal and Bhutan who arecitizens of India or of Indian Origin, provided the funds for opening these accounts are remitted in free foreignexchange. Interest earned in NRE/FCNR ( B) accounts can be remitted only in Indian rupees to NRIs and PIOresident in Nepal and Bhutan.

c) In terms of Regulation 4(4) of the Notification No FEMA 5/2000-RB dated May 3,2000, ADs may open andmaintain rupee accounts for a person resident in Nepal /Bhutan.

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MISCELLANEOUS REMITTANCES FROM INDIA

MISCELLANEOUS REMITTANCESFROM INDIA

RELEASE OF FOREIGN EXCHANGEBY AUTHORISED DEALERS

A.1 General

1.1 For release of foreign exchange topersons resident in India for variouscurrent account transactions,authorized dealers are to be guided bythe Rules made by the Government ofIndia under Section 5 of ForeignExchange Management Act, 1999which are detailed in the ForeignExchange Management (CurrentAccount Transactions) Rules, 2000(Annexure I) notified by theGovernment of India vide NotificationNo. G.S.R.381 (E) dated 3rd May 2000(Rules). In terms of the said Rules,drawal of exchange for certaincategories of transactions as listed inSchedule I is expressly prohibited.Exchange facilities for transactionsincluded in Schedule II to the Rulesmay be permitted by the authoriseddealers provided the applicant hassecured the approval from theMinistry/Department of Governmentof India as specified therein. In respectof transactions included in ScheduleIII, prior approval of the Reserve Bankwould be required for remittanceexceeding specified values. The

release of foreign exchange up to thethreshold values specified in ScheduleIII stands delegated to AuthorisedDealers. All applications for release ofexchange as prescribed in Schedule IIIto the Rules should be referred to theRegional office of the ForeignExchange Department of the ReserveBank, under whose jurisdiction theapplicant is functioning/residing.

1.2 “Drawal” of foreign exchange includesuse of International Credit Cards(ICC), includes International DebitCards (IDC), ATM cards, etc.“Currency”, inter alia, includes ICC,IDC, and ATM Cards. Accordingly, allRules, Regulation made and directionsissued under the Act apply to the useof ICC, IDC, and ATM Cards.

1.3 In order to provide adequate foreignexchange facilities and efficientcustomer service, the Reserve Bankhas decided to grant licences to certainentities by authorizing them asAuthorised Dealer- Category – II toundertake a range of miscellaneousnon-trade current account transactions.Accordingly, Authorised Dealer-Category – II are authorised to release/remit foreign exchange for thefollowing non trade current account

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transactions:

a) Private visits,

b) Remittance by tour operators /travel agents to overseas agents/principals/hotels,

c) Business travel,

d) Fee for participation ininternational events/competitions (towards training,sponsorship and prize money),

e) Fee for participation in globalconferences and specializedtraining,

f) Film shooting,

g) Medical treatment abroad,

h) Disbursement of crew wages,

i) Overseas Education,

j) Remittance under educational tieup arrangements withuniversities abroad,

k) Remittance towards fees forexaminations held in India andabroad and additional scoresheets for GRE, TOEFL etc.

l) Employment and processing,assessment fees for overseas jobapplications,

m) Emigration and EmigrationConsultancy Fees,

n) Skills /credential assessment feesfor intending migrants,

o) Visa fees,

p) Processing fees for registrationof documents as required by thePortuguese /other Governments,Registration /Subscription/Membership fees to InternationalOrganisations.

1.4 Release of foreign exchange is notadmissible for travel to and transactionwith residents of Nepal and Bhutan.(cf. Clause (b) of rule 3 of the Rules.)

A.2 Sale of Exchange

2.1 Where approvals have been granted bythe Reserve Bank /Government ofIndia, foreign exchange may be soldwithin the period of validity stated inthe approval and the details of the saleshould be endorsed on the reverse ofthe original approval.

2.2 On the basis of a declaration given bythe traveller regarding the amount offoreign exchange availed of during acalendar year; authorised dealers mayrelease foreign exchange for travel andprivate purposes.

2.3 Incase of issue of travellers cheques,the traveller should sign the chequesin the presence of an authorised officialand the purchaser’s acknowledgementfor receipt of the travellers chequesshould be held on record.

2.4 Out of the overall foreign exchangebeing sold to a traveller, exchange inthe form of foreign currency notes and

81


coins may be sold upto the limitindicated below:

a) Travellers proceeding tocountries other than Iraq, Libya,Islamic Republic of Iran, RussianFederation and other Republicsof Commonwealth ofIndependent States notexceeding USD 2000 or itsequivalent.

b) Travellers proceeding to Iraq orLibya, not exceeding USD 5000or its equivalent.

c) Travellers proceeding to IslamicRepublic of Iran, RussianFederation and other Republicsof Commonwealth ofIndependent States. Fullexchange may be released.

2.5 The form A2 relating to sale of foreignexchange should be retained for aperiod of one year by the authoriseddealers, together with the relateddocuments, for the purpose ofverification by their Internal Auditors.However, in respect of remittanceapplications for miscellaneous non-trade current account transactions ofvalue less than USD 5,000 authoriseddealers may obtain simplifiedApplication cum Declaration Form(Form A2).

2.6 In cases where the remittances areallowed on the basis of self-declaration, the onus of furnishing the

correct details in the application willremain with the applicant who hascertified the details relating to thepurpose of such remittance.

A.3 Medical Treatment

3.1 With a view to enable residents to availof foreign exchange for medicaltreatment abroad without any hasslesand any loss of time, authorised dealersmay release foreign exchange upto anamount of USD 1,00,000 or itsequivalent, on the basis of selfdeclaration that the applicant is buyingexchange for medical treatmentoutside India without insisting on anyestimate from a hospital/doctor.

3.2 For amount exceeding the above limit,estimate from the doctor in India orhospital/ doctor abroad, is required tobe submitted to the authorised dealers.

3.3 A person who has fallen sick afterproceeding abroad may also bereleased foreign exchange by anauthorised dealer for medical treatmentoutside India.

A.4 Cultural Tours

Dance troupes, artistes, etc., who wish toundertake tours abroad for cultural purposesshould apply to the Ministry of HumanResources Development (Department ofEducation and Culture), Government ofIndia, for their foreign exchangerequirements. Authorised dealers mayrelease foreign exchange, on the strength ofthe sanction from the concerned Ministry,

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to the extent and subject to conditionsindicated therein.

A.5 Private Visits

Foreign exchange for private visit can alsobe released to persons who are availing offoreign exchange for travel outside India forany purpose upto the limit specified inSchedule III to the Rules.

A.6 Business Visits

Foreign exchange for undertaking businesstravel or attending a conference orspecialised training or for maintenanceexpenses of a patient going abroad formedical treatment or check up abroad or foraccompanying as attendant to a patient goingabroad for medical treatment /check up tothe limits specified in Specified in ScheduleIII to the Rules.

A.7 Period of surrender of foreignexchange

In case foreign exchange purchased for aspecific purpose is not utilized for thatpurpose, it could be utilized for any othereligible purpose for which drawal of foreignexchange is permitted under the relevantRegulation.

General permission is available to anyresident individual to surrender received /realized / unspent / unused foreign exchangeto an authorised person within a period of180 days from the date of receipt /realization/purchase /acquisition / date of return of thetraveller, as the case may be.

In all other cases, the regulations /directions

on surrender requirement shall remainunchanged. (cf Notification No. FEMA 9/2000-RB dated May 3rd 2000, as amendedfrom time to time).

A.8 Unspent Foreign Exchange

8.1 As stated above, unspent foreignexchange brought back to India by aresident individual should besurrendered to an authorised personwithin 180 days from the date of returnof the traveller. Exchange so broughtback can be utilised by the individualfor his /her subsequent visit abroad.

8.2 However, a returning traveller is alsopermitted to retain with him, foreigncurrency travellers cheques andcurrency notes upto an aggregateamount of USD 2000 and foreign coinswithout any ceiling (cf NotificationNo. FEMA 9/2000-RB dated May 3rd

2000). Foreign exchange so retained,can be utilised by the traveller for hissubsequent visit abroad.

8.3 A person resident in India can open,hold and maintain with an authoriseddealer in India, a Resident ForeignCurrency (Domestic) Account, out offoreign exchange acquired in the formof currency notes, bank notes andtravellers cheques from any of thesources like, payment for servicesrendered abroad, as honorarium, gift,services rendered or in settlement ofany lawful obligation from any personnot resident in India.

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8.4 The account may also be opened /credited with foreign exchange earnedabroad, including proceeds of exportof goods and /or services, royalty,honorarium, etc and /or gifts receivedfrom close relatives (as defined in theCompanies Act) and repatriated toIndia through normal banking channelsby resident individuals.

8.5 The eligible credits to the ResidentForeign Currency (Domestic) Account,out of foreign exchange acquired in theform of currency notes, bank notes andtravellers cheques, are as under:

a) Acquired by him, from anauthorised person for travelabroad and represents theunspent amount thereof, or

b) Acquired by him, while on a visitto any place outside India, byway of payment for services notarising from any business in oranything done in India and byway of honorarium or gift, or

c) Acquired by him, from anyperson not resident in India, andwho is on a visit to India, ashonorarium, gift, for servicesrendered or in settlement of anylawful obligation.

Note: Where a person approaches anauthorised person for surrender of unspent /unutilised foreign exchange after theprescribed period, authorised person shouldnot refuse to purchase the foreign exchange

merely on the ground that the prescribedperiod has expired.

A.9 Remittances for Tour arrangements,etc.

9.1 Authorised dealers may remit foreignexchange upto a reasonable limit, atthe request of a traveller towards hishotel accommodation, tourarrangement, etc. in the countriesproposed to be visited by him,provided it is out of the foreignexchange purchased by the travellerfrom an authorised person (includingexchange drawn for private travelabroad) in accordance with the Rules,Regulations and Directions in force.

9.2 Authorised dealers may effectremittances at the request of agents inIndia who have tie up arrangementswith hotels / agents, etc abroad forproviding hotel accommodation ormaking other tour arrangement fortravellers from India, provided theauthorised dealer is satisfied that theremittance is being made out of theforeign exchange purchased by theconcerned traveller from an authorisedperson (including exchange drawn forprivate travel abroad) in accordancewith the Rules, Regulations andDirections in force.

9.3 Authorised dealer may open foreigncurrency accounts in the name of agentsin India who have tie up arrangementswith hotels/agents etc. abroad providing

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hotel accommodation or making othertour arrangements for travellers fromIndia provided:

a) The credits to the account are byway of depositing

i. Collection made in foreignexchange from travellers and

ii. Refunds received from outsideIndia on account of cancellationof bookings /tour arrangementsetc. and

b) The debits in foreign exchangeare for making payments towardshotel accommodation, tourarrangements, etc. outside India,in accordance with 8.2 above

9.4 Authorised dealer may allow touroperators to remit the cost of rail/road/water transportation charges outsideIndia without any prior approval fromthe Reserve Bank, net of commission/mark up due to the agent. The sale ofpasses/ticket in India can be madeeither against the payment in IndianRupees or in foreign exchange releasedfor visits abroad. The cost of passes/tickets collected in Indian Rupees neednot be adjusted in the travellers’entitlement of foreign exchange forprivate visit.

9.5 In respect of consolidated toursarranged by travel agents in India forforeign tourists visiting India andneighbouring countries like Nepal,Bangladesh, Sri Lanka, etc. against

advance payments/reimbursementthrough an authorised dealer, part ofthe foreign exchange received in Indiaagainst such consolidated tourarrangement, may require to beremitted from India to theseneighbouring countries for servicesrendered by travel agent and hoteliersin these countries. Authorised dealersmay allow such remittances afterverifying that the amount beingremitted to the neighbouring countries(inclusive of remittances, if any,already made against the tour) does notexceed the amount actually remitted toIndia and the country of residence ofthe beneficiary is not Pakistan.

A.10 Payment in Rupees

Authorised dealers may accept payment incash upto Rs.50,000 only against sale offoreign exchange for travel abroad (forprivate visit or for any other purpose).Wherever the sale of foreign exchangeexceeds the amount equivalent to Rs.50,000the payment must be received only by a

i. Crossed Cheque drawn on theapplicant’s bank account, or

ii. Crossed Cheque drawn on the bankaccount of the firm/companysponsoring the visit of the applicant,or

iii. Banker’s Cheque /Pay Order / DemandDraft.

Note: Where the rupee equivalent of foreign

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exchange drawn exceeds Rs.50,000 eitherfor any single drawal or more than onedrawal reckoned together for a singlejourney/visit, it should be paid by cheque ordraft.

A.11 Advance Remittance-Import ofServices

Authorised dealers may allow advanceremittance for providing services undercurrent account transaction for which therelease of foreign exchange is admissible.However, where the amount exceeds USD1,00,000 or its equivalent, a guarantee froma bank of International repute situatedoutside India or a guarantee from anauthorised dealer in India, if such a guaranteeis issued against the counter-guarantee of abank of International repute situated outsideIndia, should be obtained from the overseasbeneficiary. The authorised dealer shouldalso follow up to ensure that the beneficiaryof the advance remittance has fulfilled hisobligations under the contract or agreementwith the remitter in India.

A.12 Issue of Guarantee-Import ofService

Authorised dealer may issue guarantee onbehalf of their customers importing services,provided:

a) The guarantee amount does notexceed USD 100,000;

b) Authorised dealer is satisfiedabout the bonafides of thetransaction;

c) Authorised dealer ensuressubmission of documentaryevidence for import of servicesin the normal course; and

d) The guarantee is to secure adirect contractual liability arisingout of contract between aresident and a non-resident.

Incase of invocation of the guarantee,the authorised dealer is required tosubmit to the Chief General manager,Foreign Exchange Department,Foreign investments Division (EPD),Reserve Bank of India, Central office,Mumbai-400001 a report on thecircumstances leading to theinvocation of the guarantee.

A.13 Liberalised Remittance Scheme ofUSD 2,00,000

13.1 Under this scheme, authorised dealermay freely allow remittances byindividuals upto USD 2,00,000 perfinancial year (April- March) for anypermitted current or capital accounttransactions or a combination of both.

13.2 The limit of USD 2,00,000 under theScheme would also includeremittances towards gift and donationby a resident individual.

13.3 Remittances under the scheme areallowed only in respect of permissiblecurrent or capital account transactionsor combination of both. All othertransactions Which are otherwise not

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permissible under FEMA and those inthe nature of remittance for margins ormargin calls to overseas exchanges/overseas counterparty are not allowedunder the scheme.

13.4 Resident individuals are free to acquireand hold immovable property or sharesor any other assets outside Indiawithout prior approval of the ReserveBank.

13.5 Individuals can also open, maintainand hold foreign currency accountswith a bank outside India for makingremittances under the scheme withoutprior approval of the Reserve Bank.The foreign currency accounts may beused for putting through alltransactions connected with or arisingfrom remittances eligible under thisscheme.

13.6 Banks should not extend any kind ofcredit facilities to resident individualsto facilitate remittances under theScheme.

13.7 Liberalised Remittance Scheme is notavailable for remittance to countriesidentified by Financial Action TaskForce (FATF) as non co-operativecountries and territories as available onFATF website www.fatf-gafi.org or asnotified by the Reserve Bank.

13.8 For understanding transactions underthe Liberalised Remittance Scheme ofUSD 2,00,000 resident individuals

may use the Application –cum-Declaration Form.

A.14 Documentation

14.1 The Reserve Bank will not, generally,prescribe the documents, which shouldbe verified by the authorised dealerswhile releasing foreign exchange. Inthis connection, attention of authoriseddealers is drawn to sub-section (5) ofSection 10 of the FEMA, 1999 whichprovides that an authorised personshall require any person wanting totransact in foreign exchange to makesuch a declaration and to give such ainformation as will reasonably satisfyhim that the transaction will notinvolve and is not designed for thepurpose of any contravention orevasion of the provision of the FEMAor any rule, regulation, notification,direction or order issued thereunder.

14.2 Authorised dealers are also require tokeep on record any information /documentation, on the basis of whichthe transaction was undertaken, forverification by Reserve Bank. In casethe applicant refuses to comply withany such requirement or makesunsatisfactory compliance therewith,the authorised dealer shall refuse, inwriting to undertake the transactionand shall, if he has reasons to believethat any contravention /evasion iscontemplated by the person, report thematter to Reserve Bank.

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14.3 Further the authorised dealers havespecifically been advised that they mayrelease foreign exchange upto USD1,00,000 each for employment,emigration, maintenance of closerelative, education and medicaltreatment abroad without insisting onany supporting documents but on thebasis of self declaration incorporatingcertain basic details of the transactionsand submission of Form A2.

A.15 Endorsement on Passport

It is not mandatory for authoriseddealers to endorse the amount offoreign exchange sold for travel abroadon the passport of the traveler.However, if requested by the traveler,they may record under their stamp, andsignature, details of foreign exchangesold for travel.

A.16 International Credit Cards

16.1 The restrictions contained in Rule 5 ofthe Foreign Exchange Management(Current Account Transactions) Rules,2000 will not be applicable for use ofInternational Credit Cards (ICCs) byresidents for making payment towardsexpenses, while on a visit outsideIndia.

16.2 Residents can use ICCs on internet forany purpose for which exchange canbe purchased from an authorised dealerin India, e.g. for import of books,purchase of downloadable softwares orimport of any other item permissible

under EXIM Policy.

16.3 ICCs cannot be used on internet orotherwise for purchase of prohibiteditems like lottery tickets, banned orprescribed magazines, participation insweepstakes, payment for call-backservices, etc. since no drawal of foreignexchange is permitted for such items /activities.

16.4 There is no aggregate monetary ceilingseparately prescribed for use of ICCsthrough internet.

16.5 Resident individuals maintainingforeign currency accounts with anauthorised dealer in India or a bankabroad, as permissible under ForeignExchange Regulations, are free toobtain ICCs issued by overseas banksand other reputed agencies. Thecharges incurred against the card eitherin India, or abroad, can be met out offunds held in such foreign currencyaccount/s of the card holder or throughremittances, if any, from India onlythrough a bank where the card holderhas current or saving account. Theremittance for this purpose should alsobe made directly to the card-issuingagency abroad and not to a third party.

16.6 The applicable credit limit will be thelimit fixed by the card issuing banks.There is no monetary ceiling fixed bythe Reserve Bank for remittances, if,any, under this facility.

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A.17 International Debit Cards

17.1 Banks authorize to deal in foreignexchange (AD Banks) are issuingInternational Debit Cards (IDCs)which can be used by a resident fordrawing cash or making payment toestablishment overseas during his visitabroad. It is clarified that IDCs can beused only for permissible currentaccount transaction and the item wiselimits as mentioned in the schedulesto Rules as amended from time to time,are equally applicable to paymentsmade through use of these cards.

17.2 The IDCs cannot be used on internetfor purchase of prohibited items likelottery tickets, banned or prescribedmagazines, participation insweepstakes, payment for call-backservices, etc i.e. for such items/activities for which drawal of foreignexchange is not permitted.

A.18 Store Value Cards/Charge Cards/Smart Cards etc.

Certain authorised dealer banks are alsoissuing Store Value Card /Charge Card/Smart Card to residents traveling on private/business visit abroad which are used for

making payments at overseas merchantestablishments and also for drawing cashfrom ATM terminals. No prior permissionfrom Reserve Bank is required for issue ofsuch cards. However, the use of such cardsis limited to permissible current accounttransactions and subject to the prescribedlimits under the Rules, as amended from timeto time.

A.19 Acquisition of Foreign SecuritiesUnder Employees Stock Option Plan(ESOP)

Resident individuals who are eitheremployees or director of an Indian office ora branch of a foreign company in whichforeign holding is not less than 51% arepermitted to acquire foreign securities underESOP Scheme without any monetary limit.They are also permitted to freely sell theshares provided the proceeds thereof arerepatriated to India.

A.20 Income–Tax Clearance

Remittances to non-residents will be allowedto be made by the authorised dealers onproduction of an undertaking by the remitterand a Certificate from Chartered Accountantin the formats prescribed by the CentralBoard of Direct Taxes.

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ANNEXURE-1

FOREIGN EXCHANGE MANAGEMENT(CURRENT ACCOUNT TRANSACTIONS) RULES, 2000

Prohibition on Drawal of ForeignExchange

Drawal of foreign exchange by any personfor the following purpose is prohibited,namely;

a. a transaction specified in the scheduleI; or

b. a travel to Nepal and/or Bhutan; or

c. a transaction with a person resident inNepal or Bhutan

Provided that the prohibition in clause (c)may be exempted by RBI subject to suchterms and conditions as it may necessary tostipulate by special or general order.

Prior Approval of Govt. of India

No person shall draw foreign exchange fora transaction included in the Schedule IIwithout prior approval of the Governmentof India;

Provided that this rule shall not apply wherethe payment is made out of funds held inResident Foreign Currency (RFC) Accountof the remitter.

Prior Approval of Reserve Bank

No person shall draw foreign exchange fora transaction included in the Schedule IIIwithout prior approval of Reserve Bank;

Provided this rule shall not apply where thepayment is made out of funds held inResident Foreign Currency (RFC) accountof the remitter.

Prior approval of Government of India andReserve Bank is not required for drawalmade out of funds held in Exchange Earners’Foreign Currency (EEFC) account of theremitter.

Use of International Credit Card whileOutside India

Prior approval of Reserve Bank for atransaction included in Schedule III is notrequired for use of International Credit cardfor making payment by a person towardsmeeting expenses while such person is on avisit outside India.

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SCHEDULE I

TRANSACTION WHICH ARE PROHIBITED(SEE RULE 3)

1. Remittance out of lottery winning.

2. Remittance of income from racing/riding etc. or any other hobby.

3. Remittance for purchase of lotterytickets, banned/prescribed magazines,football pools, sweepstakes, etc.

4. Payment of commission on exportsmade towards equity investment inJoint Ventures/ Wholly ownedSubsidiaries abroad of Indiancompanies.

5. Remittance of dividend by anycompany to which the requirement ofdividend balancing is applicable.

6. Payment of commission on exportsunder Rupee State Credit Route,except commission upto 10% ofinvoice value of export of tea andtobacco.

7. Payment related to “Call BackServices” of telephones.

8. Remittance of interest income on fundsheld in Non-Resident Special Rupee(Account) Scheme.

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SCHEDULE II

TRANSACTIONS WHICH REQUIRE PRIOR APPROVAL OFTHE CENTRAL GOVERNMENT

(SEE RULE 4)

Ministry/Department of Govt. ofIndia whose approval is required

Ministry of Human ResourcesDevelopment, (Department ofEducation and Culture)

Ministry of Finance, (Department ofEconomic Affairs)

Ministry of Surface Transport,(Chartering Wing)

Ministry of Surface Transport,(Chartering Wing)

Registration Certificate from the DirectorGeneral of Shipping

Ministry of Information andBroadcasting

Ministry of Communication andInformation Technology

Ministry of Surface Transport (DirectorGeneral of shipping)

Purpose of Remittance

1. Cultural Tours

2. Advertisement in foreign printmedia for the purposes other thanpromotion of tourism, foreigninvestments and internationalbidding (exceeding USD 10,000)by a State Government and itsPublic Sector Undertakings

3. Remittance of freight of vesselchartered by a PSU

4. Payment of import by a Govt.Department or a PSU on c.i.f. basis(i.e. other than f.o.b. and f.a.s.basis)

5. Multi-modal transport operatorsmaking remittance to their agentsabroad

6. Remittance of hiring charges oftransponders by(a) TV Channels(b) Internet Service providers

7. Remittance of container detentioncharges exceeding the rateprescribed by Director General ofShipping

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Purpose of Remittance

8. Remittances under technicalcollaboration agreements wherepayment of royalty exceeds 5% onlocal sales and 8% on exports andlump-sum payment exceeds USD2 million

9. Remittance of prize money/sponsorship of sports activityabroad by a person other thanInternational / national / state Levelsports bodies, if the amountinvolved exceeds USD 100,000.

10. Remittance for membership of P&I Club

Ministry/Department of Govt. of Indiawhose approval is required

Ministry of Industry and Commerce

Ministry of Human ResourcesDevelopment (Department of YouthAffairs and Sports)

Ministry of Finance, (Insurance Division)

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1. Release of exchange exceeding USD10,000 or its equivalent in one calendaryear, for one or more private visits toany country (except Nepal andBhutan).

2. Gift remittance exceeding USD 5,000per remitter/donor per annum.

3. Donation exceeding USD 5,000 perremitter/donor per annum andremittances exceeding 1% of theforeign exchange earnings during theprevious three financial years or USD5 million whichever is less forspecified purposes.

4. Exchange facilities exceeding USD100,000 for persons going abroad foremployment.

5. Exchange facilities for emigrationexceeding USD 100,000 or amountprescribed by country of emigration.

6. Remittance for maintenance of closerelatives abroad,

i. Exceeding net salary (afterdeduction of taxes, contributionto provident fund and otherdeductions) of a person who isresident but not permanentlyresident in India and -

(a) is a citizen of a foreign Stateother than Pakistan; or

(b) is a citizen of India, who is ondeputation to the office or branchor subsidiary or joint venture inIndia of such foreign company.

ii. Exceeding USD 100,000 peryear, per recipient, in all othercases.

Explanation : For the purpose of thisitem, a person resident in India onaccount of his employment ordeputation of a specified duration(irrespective of length thereof) or fora specific job or assignment; theduration of which does not exceedthree years, is a resident but notpermanently resident.

7. Release of foreign exchange,exceeding USD 25,000 to a person,irrespective of period of stay, orattending a conference or specialisedtraining or for maintenance expensesof a patient going abroad for medicaltreatment or check-up abroad, or foraccompanying as attendant to a patientgoing abroad for medical treatment/check-up.

8. Release of exchange for meetingexpenses for medical treatment abroadexceeding the estimate from the doctorin India or hospital/doctor abroad.

Schedule III

(See Rule 5)

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9. Release of exchange for studies abroadexceeding the estimate from theinstitution abroad or USD 100,000 peracademic year, whichever is higher.

10. Commission, per transaction, to agentsabroad for sale of residential flats orcommercial plots in India exceedingUSD 25,000 or 5% of the inwardremittance whichever is more.

11. Remittance exceeding USD 1,000,000

per project, for any consultancy serviceprocured from outside India. Forinfrastructure projects, this limit isUSD 10,000,000.

12. Remittance exceeding USD 100,000 or5% of the investment brought intoIndia whichever is higher on the basisof certification from the statutoryauditor by an entity in India by way ofreimbursement of pre-incorporationexpenses.

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FREQUENTLY ASKEDQUESTIONS

GUIDELINES ON TRAVEL RELATEDMATTERS

Q.1. Who is a resident?

A.1. A ‘person resident in India’ is definedin Section 2(v) of FEMA, 1999 as:

A person residing in India for morethan one hundred and eighty-twodays during the course of thepreceding financial year but does notinclude

A) a person who has gone out ofIndia or who stays outsideIndia, in either case

for or on taking upemployment outside India, or

for carrying on outside India abusiness or vocation outsideIndia, or

for any other purpose, in suchcircumstances as wouldindicate his intention to stayoutside India for an uncertainperiod;

(B) a person who has come to orstays in India, in either case,otherwise than - for or ontaking up employment in India,or

for carrying on in India abusiness or vocation in India,or

for any other purpose, in suchcircumstances as wouldindicate his intention to stay inIndia for an uncertain period;

any person or body corporateregistered or incorporated inIndia,

an office, branch or agency inIndia owned or controlled by aperson resident outside India,

an office, branch or agencyoutside India owned orcontrolled by a person residentin India;

That is to qualify as a resident theperson concerned will have to fulfillthe criterion regarding (a) theduration of stay and (b) the purposeof stay.

The term Person Resident OutsideIndia is defined in the Act as a personwho is not a person resident in India.

Q.2. From where one can buy foreignexchange ?

A.2. Foreign exchange can be purchasedfrom any authorised dealer. Besidesauthorised dealers, Full-Fledgedmoney changers are also permittedto release exchange for busienss andprivate visits.

Q.3. Who is an Authorised Dealer?

An Authorised Dealer is normally abank specifically authorised by theReserve Bank under Section 10(1)of FEMA, 1999, to deal in foreign

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exchange or foreign securities (Listavailable on www.fedai.orgjn).

Q.4. How much exchange is availablefor a business trip?

A.4. Authorised Dealers can releaseforeign exchange up to USD 25,000for a business trip to any countryother than Nepal and Bhutan.Release of foreign exchangeexceeding USD 25,000 for a travelabroad (other than Nepal andBhutan) for business purposes,irrespective of period of stay,requires prior permission fromReserve Bank. Visits in connectionwith attending of an internationalconference, seminar, specialisedtraining, study tour, apprenticetraining, etc., are treated as businessvisits. Maintenance expense of apatient going abroad for medicaltreatment and/or check up or foraccompanying as assistant to thepatient going abroad for medicaltreatment / check-up also falls withinthis category.

Incidentally, no release of foreignexchange is admissible for any kindof travel to Nepal and Bhutan or forany transaction with persons residentin Nepal and Bhutan.

Q.5. Can one obtain foreign exchangefor medical treatment outsideIndia?

A.5. Authorised Dealers may release

foreign exchange upto USD 100,000or its equivalent to resident Indiansfor medical treatment abroad on selfdeclaration basis of essential details,without insisting on any estimatefrom a hospital/doctor in India/abroad. A person visiting abroad formedical treatment can obtain foreignexchange exceeding the above limit,provided the request is supported byan estimate from a hospital/doctor inIndia/abroad. This exchange is tomeet the expenses involved intreatment. In addition to the amountreferred to in Answer to QuestionNo.4 above may also be availed.

Q.6. How much exchange is availablefor studies outside India?

A.6. ADs may release an amount of USD100,000 per academic year or theestimate received from the institutionabroad, whichever is higher.

Students going abroad for studies aretreated as Non-Resident Indians(NRls) and are eligible for all thefacilities available to NRls underFEMA. In addition, they can receiveremittances up to USD 100,000 fromclose relatives (as defined in Section6 of the Companies Act, 1956) fromIndia on self-declaration, towardsmaintenance, which could includeremittances towards their studiesalso. Educational and other loansavailed of by students as resident inIndia can be allowed to continue.

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There is no dilution in the existingremittance facilities to students inregard to their academic pursuits.

Q.7. How much foreign exchange canone buy when traveling abroad onprivate visits to a country outsideIndia?

A.7. In connection with private visitsabroad, viz., for tourism purposes,etc., foreign exchange up toUSD10,000, in any financial yearmay be obtained from an authoriseddealer on a self declaration basis.The ceiling of USD10,000 isapplicable in aggregate and foreignexchange may be obtained for oneor more than one visit provided theaggregate foreign exchange availedof in one financial year does notexceed the prescribed ceiling ofUSD10,000 {The facility was earliercalled B.T.Q or F.T.S.}. This limit ofUSD10,000 per financial year can beavailed of by a person along withforeign exchange for travel abroadfor any purpose, including foremployment or immigration orstudies. However, no foreignexchange is available for visit toNepal and/or Bhutan for anypurpose.

Q.8. How much foreign exchange isavailable to a person going abroadon employment?

A.8. Person going abroad for employment

can draw foreign exchange up-toUSD100,000 from any authoriseddealer in India on the basis of self-declaration.

Q.9. How much foreign exchange isavailable to a person going abroadon emigration?

A.9. Person going abroad on emigrationcan draw foreign exchange uptoUSD100,000 on self declarationbasis from an authorised dealer inIndia or the amount prescribed by thecountry of emigration. This amountis only to meet the incidentalexpenses in the country ofemigration. No amount of foreignexchange can. be remitted outsideIndia to become eligible or forearning points or credits forimmigration. All such remittancesrequire prior permission of theReserve Bank.

Q.10. Is there any category of visit whichrequires prior approval from theReserve Bank or Govt. of India?

A.10. Dance troupes, artistes, etc., whowish to undertake cultural toursabroad, are required to obtain priorapproval from the Ministry ofHuman Resources Development,Government of India, New Delhi.

Q.11. How much foreign exchange canbe purchased in foreign currencynotes while buying exchange fortravel abroad?

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A.11 Travellers are allowed to purchaseforeign currency notes/coins only upto USD 2000. Balance amount canbe taken in the form of travellerscheque or banker’s draft. Exceptionsto this are (a) travellers proceedingto Iraq and Libya can draw foreignexchange in the form of foreigncurrency notes and coins notexceeding USD 5000 or itsequivalent; (b) travellers proceedingto the Islamic Republic of Iran,Russian Federation and otherRepublics of Commonwealth ofIndependent States can draw entireforeign exchange released in theform of foreign currency notes orcoins.

Q.12. Do same Rules apply to personsgoing for studies abroad?

A.12. For the purpose of studies abroad,exchange for maintenance expensesis released in the form of (i) currencynotes up to USD 2,000, (ii) thebalance foreign exchange may betaken in the form of travellerscheques or bank draft payableoverseas.

Q.13. How much in advance one can buyforeign exchange for travelabroad?

A.13. The foreign exchange acquired forany purpose has to be used within60 days of purchase. In case it is notpossible to use the foreign exchangewithin the period of 60 days, it

should be surrendered to anauthorised dealer.

Q.14. Can one pay by cash full rupeeequivalent of foreign exchangebeing purchased for travelabroad?

A.14. Foreign exchange for travel abroadcan be purchased from authorizedbanks against rupee payment in cashup to Rs.50,000/-. However, if therupee equivalent exceeds Rs.50,000/-, the entire payment should be madeby way of a crossed cheque/banker’scheque/pay order/demand draft only.

Q.15. IS there any time frame for atraveller for surrender of foreignexchange on his return to India?

A.15. On his return to India, the travelleris required to surrender the unspentforeign exchange, whether in theform of currency notes or travellerscheques, within 180 days from thedate of return. However, a travellercan retain up to USD 2000 or itsequivalent, either in the form ofcurrency notes or travellers cheques,for future use. Further, the travelleralso has the facility of retaining theentire unspent foreign exchange inhis Resident Foreign Currency(Domestic) Account. In this regardplease see Question 29 (c) below.

Q.16. On return to India can one retainforeign exchange?

A.16. Yes. Resident travellers, on return to

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India, can retain unspent foreignexchange up to USD 2,000 or itsequivalent, either in the form ofcurrency notes or travellers cheques.The traveller can also credit theforeign currency amount to theirRFC (Domestic) Account, withoutany limit, where the foreignexchange has been acquired by thetraveller by any of the followingmodes: (Please see Question 29 (c)below)

a. while on a visit abroad aspayment for services notarising from any business in oranything done in India; or

b. as honorarium or gift or forservices rendered or insettlement of any lawfulobligation from any personwho is not resident in India andwho is on a visit to India; or

c. as honorarium or gift while ona visit to any place outsideIndia; or

d. from an authorised person fortravel abroad and representsthe unspent amount thereof.

Q.17. Is one required to surrenderforeign coins also to an authoriseddealer?

A.17. There is no restriction on residentsholding foreign coins.

Q.18. How much foreign exchange cana resident individual send as gift Idonation to a person residentoutside India?

A.18. Limit of USD 200,000 per financialyear under the LiberalisedRemittance Scheme would alsoinclude remittances towards gift anddonation by a resident individual.Accordingly, under the Scheme, anyresident individual, if he so desires,may remit the entire limit of USD200,000 in one financial year as giftto a person residing outside India oras donation to a charitable/educational/ religious/culturalorganization outside India.Remittances exceeding the limit willrequire prior permission from theReserve Bank.

Q.19. How much foreign exchange canother residents send as gift Idonation to a person residentoutside India?

A.19. Other residents like corporates,partnership firms, trusts etc., are freeto remit up to USD 5000 per annumper donor/remitter each as gift anddonation. Remittances exceeding thelimit will require prior permissionfrom the Reserve Bank.

Q.20. Is one permitted to useInternational Credit Card (ICC)for undertaking foreign exchangetransactions?

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A.20. Use of the International Credit Cards(ICCs) / ATMs/ Debit Cards can bemade for making personal paymentslike subscription to foreign journals,internet subscription, etc., and fortravel abroad in connection withvarious purposes. The entitlement offoreign exchange on InternationalCredit Cards (ICCs) is limited by thecredit limit fixed by the card issuingauthority only. With ICCs one can (i)meet expenses/make purchaseswhile abroad (ii) make payments inforeign exchange for purchase ofbooks and other items throughinternet in India. If the person has aforeign currency account in India orwith a bank overseas, he/she caneven obtain ICCs of overseas banksand reputed agencies.

Use of these instruments for paymentin foreign exchange in Nepal andBhutan is not permitted.

Q.21. While coming into India howmuch Indian currency can bebrought in?

A.21. A person coming into India fromabroad can bring in with him Indiancurrency notes within the limitsgiven below:

a. up to Rs. 5,000 from anycountry other than Nepal orBhutan, and

b. any amount in denominationnot exceeding Rs.100 fromNepal or Bhutan.

Q.22. While going abroad how muchforeign exchange, in cash, can aperson carry?

A.22. Residents are free to carry the foreignexchange purchased from anauthorised dealer or full fledgedmoney changer in accordance withthe Rules. They are, however,allowed to carry foreign exchange inthe form of currency notes/coins upto USD 2,000 or its equivalent only.Balance amount can be carried in theform of travellers cheque or banker/s draft. (In this connection please seeitem No.11).

Q.23. While going abroad how muchIndian currency, in cash, can aperson carry?

A.23. Residents are free to take outsideIndia (other than to Nepal andBhutan) currency notes ofGovernment of India and ReserveBank of India notes up to an amountnot exceeding Rs. 5,000/ - perperson. They may take or sendoutside India (other than to Nepaland Bhutan) commemorative coinsnot exceeding two coins each.

Explanation: ‘CommemorativeCoin’ includes coin issued byGovernment of India Mint tocommemorate any specific occasionor event and expressed in Indiancurrency.

A person can take or send out of India

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to Nepal or Bhutan, currency notesof Government of India and ReserveBank of India notes (other than notesof denominations of above Rs. 100);

Q.24. While coming into India howmuch foreign exchange can bebrought in?

A.24. A person coming into India fromabroad can bring with him foreignexchange without any limit.However, if the aggregate value ofthe foreign exchange in the form ofcurrency notes, bank notes ortravellers cheques brought inexceeds USD 10,000/- or itsequivalent and/or the value offoreign currency exceeds USD5,000/- or its equivalent, it should bedeclared to the Customs Authoritiesat the Airport in the CurrencyDeclaration Form (CDF), on arrivalin India.

Q.25. Is one required to follow completeexport procedure when a giftparcel is sent outside India?

A.25. A person resident in India is free tosend (export) any gift article of valuenot exceeding Rs. 5,00,000 providedexport of that item is not prohibitedunder the extant Foreign TradePolicy.

Q.26. How much jewellery one can carrywhile going abroad?

A.26. Taking personal jewellery out ofIndia is governed by Baggage Rules

framed under Foreign Trade Policyby the Government of India. Noapproval of Reserve Bank is requiredin this case.

Q.27. Can a resident extend localhospitality to a non-resident?

A.27. A person resident in India is, free tomake any payment in Indian Rupeestowards meeting expenses onaccount of boarding, lodging andservices related thereto or travel toand from and within India of a personresident outside India who is on avisit to India.

Q.28. Can residents purchase air ticketsin India for their travel nottouching India?

A.28. Residents may book their tickets inIndia for their visit to any thirdcountry. That is, residents can booktheir tickets for travel, for instancefrom London to New York, throughdomestic/foreign airlines in Indiaitself.

Q.29. Can a resident open a foreigncurrency denominated account inIndia?

A.29. Persons resident in India arepermitted to maintain foreigncurrency accounts in India under thefollowing three Schemes:

a. Exchange Earners’ ForeignCurrency (EEFC) Accounts:

All categories of resident

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foreign exchange earners cancredit up to 100 per cent of theirforeign exchange earnings, asspecified in the paragraph 1 (A)of the Schedule to NotificationNo. FEMA.10/2000-RB dated3rd May, 2000 and as amendedfrom time to time, to theirEEFC Account with anauthorised dealer in India.Funds held in EEFC accountcan be utilised for allpermissible current accounttransactions and also forapproved capital accounttransactions as specified by theextant Rules/Regulations/Notifications/ Directives issuedby the Government/RBI fromtime to time.

b. Resident Foreign Currency(RFC) Accounts :

Returning Indians, i.e., thoseIndians, who were non-residents earlier, and arereturning now for permanentstay; are permitted to open, holdand maintain with an authoriseddealer in India a ResidentForeign Currency (RFC)Account to keep their foreigncurrency assets. Assets heldoutside India at the time ofreturn can be credited to suchaccounts. The foreign exchange(i) received or acquired as gift

or inheritance from a personreferred to sub-section (4) ofsection 6 of FEMA,1999 or (ii)referred to in clause (c) ofsection 9 of the Act or acquiredas gift or inheritance therefrommay also be credited to thisaccount or (iii) received as theproceeds of life insurancepolicy claims/maturity/surrender values settled inforeign currency from aninsurance company in Indiapermitted to undertake lifeinsurance business by theInsurance Regulatory andDevelopment Authority.

The funds in RFC account arefree from all restrictionsregarding utilisation of foreigncurrency balances includingany restriction on investmentoutside India.

c. RFC (Domestic) Account:

A person resident in India canopen, hold and maintain withan authorized dealer in India, aResident Foreign Currency(Domestic) Account, out offoreign exchange acquired inthe form of currency notes,Bank notes and travellerscheques from any of the sourceslike, payment for servicesrendered abroad, ashonorarium, gift, services

103


rendered or in settlement of anylawful obligation from anyperson not resident in India.The account may also becredited with/opened out offoreign exchange earned likeproceeds of export of goodsand/or services, royalty,honorarium, etc., and/or giftsreceived from close relatives(as defined in the CompaniesAct) and repatriated to Indiathrough normal bankingchannels by residentindividuals. The account shallbe maintained in the form ofCurrent Account and shall notbear any interest. There is noceiling on the balances in theaccount.

Q.30. Can a person resident in Indiahold assets outside India?

A.30. In terms of sub-section 4, of Section(6) of the Foreign ExchangeManagement Act, 1999, a personresident in India is free to hold, own,transfer or invest in foreign currency,foreign security or any immovableproperty situated outside India ifsuch currency, security or propertywas acquired, held or owned by suchperson when he was resident outsideIndia or inherited from a person whowas resident outside India. (Pleasealso refer to the LiberalisedRemittance Scheme of USD 200,000discussed below).

LIBERALISED REMITTANCESCHEME OF USD 200,000

LIBERALISED REMITTANCESCHEME

Q.31. What is the LiberalisedRemittance Scheme of USD200,000?

A.31. This is a facility extended to allresident individuals under which,they may freely remit upto USD200,000 per financial year for anypermissible current or capitalaccount transaction or a combinationof both.

Q.32. Who is eligible to avail of thisLiberalised Remittance Facility?

A.32. The facility is available to residentindividuals only.

Q.33. Is there any frequency for theremittance?

A.33. There is no restriction on thefrequency. However, the totalamount of foreign exchangepurchased from or remitted through,all sources in India during the currentfinancial year should be within thelimit of USD 200,000/-.

Q.34. What are the purpose’s for whichremittance can be made under theScheme?

A.34. This facility is available for makingremittance/s for any permissible

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current or capital account transactionor a combination of both. It is notavailable for purposes specificallyprohibited (Schedule I) or regulatedby the Government of India(Schedule II) of Foreign ExchangeManagement (Current AccountTransactions) Rules, 2000.

Q.35. Can residents avail of this facilityfor acquiring immovable propertyand other assets abroad?

A.35. Yes. Individuals are free to use thisScheme to acquire and holdimmovable property, shares or anyother asset outside India withoutprior approval of Reserve Bank.

Q.36. Can individuals open foreigncurrency account abroad formaking remittance under theScheme?

A.36. Yes. Individuals are free to open,hold and maintain foreign currencyaccounts with a bank outside Indiafor making remittances under theScheme without the prior approvalof Reserve Bank. The account canbe used for putting through anytransaction connected with or arisingfrom remittances under the Scheme.

Q.37. What is the impact of the Schemeon the existing facilities forprivate/business travel, studies,medical treatment etc./itemscovered in Schedule III of ForeignExchange Management (Current

Account Transactions) Rules,2000?

A.27. The facility under the Scheme is inaddition to those already availableunder Foreign ExchangeManagement (Current AccountTransactions) Rules, 2000.

Q.38. Can an individual send remittanceunder the Scheme to any country?

A.38. Remittance cannot be made directlyor indirectly to Bhutan, Nepal,Mauritius or Pakistan. The facility isalso not available for makingremittances directly or indirectly tocountries identified by the FinancialAction Task Force (FATF) as ‘non-co-operative Countries or Territories,from time to time.

For the current list of such countries/territories please visit www.fatf-gafi.org.

Further, remittance under the facilitycannot be made to individuals andentities identified as posingsignificant risk or committing acts ofterrorism as advised to banks byReserve Bank from time to time.

Q.39. What are the requirements to becomplied with by the remitter?

A.39. The individual will have to designatea branch of an AD through which allthe remittances under the Scheme willbe made. The applicants should havemaintained the bank account with the

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bank for a minimum period of oneyear prior to the remittance. He hasto furnish an application-cum-declaration in the specified formatregarding the purpose of theremittance and declare that the fundsbelong to him and will not be usedfor purposes prohibited or regulatedunder the Scheme.

Q.40. If an investment of USD 200,000 risesin value within the year, can one bookprofits and invest abroad again?

A.40. The investor is free to book profit orloss abroad and to invest abroadagain. He is under no obligation torepatriate the funds remitted abroad.

Q.41. Can an individual, who hasrepatriated the amount remittedduring the financial year, avail ofthe facility once again?

A.41. Once a remittance is made for anamount upto USD 200,000 duringthe financial year, he would not beeligible to make any furtherremittances under this route, even ifthe proceeds of the investments havebeen brought back into the country.

Q.42. Can remittances be made only inUS Dollars?

A.42. The remittances can be in anycurrency equivalent to USD 200,000in a financial year.

Q.43. Last year, resident individualscould invest in overseas companies

listed on a recognised stockexchange abroad and which hasthe shareholding of at least 10 percent in an Indian company listedon a recognised stock exchange inIndia. Does this condition stillexist?

A.43. Investment by resident individual inoverseas companies is subsumedunder the Scheme of USD 200,000.The requirement of 10 per centreciprocal shareholding in the listedIndian companies by such overseascompanies has since been dispensedwith.

GUIDELINES FOR FINANCIALINTERMEDIARIES OFFERINGSPECIAL SCHEMES, PROTECTIONUNDER THE SCHEME.

Q.44. Are intermediaries expected toseek specific approval for makingoverseas investments available toclients?

A.44 Banks including those not havingoperational presence in India arerequired to obtain prior approvalfrom Reserve Bank for solicitingdeposits for their foreign/overseasbranches or for acting as agents foroverseas mutual funds or any otherforeign financial services company.

Q.45. Are there any restrictions on thekind/quality of debt or equityinstruments an individual caninvest in?

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A.45. No ratings or guidelines have beenprescribed under the LiberalisedRemittance Scheme of USD 200,000on the quality of the investment anindividual can make. However, theindividual investor is expected toexercise due diligence while takinga decision regarding the investmentswhich he or she proposes to make.

Q.46. Whether minor residentindividuals would be permitted toopen, maintain and hold suchforeign currency accounts, if thesame is permissible as per local lawin the country of the overseasbranch?

A.46. Banks may take necessary steps inthe matter based on the settled legalposition regarding enforcement ofthe declaration in case the remittanceis made on behalf of a minor.

Q.47. Whether credit facilities in IndianRupees or foreign currency would

be permissible against security ofsuch deposits?

A.47. No. The Scheme does not envisageextension of credit facility against thesecurity of the deposits.

Q.48. Can bankers open foreigncurrency accounts in India forresidents under the Scheme?

A.48. No. Banks in India can not openforeign currency accounts in India forresidents under the Scheme.

Q.49. Can an Offshore Banking Unit(OBU) in India be treated on parwith a branch of the bank outsideIndia for the purpose of openingof foreign currency accounts byresidents under the Scheme?

A.49. No. For the purpose of the Scheme,an OBU in India is not treated as anoverseas branch of a bank in India.

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TAX PROVISIONS AND OVERSEAS INDIANS

PART - IITax Provisions

andOverseas Indians

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TAX PROVISIONS AND OVERSEASINDIANS

citizens and foreign citizens of Indian origin,the period of 60 days referred to in Clause(b) above, will be extended to 182 days intwo cases: (i) where an Indian citizen leavesIndia in any year for employment outsideIndia; and (ii) where an Indian citizen or aforeign citizen of Indian origin (NRI), whois outside India, comes on a visit to India.

In the above context, an individual visitingIndia several times during the relevant“previous year” should note that judicialauthorities in India have held that both thedays of entry and exit are counted whilecalculating the number of days stay in India,irrespective of however short the time spentin India on those two days may be.

A “non-resident” is merely defined as aperson who is not a “resident” i.e. one whodoes not satisfy either of the two prescribedtests of residence.

An individual, who is defined as Residentin a given financial year is said to be “notordinarily resident” in any previous year ifhe has been a non-resident in India 9 out ofthe 10 preceding previous years or he hasduring the 7 preceding previous years beenin India for a period of, or periods amountingin all to, 729 days or less.

Till 31st March 2003, “not ordinarilyresident” was defined as a person who has

RESIDENTIAL STATUS FOR TAXPURPOSES

In India, as in many other countries, thecharge of income tax and the scope of taxableincome varies with the factor of residence.There are two categories of taxable entitiesviz. (1) residents and (2) non-residents.Residents are further classified into two sub-categories (i) resident and ordinarily residentand (ii) resident but not ordinarily resident.The law prescribes two alternative technicaltests of residence for individual taxpayers.Each of the two tests relate to the physicalpresence of the taxpayer in India in thecourse of the “previous year” which wouldbe the twelve months from April 1 to March31.

A person is said to be “resident” in India inany previous year if he

(a) is in India in that year for an aggregateperiod of 182 days or more; or

(b) having within the four years precedingthat year been in India for a period of365 days or more, is in India in thatyear for an aggregate period of 60 daysor more.

The above provisions are applicable to allindividuals irrespective of their nationality.However, as a special concession for Indian

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not been resident in India in 9 out of 10preceding previous years or he has not duringthe 7 preceding previous years been in Indiafor a period of, or periods amounting in allto, 730 days or more.

Section 6 of the Income-tax Act, 1961,prescribes the tests for determining theresidential status of a person. Section 6, asamended, reads as follows:

For the purposes of this Act,

(1) An individual is said to be resident inIndia in any previous year, if he

a) is in India in that year for a periodor periods amounting in all to onehundred and eighty-two days ormore; or

b) [* * *]

c) having within the four yearspreceding that year been in Indiafor a period or periods amountingin all to three hundred and sixtyfive days or more, is in India for aperiod or periods amounting in allto sixty days or more in that year.

Explanation.- In the case of an individual,-

(a) being a citizen of India, who leavesIndia in any previous year [as amember of the crew of an Indian shipas defined in clause (18) of section 3of the Merchant Shipping Act, 1958(44 of 1958), or] for the purpose ofemployment outside India, theprovisions of sub-clause (c) shall apply

in relation to that year as if for thewords “sixty days”, occurring therein,the words “one hundred and eighty-two days” had been substituted

(b) being a citizen of India, or a person ofIndian origin within the meaning ofExplanation to clause (e) of section115C, who, being outside India, comeson a visit to India in any previous year,the provisions of sub-clause (c) shallapply in relation to that year as if forthe words “sixty days”, occurringtherein, the words “one hundred andeighty-two days” had been substituted.

(2) A Hindu undivided family, firm or otherassociation of persons is said to beresident in India in any previous year inevery case except where during that yearthe control and management of its affairsis situated wholly outside India.

(3) A company is said to be resident inIndia in any previous year, if

a. it is an Indian company; or

b. during that year, the control andmanagement of its affairs issituated wholly in India.

(4) Every other person is said to beresident in India in any previous yearin every case, except where during thatyear the control and management of hisaffairs is situated wholly outside India.

(5) If a person is resident in India in aprevious year relevant to an assessmentyear in respect of any source of income,

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R &NOR

YES

YES

YES

NO

NO

YESNR

NO

NO

NO

NO

YES

YES

NO

Determination of Residential Status of AnAssessee Under the Income Tax Act

The Tests for determining the Residential status of an assessee under the Income Tax Actcan be explained with the help of Flow Charts as follows:

Key to Abbreviation used

IC = Indian CitizenRPY = Relevant Previous YearPPY = Preceding Previous YearR = ResidentNR = Non ResidentR & NOR = Resident butNot Ordinarily

ResidentROR = Resident & ordinarily ResidentHUF = Hindu Undivided FamilyAOP = Association of Persons

INDIVIDUAL

STAYEDIN INDIA

< 60 DAYS

STAYED> 182 DAYS

RPY

IC LEFT FOREMPLOYMENT OR

CREW MEMEBR OFINDIAN SHIP

INDIAN CITIZENOR INDIAN ORIGINVISITED INDIA RPY

STAYED> 60 DAYS/RPY AND

> 365 D/4 PPY

RESIDENT

NR9 PPY / 10 PPY

STAYED< 729 DAYS /

7 PPY

ROR

YES

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NO

NO

YESR

NO

NO

NO

YES

YES

YES

RNOR

YES

Determination of Residential Status ofHUF Firm AOP Company

COMPANY

INDIAN COMPANY

OTHER COMPANY

CONTROL &MANAGEMENT

WHOLLY ININDIA

NR

HUF/FIRM/AOP

CONTROL & MANAGEMENT

WHOLLY ORPARTLY IN INDIA

R

RESIDENT HUF

KARTANR 9 PPY/10 PPY

KARTASTAYED < 729D/

7 PPY

HUF - ROR

NR

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he shall be deemed to be resident inIndia in the previous year relevant tothe assessment year in respect of eachof his other sources of income.

(6) A person is said to be “not ordinarilyresident” in India in any previous yearif such person is

(a) an individual who has not beena non-resident in India in nine outof the ten previous yearspreceding that year, or has notduring the seven previous yearspreceding that year been in Indiafor a period of, or periodsamounting in all to, sevenhundred and twenty-nine days orless; or

(b) a Hindu undivided family whosemanager has not been non-resident in India in nine out ofthe ten previous years precedingthat year, or has not during theseven previous years precedingthat year been in India for aperiod of, or periods amountingin all to, seven hundred andtwenty-nine days or less.

An analysis of the above provisions wouldindicate that

1. To become a non-resident for income-tax purposes, an Indian citizen leavingIndia for the first time to take upemployment abroad should be out ofthe country latest by 28th Septemberand should not return to India before

1st April of the next year. However, incase of a person leaving India fortaking up a business or profession, thecriteria of 60 days will apply, as definedearlier.

2. An NRI individual, whose total stayin India in 4 preceding years exceeds364 days, will not lose his non-residentstatus in the following year(s) if histotal stay in India in that year (fromApril 1 to March 31) does not exceed

(a) 181 days, if he is on a “visit” toIndia; or

(b) 59 days, if he comes to India on“transfer of residence”.

3. An NRI who has returned to India forsettlement, whose total stay in India for4 preceding years does not exceed 364days will not lose his non-residentstatus in the following year(s) if histotal stay in India in such year(s) (fromApril 1 to March 31) does not exceed181 days.

4. A new-comer to India would be treatedas “not ordinarily resident” for the firsttwo years of his stay in India or iftreated as Non Resident in the year ofarrival then for the second and thirdyear of his stay in India. An individual(whether Indian or foreign citizen) whohas left India and remains nonresidentfor at least nine years preceding hisreturn to India or whose stay in 7 yearspreceding the year of return has notexceeded 729 days would, upon his

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return, be treated as “non-resident” or“not ordinarily resident” dependingupon the number of days stay in Indiain the year of return. The status of “notordinarily resident” will remaineffective for 2 years including orfollowing the year of return as the casemay be.

Important Points to be Borne in Mindwhile Determining the Residential Statusof an Individual

(a) Residential status is always determinedfor the Previous Year because theassessee has to determine the totalincome of the Previous Year only. Inother words, as the tax is on the incomeof a particular Previous Year, theenquiry and determination of theresidence qualification must confine tothe facts obtaining in that PreviousYear.

(b) If a person is resident in India in aPrevious Year in respect of any sourceof income, he shall be deemed to beresident in India in the Previous Yearrelevant to the Assessment Year inrespect of each of his other sources ofIncome. [Section 6(5)]

(c) Relevant Previous Year means, thePrevious Year for which residentialstatus is to be determined

(d) It is not necessary that the stay shouldbe for a continuous period.

(e) It is not necessary that the stay shouldbe at one place in India.

(f) Both the day of entry and the day ofdeparture should be treated as the dayof stay in India [Petition No.7 of 1995225 ITR 462 (AAR)]

(g) Presence in territorial waters in Indiawould also be regarded as stay in India.

(h) A person is said to be of Indian Originif he or either of his parents or any ofhis grand parents was born inundivided India [Section 115C]

(i) Official tours abroad in connectionwith employment in India shall not beregarded as employment outside India.

(j) A person may be resident of more thanone country for any Previous Year.

(k) Citizenship of a country and residentialstatus of that country are two separateconcepts. A person may be an Indiannational/Citizen but may not be aresident in India and vice versa.

Points to be Considered by NRIs

• Previous Year is period of 12 monthsfrom 1st April to 31st March. Numberof days stay in India is to be countedduring this period.

• Both the Day of Arrival into India andthe Day of Departure from India arecounted as the days of stay in India (i.e.2 days stay in India).

• Dates stamped on Passport arenormally considered as proof of datesof departure from and arrival in India.

• It is advisable to keep several

114


photocopies of the relevant passportpages for present and future use.

• Ensure that date stamped on thepassport is legible.

• Keep track of no. of days in India fromyear to year and check the same beforemaking the next trip to India. It isadvisable to maintain a chart for thenumber of days stay in the current andin the preceding seven (7) previousyears.

• In the 1st year of leaving India foremployment outside India, ensure thatyou leave before 29th September.Otherwise total income of the financialyear (including the foreign income)will be taxable in India if it exceedsthe basic exemption limit.

• During the last year of stay abroad, ontransfer of residence to India, ensure tocome back on or after Feb 1st (or Feb2nd in case of a leap year). Since arrivalbefore this date will result in stay inIndia exceeding 59 days. However, aperson whose stay in India in precedingfour (4) previous years does not exceed365 days, he may return after September30th of the relevant year without lossof non-resident status.

Implications of Residential Status forNRIs/PIOs

The complexities of determining theresidential status for individual NRI/PIOunder various statutes and regulations willbe obvious from the provisions outlined

above and in this context it would beimportant to note the following:

1. The concepts and rules for determiningthe residential status income-tax lawsand FEMA are quite different and itwould be possible to be a residentunder one law and non-resident underthe other.

2. For exemption of income tax in respectof NRE and FCNR deposits investorshould be non-resident under FEMA.

3. The special tax rate concessions onincome and long-term capital gains onspecified assets, purchased inconvertible foreign exchange areavailable to non-residents under theIncome-tax Act.

CHARGEABLE INCOME

Section 5 of the Income-tax Act lays downthe scope of total income of any previousyear of any person. The Section reads asfollows:

(1) Subject to the provisions of this Act,the total income of any previous yearof a person who is a resident includesall income from whatever sourcederived which

(a) is received or is deemed to bereceived in India in such year byor on behalf of such person ;or

(b) accrues or arises or is deemed toaccrue or arise to him in Indiaduring such year; or

(c) accrues or arises to him outsideIndia during such year:

115


Provided that, in the case of a personnot ordinarily resident in India withinthe meaning of sub-section (6) ofSection 6, the income which accruesor arises to him outside India shall notbe so included unless it is derived froma business controlled in or a professionset up in India.

(2) Subject to the provisions of this Act,the total income of any previous yearof a person who is a non-residentincludes all income from whateversource derived which

(a) is received or is deemed to bereceived in India in such year byor on behalf of such person; or

(b) accrues or arises or is deemed toaccrue or arise to him in Indiaduring such year.

Explanation I.-Income accruing or arisingoutside India shall not be deemed to bereceived in India within the meaning of thissection by reason only of the fact that it istaken into account in a balance sheetprepared in India.

Explanation 2.-For the removal of doubts,it is hereby declared that income which hasbeen included in the total income of a personon the basis that it has accrued or arisen oris deemed to have accrued or arisen to himshall not again be so included on the basisthat it is received or deemed to be receivedby him in India.”

Thus, it is clear from the above thatthe incidence of tax depends upon aperson’s Residential Status and also upon theplace and time of accrual and receipt ofincome.

In tabular form, the above may be stated as under:-

Sources of Income R & OR R & NOR NR

Indian IncomeIncome received ordeemed to be received Taxable in India Taxable in India Taxable in Indiain India during thecurrent financial year.

Income accruing orarising or deemed toaccrue or arise in India Taxable in India Taxable in India Taxable in Indiaduring the currentfinancial year.

Income accruing orarising or deemed toaccrue or arise outside Taxable in India Taxable in India Taxable in IndiaIndia, but first receiptis in India during thecurrent financial year

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Sources of Income R & OR R & NOR NR

Foreign IncomeIncome accruing orarising or deemed toaccrue or arise outside Taxable in India Taxable in India Not Taxable inIndia and received Indiaoutside India, during thecurrent financial year.

Income accruing orarising outside Indiafrom a Business/ Taxable in India Taxable in India Not Taxable inProfession controlled Indiain/from India during thecurrent financial year.

Income accruing orarising outside Indiafrom any source other Taxable in India Taxable in India Not Taxable inthan Business IndiaProfession controlledfrom India.

As stated earlier, the charge of income tax varies with the factor of residence in the previousyear and the general position with regard to the three categories of taxpayers can besummarised as follows:

1. Taxpayers in all categories are chargeable on income, from whatever source derived,which is received or is deemed to be received in India by or on behalf of them orwhich accrues or arises or is deemed to accrue or arise to them in India other thanincome specified as exempt income.

In the above context, it may be noted that the 'receipt' of income refers to the firstoccasion when the recipient gets the money under his own control and it is the firstreceipt that determines the year and place of receipt for the purposes of taxation. Ifthe income is already received outside India, no tax liability will arise when the wholeor any part of such income is remitted to India.

2. A "resident and ordinarily resident" pays tax in India on his entireworld income, wherever accrued or received.

3. A "non-resident" pays tax only on his taxable Indian income and his foreign income(earned and received outside India) is totally exempt from Indian taxes.

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4. A "not ordinarily resident" pays tax ontaxable Indian income and on foreignincome derived from a businesscontrolled in or a profession set up inIndia.

5. An individual upon acquiring the statusof "not ordinarily resident" would notpay tax, for a period of two years, onthe interest on :

(a) the continued Foreign CurrencyNon-Resident (FCNR) account;

(b) the Resident Foreign Currency(RFC) account; and

(c) on income earned from foreignsources unless such income isdirectly received in India or isearned from a business controlledin or a profession set up in India.

SPECIAL PROVISIONS RELATINGTO CERTAIN INCOME OF NRIS

Some of the special tax concessionsfor NRIs/PIO investing in India wereintroduced in the Finance Act, 1983, whichbecame effective on June 1, 1983. The taxprovisions were further liberalised bysubsequent Finance Acts and other amendinglaws.

Special Concessions

Investment income from 'foreign exchangeassets' comprising shares and debenture ofand deposits with Indian companies andcentral government securities, subscribed toor purchased in convertible foreignexchange, is charged to income tax at a flat

rate of 20%. No deductions are, however,allowed and tax is levied on gross income.The basic exemption, below which incomeis not taxed in India, is also not allowed.

Under these special concessions a reducedrate of 10% is applied to the long-termcapital gains on transfer of any foreignexchange asset held by the NRI/PIO. In orderto qualify for long-term capital gains, theminimum holding period for shares held ina company or any other security listed in arecognised Stock Exchange in India or unitsof Unit Trust of India or of a specifiedMutual Fund is 12 months and for otherassets it is 36 months. Long-term capitalgains on foreign exchange assets are,however, exempted from tax if the netproceeds realized on transfer are re-invested,within six months of such transfer, in anyspecified securities and the new assets areretained for at least three years.

The Finance Act, 2003 has withdrawn thetaxing provision in respect of dividendreceived by the shareholders on shares heldin Indian companies. Accordingly, dividendreceived by the shareholders of Indiancompanies will be exempt from tax. Theincome received from units of Unit Trust ofIndia and of specified mutual funds will alsobe exempt.

Finance Act 2004 has:

(a) granted tax exemption as regards longterm capital gains arising from transferof equity shares in a company and/orunits of equity oriented schemes of

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Mutual Funds, which are subject tosecurities transaction tax; and

(b) fixed at 10% the tax on short-termcapital gains arising from such sharesand! or units.

The tax concessions in respect of investmentincome (and not long term capital gain) willcontinue to apply even after the NRI/PIOreturns to India but such exemption wouldbe available only in respect of foreignexchange assets other than shares in Indiancompanies and the exemption will continueuntil such time as the assets are transferredor converted into money. However, asdividend is exempt income from 1st April2003, exclusion of shares from saidprovision is redundant.

In the circumstances where the income ofNRI/PIO from such foreign exchange assetsis below the taxable limit or the average levelof tax is below 20%, he may elect not to begoverned by the special tax concessionsreferred to above. He would then have tofurnish a Return of Income in the normalcourse together with a declaration of suchelection and he would be entitled to claim arefund of the whole or a part of the taxdeducted at source, as may be appropriate.

As mentioned above, short-term capitalgains arising from transfer of equity sharesand/or units of equity-oriented schemes ofMutual Funds, which are subject to securitiestransaction tax, are taxed at 10%. OtherShort-term capital gain is taxable at normalslab rates as applicable to residents, and thereturn of income has to be filed by the NRI/

PIO making such gain.

Capital gain from transfer of shares ordebentures of Indian companies will becomputed by converting the cost ofacquisition, expenses incurred in connectionwith such transfer and the sale price of thecapital asset into the same foreign currencyas was initially used in the purchase of theseassets and the capital gain so computed insuch foreign currency will be reconvertedinto Indian currency. This computationeffectively gives the NRI/PIO the benefit ofclaiming exchange loss, if any, on all capitalgains arising from sale of shares ordebentures of Indian companies, whetherthese are long term or short term. It may benoted that the aforesaid benefit is availableonly if the investment is made fromconvertible foreign exchange. In respect ofinvestment made from funds other thanconvertible foreign exchange, and if the assetis a long-term capital asset benefit ofindexation can be availed. However,indexation is not available in respect ofdebentures.

TAX EXEMPTIONS FROM INCOMETAX

Income from the following investmentsmade by NRIs/PIO out of convertible foreignexchange is totally exempt from tax.

(a) Deposits in under mentioned bankaccounts :

(i) Non Resident External RupeeAccount (NRE)

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The above exemption may not have muchrelevance now since the Finance Act 1992has considerably reduced the scope ofWealth-tax. With effect from 1st April, 1993,Wealth-tax is being levied only on non-productive assets like urban land, buildings(except one house property), jewellery,bullion and vehicles, cash over Rs.50,000/-etc. The current rate of Wealth-tax is 1 % onthe aggregate market value of chargeableassets as on 31st March every year in excessof Rs.1.5 million.

However, it may be noted that NRIs are alsoliable to pay wealth tax if the market valueof taxable assets as on 31st March exceedsRs.l.5 million.

TAX EXEMPTIONS FROM GIFT TAX

Gift Tax Act, 1958 has been repealed witheffect from 1st October, 1998 and as such,Gift Tax is not chargeable on any gifts madeon or after that date.

With regard to gifts of foreign exchange orspecified assets made by NRIs to theirrelatives in India, it should be noted that

1. Gifts made by an NRI/PIO to his orher spouse, minor children or son'swife will involve clubbing of incomeand wealth in the hands of the donor-NRI/ PIO.

2. In the case of gifts to minor childrenthe clubbing of income, as above, willcease upon such children attaining theage of 18 years.

(ii) Foreign Currency Non-residentAccount (FCNR)

(b) Units of Unit Trust of India andspecified mutual funds, other specificsecurities, bonds and savingscertificates (subject to conditionsprescribed limits under the Income-taxlaws and regulations).

(c) Dividend declared by Indian company.

(d) Long term capital gains arising fromtransfer of equity shares in a companyand/or equity oriented schemes ofMutual Funds, which are subject tosecurities transaction tax.

It should be noted that the tax exemptionsrelating to NRE bank deposits will ceaseimmediately upon the NRI/PIO becoming aresident in India whereas the interest onFCNR bank deposits will continue to be taxfree as long as the NRI maintains the statusof Resident but Not Ordinarily Resident oruntil maturity, whichever is earlier.

TAX EXEMPTIONS FROM WEALTHTAX

Where an NRI/PIO returns to India forpermanent residence, moneys and the valueof assets brought by him into India and thevalue of assets acquired by him out of suchmoneys within one year immediatelypreceding the date of his return and at anytime thereafter are totally exempt fromWealth-tax for a period of seven years afterreturn to India.

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3. The clubbing provisions will apply, incase of gift to spouse or son's wife inIndia, only to the' first-stage of incomefrom the original gift. Second-stageincome arising from investment of theincome from the original gift is notclubbed and this will constitute theseparate wealth/income of the doneespouse.

Generally, the income of minor children,from any source (including income fromgifts from parents) is clubbed with theincome of the parent whose total chargeableincome is greater.

Other matters to be noted regarding gifts are

1. All gifts received by residents fromNRIs/PIO may be subject to the taxauthorities requiring the recipient toprovide evidence as regards theidentity and financial capacity of thedonor and genuineness of the gift.

2. Under the Foreign ExchangeManagement Act, 1999 no approvalfrom Reserve Bank of India (RBI) isnecessary for the resident donee to holdgifted immovable property outsideIndia provided the said property isgifted by a person resident outsideIndia. General permission, subject tocertain conditions, is granted by RBIfor the resident donees to hold foreignmoveable properties such as shares andsecurities gifted by NRI/PIO donors.

3. The Income Tax Act has provided thatany sum of money exceeding

Rs.50,000 received withoutconsideration (i.e., gift) by anindividual or Hindu undivided Familyfrom any person on or after 1st April,2006 the whole of such sum will bechargeable to income-tax in theassessment of recipient (i.e., donee)under that head "Income from othersources" for and from assessment year2007-08 and onwards. Any sum ofmoney exceeding Rs. 25,000 receivedwithout consideration (i.e. gift) by anindividual or Hindu undivided familyfrom any person on or after September1, 2004 but before April 1, 2006, thewhole of sum will be chargeable toincome tax.

However, the above provisions will not applyto any sum of money /gift received:

(a) from any relative; or

(b) on the occasion of the marriage of theindividual; or

(c) under a will or by way of inheritance;or

(d) in contemplation of death of the payer;or

(e) from a local authority; or

(f) from any fund, foundation, university,other educational institution, hospital,medical institution, any trust orinstitution referred to in section 10(23C); or

(g) from a charitable institute registeredunder section 12AA.

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The term "relative" is defined as:

(1) spouse of the individual;

(2) brother or sister of the individual;

(3) brother or sister of the spouse of theindividual;

(4) brother or sister of either of the parentsof the individual;

(5) any lineal ascendant or descendant ofthe individual;

(6) any lineal ascendant or descendant ofthe spouse of the individual; and

(7) spouse of the person referred to in (2)to (6).

Scope of Receipts

l As per plain reading of the provision,any receipt without consideration, saveexclusions, whether capital orotherwise, may be considered asincome.

l Similar receipts by any person (suchas, a partnership firm, a company, andAOP etc.), other than an individual ora Hindu undivided Family, would notconstitute income in its hands.

l The provision would apply to anindividual irrespective of hisresidential status. Accordingly, anyreceipt in India by a non-resident ofthe nature discussed above would beconsidered as income in his hands.

l Gifts on occasion other than marriage,for example, birthday, marriage

anniversary and other social occasions,religious ceremonies etc., would betaxable as income. Gifts received onthe occasion of the marriage of theindividual, irrespective of any limit,(but within reasonable limits) wouldnot constitute income.

l The receipts should be in the form ofmoney. Accordingly, any gift in kindwould not be taxable.

l The receipts must be withoutconsideration, implying in the natureof gift.

PRESUMPTIVE TAX PROVISIONS

Certain provisions have been incorporatedin the Income-tax Act whereby the totalincome of certain non-resident assessee iscomputed on the basis of certain percentageof their gross total receipts. This estimatedincome approach is expected to reduce areasof uncertainty and resultant tax litigation.However, a non-resident assessee has theoption to maintain books of account and gethis books of account audited u/s 44AB ("TaxAudit") and offer lower profits and gains fortaxation in India than the profits and gainsestimated under Sections 44BB and 44BBBon presumptive basis.

Special provisions applicable to non-residents for computing their income underthe head "Business Income"

Shipping Business (Sections 44B & 172)

Section 44B contains special provisions for

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computing profits and gains of shippingbusiness of a non-resident assessee. In thecase of non-residents, such profits and gainswill be taken at an amount equal to 7.5%(seven and a half per cent of the amount paidor payable to the non-resident or to any otherperson on his behalf on account of thecarriage of passengers, livestock, mail orgoods shipped at any Indian port as also ofthe amount received or deemed to bereceived in India on account of the carriageof passengers, livestock, mail or goodsshipped at any port outside India.

Section 172, which is a complete code initself, contains provisions for taxation ofoccasional shipping business of non-residents in respect of profits made by themfrom carriage of passengers, livestock, mailor goods shipped at a port in India.

Business of Providing Services andFacilities in Connection with Explorationetc. of Mineral Oils (Section 44BB)

Section 44BB contains special provisions forcomputation of taxable income of a non-resident assessee engaged in the business ofproviding services or facilities in connectionwith, or supplying plant and machinery onhire, used or to be used, in the prospectingfor, or extraction or production of, mineraloils. It provides that 10% of the amount paidor payable to, or the amount received orreceivable by, the assessee for provision ofsuch services or facilities or supply of plantand machinery shall be deemed to be thetaxable income of such non-residentassessee.

Business of Operation of Aircraft (Section44BBA)

Section 44BBA contains special provisionsfor computing profits and gains of thebusiness of operation of aircraft of non-residents. It provides for determination of theincome of non-resident taxpayers onpresumptive basis at a flat rate of 5% of theamount received or receivable for carriageof persons, livestock, mail or goods from anyplace in India or the amount received ordeemed to be received within India onaccount of such carriage from any placeoutside India.

Profits and Gains of Foreign CompaniesEngaged in the Business of CivilConstruction or Erection of PlantAnd Machinery or Testing orCommissioning thereof, in Connectionwith certain Turnkey Power Projects(Section 44BBB)

Section 44BBB provides that,notwithstanding anything to the contrarycontained in Sections 28 to 44AA of theIncome-tax Act, the income of foreigncompanies who are engaged in the businessof civil construction or erection or testing orcommissioning of plant or machinery inconnection with a turnkey power projectshall be deemed at 10 per cent of the amountpaid or payable to such assessee or to anyperson on his behalf, whether in or out ofIndia. For this purpose, the turnkey powerproject should be approved by the CentralGovernment. It has also been clarified thaterection of plant or machinery or testing or

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commissioning thereof will include lying oftransmission lines and systems.

Taxation of Non-Resident's RoyaltyIncome or Fees for Technical Services(Section 44DA)

Royalties and fees for Technical Servicesreceived from the Government or an Indianconcern by a Non-Resident or a foreigncompany in pursuance of an agreemententered into after 31-3-2003 shall becomputed under the head "Business Income"in accordance with the provisions of theIncome Tax Act i.e. after allowing deductionfor various permissible expenses andallowances.

Section 44DA does not Permit Deductionof following Expenses

(i) expenditure which is not whollyand exclusively incurred for thebusiness of such permanentestablishment or fixed place ofprofession in India, and

(ii) amounts reimbursed by permanentestablishment to its head office orto any of its other offices (Otherthan, reimbursement of actualexpenses).

Restriction on Deduction of Head OfficeExpenses (SECTION 44C)

Section 44C is intended to be madeapplicable only in the cases of those non-residents who carry on business in Indiathrough their branches.

The deduction in respect of head officeexpenses will be limited to:

a) An amount equal to 5 per cent of the"adjusted total income" for the relevantyear: or

b) The actual amount of head officeexpenditure attributable to the businessin India,

whichever is least.

TAX INCENTIVES FOR INDUSTRIES

Tax holidays in the form of deductions areavailable for private sectors and incentivesto industries located in special area/regionsare listed below:

Infrastructure Sectors

Deduction of 100% of the profits frombusiness for a period of 10 years for:

a. Development or operation andmaintenance of ports, airports,roads, highways, bridges, rail systems,inland water ways, inland ports,water supply projects, watertreatment systems, irrigationprojects, sanitation and sewageprojects, and solid waste managementsystems.

b. Generation and distribution of powerthat commence before 31.3.2006.

c. Development, operation andmaintenance of Industrial Park orSpecial Economic Zone.

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Hotels and Convention Centre in NCR(Sec 80-ID)

Deduction of 100% of the profits frombusiness of hotels and convention centres fora period of 5 years for:

a. Hotel and Convention Centre islocated in National Capital Territory ofDelhi and the districts of Faridabad,Gurgaon, Gautam Budh Nagar andGhaziabad.

b. Hotel is constructed and has started orstarts functioning at any time duringApril 1, 2007 and March 31, 2010.Likewise, the Convention Centre isconstructed at any time during April1, 2007 and March 31, 2010.

Undertakings in North Eastern States(Sec 80-IE)

Deduction of 100% of the profits frombusiness for a period of 10 years for:

a. Manufacture or production of goods orundertakes substantial expansionduring April 1, 2007 and March 31,2017. Providing eligible servicesduring April 1, 2007 and March 31,2017.

b. Deduction is not available in respectof manufacture or production oftobacco, pan masala, plastic carry bagof less than 20 microns or goodsproduced by petroleum and gasrefineries.

c. Eligible services are hotel (2 star orabove), nursing home(25 beds or

more), old age homes, vocationaltraining institutes for hotelmanagement, catering and food crafts,entrepreneurship development,nursing and paramedical, civil aviationrelated training, fashion designing andindustrial training, IT related trainingcentres, IT hardware manufacture unitsand bio-technology.

d. The aforesaid activity takes place inany North-Eastern States(i.e.,Arunachal Pradesh, Assam, Manipur,Meghalaya, Mizoram, Nagaland,Sikkim and Tripura).

Tax Exemptions

Following tax exemptions are available indifferent sectors:

Deduction of 100% of the Profit fromBusiness of

(a) Development or operation andmaintenance of ports, airports, roads,highways, bridges etc. (Sec 80-IA).

(b) Generation, distribution andtransmission of power (Sec 80-IA).

(c) Development, operation andmaintenance of an Industrial Park orSEZ (Sec 80-IAB).

(d) By undertakings set up in certainnotified areas or in certain thrust sectorindustries in the North Eastern statesand Sikkim (Sec 80-IC).

(e) By undertakings set up in certainnotified areas or in certain thrust sector

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industries in Uttaranchal and HimachalPradesh (Sec 80-IC).

(f) Derived from export of articles orsoftware by undertakings in FTZ,EHTP/STP (Sec 10A).

(g) Derived from export of articles orsoftware by undertakings in SEZ (Sec10A).

(h) Derived from export of articles orsoftware by 100% EOU (Sec 10B).

(i) An offshore banking unit situated inSEZ from business activities with unitslocated in the SEZ (Sec 80-LA).

(j) Derived by undertakings engaged inthe business of developing andbuilding housing projects (Sec 80-IB).

(k) Derived by an undertaking engaged inthe integrated business of handling,storage and transportation of foodgrains (Sec 80-IB).

(l) Derived by an undertaking engaged inthe commercial production or refiningof mineral oil (Sec 80-IB).

(m) Derived by an undertaking from exportof wood based handicraft (Sec 10BA).

AUTHORITY FOR ADVANCERULINGS

Introduction

The Finance Act, 1993 has inserted a newChapter XIX-B entitled Advance Rulings inrespect of transaction involving non-residents.

The Authority and Its Powers

The authority is constituted by the CentralGovernment and is known as "Authority forAdvance Ruling" (AAR) [Section 245-O(1)].

AAR consist of three member, viz :

l Chairman (who is a retired judge of theSupreme Court)

l An IRS officer (who is qualified to bea member of CBDT); and

l An ILS officer (who is qualified to bean additional secretary to theGovernment of India) [Section 245-O(2)]

The AAR enjoys all powers of a Civil Courtunder the code of Civil Procedure, 1908, asare referred to in Section 131 of the IncomeTax Act, 1961 [Section 245U(1)]

The AAR also enjoys the status of a CivilCourt for the purpose of section 195 of theCode of Criminal Procedure, 1973. [Section245U(2)].

Every proceedings before the AAR isdeemed to be a judicial proceedings withinthe meaning of Sections 193 & 228 and forthe purpose of Section 196 of the IndianPenal Code,1860.

Meaning of “Advance Ruling”

The term "Advance ruling" is defined inSection 245N(a) of the Act. Following arethe main features of the definition:

l Advance ruling means the

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determination of a question specifiedin the application by the applicant;

l Such question may be a question of lawor a question of fact. Such questionmust be in relation to a transaction andcannot be a hypothetical or academicquestion;

l The transaction may be the one whichis already undertaken or the one whichis proposed to be undertaken by theapplicant;

l The determination of such question onsuch a transaction is to be done by theAAR.

This term also indicates the determinationor decision in respect of an issue pendingbefore:

(i) An Income-tax Authority; or

(ii) The Appellate Tribunal.

Such determination could be determinationon a question of law or on a question of fact.

Who can Apply

An application for advance ruling can bemade by a NON-RESIDENT as also by aresident in respect of a transaction with anon-resident. Besides, a resident fallingwithin a notified class or category may alsomake an application. The class or categoryso notified by the Government till date are:

l Public Sector Company; and

l A resident seeking advance ruling inrelation to the tax liability of a non-

resident arising out of a transactionwith a non-resident.

In case of resident applicants, no Income-tax Authority or the Appellate Tribunal shallproceed to decide any issue in respect ofwhich an application has been made.

Procedure for Making an Application

The application has to be made in followingforms:

l By Non-Residents : Form 34C

l By resident in relation to transactionwith Non-Residents : Form 34D

l By residents notified by theGovernment : Form 34E

l Application must be made inquadruplicate.

l It should be presented by the applicantin person or by an authorizedrepresentative or may be sent by post;

l The AAR, at present, holds its sittingsat its headquarters at Delhi. Theaddress is as follows :-

Authority for Advance RulingMayur Bhavan, 4th Floor, ConnaughtCircle, New Delhi-110 001, Fax No.(011)23313675

l The application must be accompaniedby draft of Rs. 2500 drawn in favor of"Authority of Advance Ruling"payable at New Delhi.

l The secretary may send the applicationback to the applicant if it is defectivein any manner for removing the defect.

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The application mast be signed as per theprovisions of Rule 44E (2) of the IncomeTax Rule, 1962.

Enclosures to the Application

l A statement listing question(s) relationto the transaction on which the advanceruling is required. This is optional. Thequestion(s) may be stated in theapplication form itself. If, however,space provided is insufficient, separateenclosure may be used for this purpose.

It may be noted that the question(s)raised in the application should beexhaustively drafted covering alaspects of the issue involved and allalternative claims that the applicantmay wish to make without prejudiceto each other. This is because if at alater stage the applicant desires to raiseany additional question which is notset-forth in the application, he mayhave to obtain permission of the AAR.Granting of such permission is at thediscretion of the AAR.

l A statement of relevant facts having abearing on the question(s) on which theadvance ruling is required.

l A statement containing the applicant'sinterpretation of law or facts, as thecase may be, in respect of thequestion(s) on which the advanceruling is required.

l Where the application is signed by anauthorized representative, the power ofattorney authorizing him to sign.

l Where the application is signed by anauthorized representative, an affidavitsetting out the unavoidable reasonswhich entitles him to sign.

l Separate enclosures may be usedwhere the space provided for any ofthe items in the relevant forms isinsufficient.

l In the covering letter, the applicant maymake a request for being heard beforepronouncing the ruling.

Procedure After Making of theAppliation

l On receipt of the application, the AARwill forward a copy to theCommissioner.

l Commissioner may be called upon tofurnish the relevant records.

l AAR shall examine the application andsuch records.

l After examination, an order shall bepassed u/s 245R(2) to either allow orreject the application

l A copy of order u/s 245R(2) is sent tothe applicant and to the commissioner.

l If the application is allowed vide orderu/s 245R(2), the AAR shall :-

(i) Examine such further material asmay be placed before it by theapplicant;

(ii) Examine such further material asmay be obtained by the Authoritysuo moto; and

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(iii) Pronounce its advance ruling onthe question specified in theapplication within six months ofthe receipt of the applicationeither with or without giving theassessee a hearing.

DOUBLE TAX AVOIDANCEAGREEMENT (DTAA)

The Government of India has entered intodouble taxation avoidance agreements (taxtreaties) with several countries with theprincipal objective of evolving a system forthe respective countries to allocate the rightto tax different types of income on anequitable basis. Tax treaties serve thepurpose of providing full protection totaxpayers against double taxation and alsoaim at preventing discrimination between thetaxpayers in the international field. TheNRIs/PIO would, therefore, be well advisedto take advantage of such treaties in taxplanning for their investments in India.

DTAA can be defined as an "internationalagreement between two sovereign Statesreaching an understanding as to how theirresidents will be taxed in respect of crossorder transactions in order to avoid doubletaxation on the same income".

In yet another way, DTAA can be defined as"an agreement of compromise between twocontracting States whereby each countryagrees to give up something in considerationof the other country giving up something inits favour".

It may sometime happen that owing toreduction in tax rates under the domesticlaw-taking place after coming into existenceof the treaty, the domestic rates become morefavorable to the NRIs/PIO. Since the objectof the tax treaties is to benefit the NRIs/PIO,they have, under such circumstances, theoption to be assessed either as per theprovisions of the treaty or the domestic lawof the land.

In order to avoid any demand or refundconsequent to assessment and to facilitatethe process of assessment, the concernedauthorities in India have provided that taxshall be deducted at source out of paymentsto NRIs/PIO at the prevailing rates at whichthe particular income is made taxable underthe tax treaties.

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OVERSEAS CITIZENSHIP OF INDIA (OCI)

PART - IIIOther Important

Matters andOverseas Indians

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OVERSEAS CITIZENSHIP OF INDIA(OCI)

OCI SCHEME IS OPERATIONALFROM 02.12.2005

The Constitution of India does not allowholding Indian citizenship and citizenship ofa foreign country simultaneously. Based onthe recommendation of the High Levelcommittee on Indian Diaspora, theGovernment of India decided to grantOverseas Citizenship Of India (OCI)commonly known as ‘dual Citizenship’.Persons of Indian Origin (PIOs) of certaincategory as has been specified in theBrochure who migrated from India andacquired citizenship of a foreign countryother than Pakistan and Bangladesh, areeligible for grant of OCI as long as theirhome countries allow dual citizenship insome form or the other under their local laws.

1. Application for registration as OCI canbe made online. Before filing theapplication, Instructions may beperused so that there is no mistake insubmission of application. Further thedetails regarding Fee and officeswhere applications have to be filedmay also be perused.

2. Persons registered as OCI have notbeen given any voting rights, election

to Lok Sabha / Rajya Sabha /Legislative Assembly / Council,holding Constitutional posts such asPresident, Vice President, Judge ofSupreme Court / High Court etc.Registered OCIs shall be entitled tofollowing benefits:

(i) Multiple entry, multi-purpose lifelong visa to visit India;

(ii) Exemption from reporting toPolice authorities for any lengthof stay in India; and

(iii) Parity with NRIs in financial,economic and educational fieldsexcept in the acquisition ofagricultural or plantationproperties.

3 Any further benefits to OCIs will benotified by the Ministry of OverseasIndian affairs (MOIA) under section7B (1) of the citizenship Act, 1955.

4 A person registered as OCI is eligibleto apply for grant of Indian citizenshipunder section 5(1) (g) of the citizenshipAct, 1955 if he/she is registered as OCIfor five years and has been residing inIndia for one year out of the five yearsbefore making the application.

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(b) Belonging to a territory thatbecame part of India after 15th

August, 1947; or

(c) Being citizen of India on or after26th January, 1950

These could be:

(i) Copy of the passport: or

(ii) Copy of the domicile certificateissued by the Competentauthority; or

(iii) Any other proof.

3. Evidence of relationship as parent /grand parent, if their Indian origin isclaimed as basis for grant of OCI.

4. Application fee by way of DemandDraft (US $ 275 for each applicant orequivalent in local Currency; US $ 25or equivalent in local currency for eachPIO cardholder.)

5. PIO cardholders should submit a copyof his/her PIO card.

The application form completed in allrespects along with enclosures should besubmitted in duplicate to the Indian Mission/ Post of the country of applicant’scitizenship or where he/she is not in thecountry of citizenship to the Indian Mission/ Post of the country in which he / she isordinarily resident. If the applicant is inIndia, he / she can apply to the ForeignersRegional Registration Officer (FRRO) atDelhi, Mumbai, Kolkata or Amritsar or ChiefImmigration Officer (CHIO) Chennai or to

BROCHURE ON OVERSEASCITIZENSHIP OF INDIA (OCI)

1. Eligibility Criteria

A foreign national, who was eligible tobecome citizen of India on 26.01.1950 orwas a citizen of India on or at anytime after26.01.1950 or belonged to a territory thatbecame part of India after 15.08.1947 andhis/her children and grand children, providedhis/her country of citizenship allows dualcitizenship in some form or other under thelocal laws, is eligible for registration asOverseas Citizenship Of India (OCI). Minorchildren of such person are also eligible forOCI. However, if the applicant had ever beena citizen of Pakistan or Bangladesh, he/shewill not be eligible for OCI.

2. Application Form and Procedure

A family consisting of spouses and upto twominor children can apply in the same formi.e. Form XIX. The form can be filed onlineor downloaded from our websitewww.mha.nic.in.

The following documents shall be enclosedfor each application:

1. Proof of present citizenship.

2. Evidence of self or parents or grandparents,

(a) Being eligible to become acitizen of India at the time ofcommencement of theConstitution; or

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the Under Secretary, OCI Cell, CitizenshipSection, Foreigners Division, Ministry ofHome Affairs (MHA), Jaisalmer House, 26Mansingh Road, New Delhi – 110011.

3. Procedure for Granting Registration

After Preliminary scrutiny, if there is no adverseinformation available against the applicant, theIndian Mission / Post shall register a person asOCI within 30 days of application and the caseshall be referred to MHA for post verificationof the antecedents of the applicant. If duringthe post verification, any adverse informationcomes to the knowledge of the MHA, theregistration as OCI already granted by theIndian Mission / Post shall be cancelled by anorder under section 7D of the Citizenship Act,1955.

After preliminary scrutiny, if there is anyadverse information against the applicant,prior approval of MHA, shall be requiredbefore grant of registration. MHA mayapprove or reject the grant of registrationwithin 120 days from the date of the receiptof the application. If the grant of registrationas OCI is approved by MHA, the IndianMission / Post shall register the person asOCI.

If the application is filed in India, registrationshall be granted by MHA by following theabove procedure.

After grant of registration, a registrationcertificate in the form of booklet will beissued and a multiple entry, multi–purposelife long OCI ‘U’ visa sticker will be pastedon the foreign passport of the applicant.

4. OCI for PIO Card Holders

PIO card holders who are otherwise eligiblefor registration as OCI may apply in the sameForm i.e. Form XIX and they will beconsidered for grant of registration in thesame manner as other applicants. PIO cardholders have to pay a fee of US $ 25 orequivalent in local currency instead of US $275 for normal applicant. PIO cardholderswill have to surrender his/her PIO card afterknowledge of acceptance of application.

5. OCI for Persons who have Applied onthe Earlier Prescribed Application Form

All such applications will be considered forgrant of OCI on the same line as in 3 abovewithout seeking fresh application and fees.

6. Cancellation of OCI Registration

If it has been found that the registration asan OCI was obtained by means of fraud, falserepresentation or concealment of anymaterial fact or the registered OCI has showndisaffection towards the Constitution ofIndia or comes under any of the provisionsof section 7D of the Citizenship Act, theregistration of such person will not only becancelled forthwith but he / she will also beblacklisted for visiting India.

7. Benefits to OCI

Following benefits will accrue to OCI:

(i) A Multiple entry, multi purpose lifelong visa for visiting India.

(ii) Exemption from registration with localpolice authority for any length of stayin India.

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Delhi. In case of PIO Card holder, an amountof Rs 1,150 has to be paid.

In case of application to be filled outsideIndia, for the amount of fee to be paid inlocal currency, please visit the web site ofthe respective Indian Mission / Post.

FREQUENTLY ASKED QUESTION

Q.1. Who is eligible to apply?

A.1 A foreign national, who was eligibleto become citizen of India on26.01.1950 or was a citizen of Indiaon or at any time after 26.01.1950 orbelonged to a territory that becomepart of India after 15.08.1947 andhis/her children and grand children,provided his/her country ofcitizenship allows dual citizenship insome form or other under local laws,is eligible for registration asOverseas citizen of India (OCI).Minor children of such person arealso eligible for OCI. However, if theapplicant had ever been a citizen ofPakistan or Bangladesh, he/she willnot be eligible for OCI.

Q.2. Who was eligible to becomeCitizen of India on 26.01.1950?

A.2 Any person who or either of whoseparents or grand-parents were bornin India as defined in theGovernment of India Act, 1935(asoriginally enacted), and who wasordinarily residing in any country

(iii) Parity with Non resident Indians(NRIs) in respect of economic,financial and educational fields exceptin relation to acquisition of agriculturalor plantation properties.

Any other benefits to OCIs will be notifiedby the Ministry of Overseas Indian Affairs(MOIA) under Section 7B(1) of theCitizenship Act, 1955.

8. Benefits to which OCI is Not Entitledto

The OCI is not entitled to vote, be a memberof Legislative Assembly or LegislativeCouncil or Parliament, cannot holdconstitutional posts such as President, VicePresident, Judge of Supreme Court or HighCourt etc. and he / she cannot normally holdemployment in the Government.

9. Help Desk

For any clarification/query on the scheme,please visit our website www.mha.nic.in.or visit the website of the local IndianMission / Post or contact the Indian Mission/ Post or OCI Cell,Citizenship Section,Foreigners Division, Ministry of HomeAffairs, Jaisalmer House, 26 MansinghRoad, New Delhi – 110011.

APPLICATION FEES

For application to be filled in India, anamount of Rs. 12,650 has to be paid for eachapplicant by demand Draft in Favour of “Payand Account Officer (Secretariat),Ministry of Home Affairs” payable at New

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outside India was eligible to becomecitizen of India on 26.01.1950.

3. Which territories became part ofIndia after 15.08.1947 and fromwhat date?

A.3 The territories, which became part ofIndia after 15.08.1947 are:

(i) Sikkim 26.04.1975

(ii) Pondicherry 16.08.1962

(iii) Dadra & 11.08.1961Nagar Haveli

(iv) Goa, Daman 20.12.1961and Diu

Q.4. Can the spouse of the eligibleperson apply for OCI?

Q.4 Yes, if he/she is eligible in his /herown capacity.

Q.5. Who is a minor?

A.5. A person who has not attained theage of 18 years is considered minor.

Q.6. Are minor children whose bothparents are Indian citizens, eligiblefor OCI?

A.6 NO.

Q. 7. Can children of parents, whereinone of the parents is eligible forOCI, apply for OCI?

A.7 Yes.

Q.8. In what form should a personapply for OCI and where are theforms available?

A.9 A family consisting of spouses andupto two minor children can applyin the same form i.e. Form XIX,which can be filed online ordownloaded from our websitewww.mha.nic.in./oci/oci-main.htm

Q.9. Can application form be filled andsubmitted on line?

A.9 Yes. Part A of the application formcan be filed online. Upon submissionof part A online, Part B isdownloaded instantly and it can beprinted on computer or by hand inBlock letters. Printed Part A and PartB of the application form have to besubmitted to the Indian Mission/Post/Office.

Q.10. What documents have to besubmitted with the application?

A.10. The following documents shall beenclosed for each applicant:

1. Proof of present citizenship

2. Evidence of self or parents orgrand parents,

(a) Being eligible to become acitizen of India at the time ofcommencement of theConstitution; or

(b) Belonging to a territory thatbecame part of India after 15th

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August, 1947; or

(c) Being citizen of India on after26th January, 1950

These could be:

(i) Copy of the passport: or

(ii) Copy of the domicile certificateissued by the Competentauthority; or

(iii) Any other proof.

3. Evidence of relationship asparent / grand parent, if theirIndian origin is claimed as basisfor grant of OCI.

4. Application fee by way ofDemand Draft (US $ 275 foreach applicant or equivalent inlocal currency; US $ 25 orequivalent in local currency foreach PIO cardholder)

5. PIO cardholders should submita copy of his/her PIO card.

Q.11. What documents would qualifyfor “ Any other proof” for evidenceof self or parents or grand parentsbeing eligible for grant of OCI?

A.11 Any documentary evidence like aschool certificate, land ownershipcertificate, birth certificate, etc.which may reasonably ascertaineligibility.

12. How many copies of applicationhave to be submitted?

A.12. Application has to be submitted induplicate for each applicant.

Q.13. Whether applicant(s) have to go inperson to submit theapplication(s)?

A.13. No. Application(s) can be sent bypost.

Q.14. Whether the applicant(s) have totake oath before the Counsel of theIndian Mission/Post?

A.14 No. Earlier provision in this regardhas been done away with.

15. Where to submit the application?

A.15 To the Indian Mission / Post of thecountry of citizenship of theapplicant. If the applicant is not inthe country of citizenship, to theIndian Mission / Post of the countrywhere he is ordinarily residing. If theapplicant is in India, to the FRRODelhi, Mumbai, Kolkata or Amritsaror to the Under Secretary, OCI Cell,Citizenship Section, ForeignersDivision, Ministry of Home Affairs(MHA), Jaisalmer House, 26Mansingh Road, New Delhi –110011.

Q.16. Can a person apply in the countrywhere he is ordinarily residing?

A.16 Yes.

Q.17. What are the consequences offurnishing wrong information orsuppressing material information?

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in local currency shall be refunded,if registration is refused. US $ 25 isthe processing fees, which is non-refundable.

Q.21. Can a PIO cardholder apply?

A.21. Yes, provided he/she is otherwiseeligible for grant of OCI like anyother applicant.

Q.22. Will the PIO Cardholder begranted an OCI registrationgratis?

A.22. No. He/she has to make a paymentof US $ 25 equivalent in localcurrency along with the application.

Q.23. Will the PIO Card be honored tillthe time they are valid even afteracquisition of OCI?

A.23. No. PIO Card will have surrenderedto Indian Mission/Post/MHA forgrant of OCI registration certificateand OCI ‘U’ visa sticker.

Q.24. What will be issued afterregistration as an OCI?

A.24 A registration certificate in the formof a booklet will be issued and amultiple entry, multi-purpose OCI‘U’ visa sticker will be pasted on theforeign passport of the applicant. Forthis purpose, the applicant has tosend the original passport to theIndian Mission / Post after receipt ofthe acceptance letter/ verifying thestatus of the application online.

A.17. All the applications will be subjectto pre or post enquiry depending onwhether any adverse information isvoluntarily reported in theapplication or not. If the Governmentcomes to the know that any falseinformation was furnished ormaterial information wassuppressed, the registration as OCIalready granted shall be cancelled byan order under section 7D of theCitizenship Act, 1955. The personswill also be blacklisted therebybanning his/her entry into India.

Q.18. What is the fee for application forregistration as an OCI?

A.18. US $ 275 or equivalent in localcurrency for each applicant. In caseof PIO card holder, US $ 25 orequivalent in local currency for eachapplicant.

Q.19. What is the time taken forregistration as OCI?

A.19. Within 30 days of the application, ifthere is no adverse informationavailable against the applicant. If anyadverse information is availableagainst the applicant, the decision togrant or otherwise is taken within120 days.

Q.20. If the registration as OCI is notgranted, what amount will berefunded?

A.20. An amount of US $ 250 or equivalent

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A.24. In case of application filed in Indiawith FRRO, applicants should go tothe concerned FRRO in person/authorized person with passport. Incase of applications filed in Indiawith MHA, applicants should go toOCI Cell, MHA, New Delhi inperson/authorized person withpassport.

Q.25. Will a separate OCI passport beissued?

A.25 No.

Q.26. Will a duplicate certificate ofregistration, as an OCI will beissued?

A.26. Yes. For this purpose, an applicationhas to be made to the Indian Mission/ Post with evidence for loss ofcertificate. In case of mutilated/damaged certificate an applicationhas to be made enclosing the same.The applications in both the caseshave to be made to the same IndianMission / Post which issued thecertificate alongwith with paymentof fee of US $ 25 or equivalent inlocal currency.

Q.27. Will a new OCI visa sticker beissued on the new foreign passportafter the expiry of the oldpassport?

A.27. Yes. On payment of requisite fee, anew OCI ‘U’ visa sticker will beissued. However, the applicant can

continue to carry the old passportwherein the OCI ‘U’ Visa sticker waspasted along with new passport forvisiting India without seeking a newvisa, as the visa is lifelong.

Q.28. Will the applicant lose hiscitizenship after registering as anOCI?

A.28. No. As only citizen of the countrywhich allows dual citizenship underthe local laws in some form or theother are eligible for applying forregistration as an OCI, losing foreigncitizenship does not arise.

Q.29. Can a person registered as an OCItravel to protected area/restrictedarea without permission?

A.29. No. He/she will be required to seekPAP/RAP for such visits.

Q.30. Would the Indian civil/criminallaws be applicable to personsregistered as OCI?

A.30. Yes. For the period OCI is living inIndia.

Q.31. Can a person registered as an OCIbe granted Indian citizenship?

A.31. Yes. As per the provisions of section5(1)(g) of the citizenship Act, 1955,a person who is registered as an OCIfor 5 years and residing in India for1 Year out of the above 5 Years, iseligible to apply for Indiancitizenship.

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Q.32. Will OCI be granted gratis tocertain categories of people?

A.32. No.

Q.33. Can OCI be granted to foreignnationals who are not eligible forOCI, but married to persons whoare eligible for OCI?

A.33. No.

Q.34. Will foreign-born children of PIOsbe eligible to become an OCI?

A.34 Yes, provided one of the parents iseligible to become an OCI.

35. What are the benefits of an OCI?

A.35. Following benefits will be allowedto an OCI:

a. Multi-purpose, multipleentries, lifelong visa forvisiting India.

b. Exemption from NRIs withlocal police authority for anylength of stay in India.

c. Parity with NRIs in respect ofeconomic, financial andeducational fields except inmatters relating to acquisitionof agricultural/ plantationproperties.

Q.36. Will any other benefit be grantedto OCI?

A.36. Any other benefits to OCI will benotified by the ministry of OverseasIndian Affairs (MOIA) under Section7B (1) of the Citizenship Act, 1955.

Q.37. Is the OCI is entitled to votingrights?

A.37 No.

38. Is the OCI is entitled to holdConstitutional post in India?

A.38. No.

Q.39. Is the OCI is entitled to holdGovernment post in India?

A.39. No, except for the posts specified byan order by the Central Government.

40. If a person is already holding morethan one nationality, can he/sheapply for OCI?

A.40 Yes, as long as the local laws of atleast one of the countries allow dualcitizenship in some form or the other.

Q.41. What are the advantages of OCIwhen compared to PIOcardholders?

A.41.(a) An OCI is entitled to life longvisa with free travel to Indiawhereas for PIO cardholder, it isonly valid for 15 years.

(b) PIO cardholder is required toregister with the local policeauthority for any stay exceeding180 days in India on any singlevisit whereas an OCI is exemptedfrom registration with policeauthority for any length of stayin India.

(c) An OCI gets a specific right tobecome an Indian Citizen as in31, whereas the PIO card holderdoes not have this.

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Q.42. Whether an OCI be entitled toapply for and obtain a normalIndian passport, which is given toa citizen of India?

A.42. No. Indian Passport is given only toIndian citizen.

Q.43. Whether national ofcommonwealth countries areeligible for OCI?

A.43. Yes, if they fulfill the eligibilitycriteria.

Q.44. Can a person renounce OCI?

A.44. Yes. He/she has to declare intentionof renunciation in Form XXII to theIndian Mission /Post where OCIregistration was granted. Afterreceipt of the declaration, the IndianMission/Post shall issue anacknowledgement in Form XXII A.

Q.45. Do the applicants who haveapplied on the earlier prescribedapplication form have to applyagain in the new form?

A.45. No. All such application will beconsidered for registration as OCIwithout seeking fresh applicationsand fee.

ADDRESSES OF OFFICES TO FILEOCI APPLICATIONS

Applicants outside India can fileapplications to

l The Indian Mission /Post having

jurisdiction over the country of whichapplicant is a citizen; or

l If he/she is not living in the country ofhis/her citizenship, to the IndianMission /post having jurisdiction overthe country of which the applicant isordinarily resident.

Applicants any where in India can Filewith Ministry of Home Affairs (MHA) atthe following Address:

Under Secretary (OCI), Foreigners Division,Ministry of Home Affairs, 26-MansinghRoad, Jaisalmer House, New Delhi-110011.Tel. No. 011-110011 e-mail: [email protected]

Applicants in Delhi, Mumbai, Chennai,Kolkata and Amritsar can also file withrespective Foreigners RegionalRegistration Officers (FRROs) at thefollowing addresses:

i. FRRO, East Block- VIII Level-2Sector-1, R.K. Puram, New Delhi-110066. Tel.No. 011-26711384

ii. FRRO, Badruddin Tayyabji Marg,Mumbai-1 Tel.No. 022-26571998

iii. FRRO, Shastri Bhavan Annexe, 26,Haddows Road, Chennai. Tel. No.044-28232642

iv. FRRO, 237, A.J.C. Bose Road,Kolkata. Tel.No. 033-22470549

v. FRRO, D-123,Ranjeet Avenue,Amritsar. Tel.No. 0183-2508250.

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An Indiancitizen whois ordinarilyresidingoutsideIndia andholds anIndianpassport

-

A person whoor whose any ofancestors wasan Indiannational andwho isp r e s e n t l yholding anotherc o u n t r y ’ scit izenship/nationality i.e.he/she isholding foreignpassport

-

A person registered asPIO card Holder underMHA’s scheme videNotification No.26011/4/98-F.I dated19.08.2002.

Any person who at anytime held an Indianpassport; or he or eitherof his parents or grandparents was born in orwas permanentlyresident in India asdefined in governmentof India Act, 1935 andother territories thatbecome part of Indiathereafter providedneither was at any timea citizen ofAfghanistan, Bhutan,China, Nepal, Pakistanand Sri Lanka,. Or whois a spouse of a citizenof India or a person ofIndian origin asmentioned above.

A person registered asOverseas Citizen ofIndia (OCI) undersection 7A of thecitizenship Act,1955

A foreign national, whowas eligible to becomecitizen of India on26.01.1950 or was a citizenof India on or at anytimeafter 26.01.1950 orbelonged to a territory thatbecome part of India after15.08.1947 and his/herchildren and grandchildren, provided his/hercountry of citizenshipallows dual citizenship insome form or other underthe local laws, is eligible forregistration as overseascitizen of India (OCI )Minor children of suchperson are also eligible forOCI .However, if theapplicant had ever been acitizen of Pakistan orBangladesh, he/she willnot be eligible for OCI..

1. Who?

2. Who iseligible?

Comparative chart on NRI/PIO/PIO CARD HOLDERS/OCI

NRI PIO PIO Card holder OCI

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3. How canone get?

4. Where toapply?

5. Fees?

-

-

-

-

-

-

Eligible persons toapply in the prescribedform along withe n c l o s u r e s . F o r mavailable on MHA’swebsite ;www.mha.nic.in.

To the Indian Mission/Post in the countrywhere the applicant isordinarily resident; ifin India on long termvisa (more than oneyear), to the FRRO,Delhi, Mumbai,Kolkata, Amritsar,CHIO, Chennai or tothe joint secretary(foreigners),MHA.

Rs. 15000/- orequivalent in localcurrency for adults.For the children uptothe age of 18 years, thefee is Rs. 7500/- orequivalent in localcurrency.

Eligible persons toapply on line /download application formfrom MHA’swebsite:www.mha.nic.in.

To the Indian Mission/Post of the country ofapplicant’s citizenshipor where he/she is notin the country ofcitizenship, to theIndian Mission/Post ofthe country in whichhe/she is ordinarilyresident. If theapplicant is in India he/she can apply to theFRRO at Delhi,Mumbai, Kolkata,Amritsar, CHIO,Chennai or to theUnder Secretary, OCICell, CitizenshipSection ForeignersDivision, Ministry ofHome Affairs,Jaisalmer House, 26Mansingh Road, NewDelhi-110011.

US $ 275 or equivalentin local currency. Incase of PIO cardholders, it is US $ 25or equivalent in localcurrency.

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6. Whichn a t i o n a l sare eligible?

7. Whatbenefits oneis entitledto?

-

All benefitsas availableto Indianc i t i z e nsubject tonotificationissued by theGovernmentfrom time totime.

-

No specificbenefits.

PIO of all countriesexcept Afghanistan,Bangladesh, Bhutan,China,Nepal, Pakistanand Sri Lanka

(1)Shall not require aseparate visa to visitIndia.(2) Will be exemptfrom the requirementsof registration if his/herstay on any single visitin India does notexceed 180 days.(3) In the event ofcontinuous stay inIndia exceeding 180days, he/she shall haveto get himself/herselfregistered within 30days of the expiry of180 days with theconcerned FRRO/FRO.(4) Parity with NRIs inrespect of all facilitiesavailable to the later inthe economic, financialand educational fieldsexcept in matersrelating to theacquisition ofagricultural / plantationproperties. No parityshall be allowed in thesphere of politicalrights.

PIOs of all countriesexcept Pakistan andBangladesh providedthe country ofnationality allows dualcitizenship in someform or other underlocal laws.

(1)A multiple entrymulti- purpose life longvisa for visiting India.(2)Exemption fromregistration with localpolice authority for anylength of stay in India.(3) Parity with nonresident Indians (NRIs)in respect of economicsfinancial andeducational fieldsexcept in relation to theacquisition ofagricultural orplantation properties.No parity shall beallowed in the sphere ofpolitical rights.Any other benefit toOCIs will be notifiedby the Ministry ofOverseas Indian Affairs(MOIA) under section7B (1) of theCitizenship Act 1955.

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8. Does he/she requirevisa forvisitingIndia?

9. Is herequired toregisterwith localpoliceauthoritiesin India ?

10. Whatactivitiescan beunder takenin India?

11. Howcan oneacquireIndiancitizenship?

No

No

All activities

He/she is anIndiancitizenship

Yes and ofspecific typedependingon his /herpurpose ofvisit.

Yes

Activity asspecified inthe visa

As persection 5(1) (a) &5(1) (c) oftheCitizenshipAct, he/shehas toreside inIndia forminimum 7years beforemakingapplicationfor grantingIndiancitizenship

Can visit India withoutvisa for 15 year fromthe date of issue of PIOcard.

Yes one time when thestay in India exceeds180 days for the firsttime

All activities exceptm o u n t a i n e e r i n g ,missionary andresearch work andexisting PAP/ RAPWhich require specificpermit.

As per section 5 (1) (a)& 5(1) (c) of theCitizenship Act, he/shehas to reside in Indiafor minimum 7 yearsbefore makingapplication for grantingIndian citizenship

Can visit India withoutvisa for life long.

No

All activities exceptm o u n t a i n e e r i n g ,missionary andresearch work andexisting PAP/ RAPWhich require specificpermit

Registered OCI may begranted Indiancitizenship after 5 yearsfrom date ofregistration providedhe/she stays for oneyear in India beforemaking application

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THE PIO CARD SCHEME

In a significant step towards granting dualcitizenship to Overseas Indians, theGovernment approved the person of Indianorigin (PIO) card scheme to permit all suchindividuals visa-free entry into the country.

Definition of Person of Indian Origin(PIO)

“Person of Indian Origin” means a foreigncitizen [not being a citizen of Pakistan,Bangladesh and other countries as may bespecified by the central government fromtime to time] if,

i. He/she at any time held an Indianpassport;

ii. He/she or either of his/her parents orgrand parents or great grand parentswas born in and permanently residentin India as defined in the Governmentof India Act, 1935 and other territoriesthat became part of India thereafterprovided neither was at any time acitizen of any of the specifiedcountries; or

iii. He/she is a spouse of a citizen of Indiaor a person of Indian origin coveredunder (i) or (ii) above.

Procedure for Application for PIO Card

The card would be issued to eligibleapplicants through the concerned IndianEmbassies/ High Commission / Consulates(Annexure II) and for those staying in Indiaon a long term visa, from the concernedForeigners Regional Registration Officer(Delhi, Mumbai, Calcutta, Chennai) and alsofrom the Ministry of Home Affairs,Foreigners Division, Lok Nayak Bhawan,Khan Market, New Delhi-110003. (ReferAnnexure 1 for the Application for PIO CardScheme).

The fees for the card, which will have avalidity of 15 years, would beRs.15, 000/- and for the minor (below 18years), the fees is Rs.7,500/-.

Benefits of Person of Indian Origin (PIO)Card Scheme

Besides making their journey back to theirroots simpler, easier and smoother, thisscheme entitles the PIOs to a wide range ofeconomic, financial, educational and culturalbenefits.

The benefits envisaged under the schemeinclude:-

(i) No requirement of visa to visit India;

(ii) No separate “Student Visa” or“Employment Visa” required for

PIO CARD

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admission in colleges/ institution or fortaking up employment respectively;

(iii) No requirement to register with theForeigners Registration Officer ifcontinuous stay does not exceed 180days. Registration is required to bedone within a period of 30 days afterexpiry of 180 days;

(iv) Parity with Non-Resident Indians inrespect of facilities available to thelatter in economic, financial,educational fields, etc. These facilitieswill include:

(a) Acquisition, holding, transfer anddisposal of immovable properties inIndia except for agricultural/plantationproperties;

(b) Admission of children in educationalinstitution in India under the generalcategory quota for NRIs—includingmedical/engineering colleges, IITs,IIMs etc.;

(c) Various housing schemes of LifeInsurance Corporation of India, StateGovernment and other Governmentagencies;

(d) Special counters at the immigrationcheck post for speedy clearance.

(v) All future benefits that would beextended to NRIs would also be madeto PIO Card holders

(vi) They however cannot enjoy politicalrights in India.

Issue of Gratis PIO Card

Gratis PIO Card may be issued to anexceptionally eminent person of IndianOrigin, who plays an important role inbuilding bridges between India and thecountry of his/her adoption, if he/sheexpresses a desire to obtain the PIO Card.

Duplicate PIO Card

Duplicate PIO Card can be obtained in caseof loss, etc., on a request supported by FIRand other documents. A duplicate PIO Cardshall be issued on depositing a fee of US $100. Duplicate PIO Cards will be issued bythe same office that issued the original one.

PIO cards issued earlier as per PIO CardScheme for US $1000 will continue toremain valid without any extra fee, withvalidity extendable by 10 more years.

PIO CARD

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BAGGAGE RULES AND VISA RULES

BAGGAGE RULES

Baggage Rules is an aspect of customsnetwork which the common man goingabroad or returning from abroad has to dealwith at customs.

Under the General Baggage Rules,

(1) used personal effects, and

(2) new articles up to a value of Rs.12,000/- per adult passenger ( Rs.25,000/- if the person returns to Indiaafter more than three days) are exempt.

A lower Free Allowance of Rs. 6,000/- isallowed to passengers coming ( after 3 days)from Nepal, Bhutan, Burma or Chinaprovided they do not come across landborders with these countries.

Passengers returning from Pakistan by roadare allowed duty free baggage up to Rs.12,000/-.

For child passengers (below 10 years of age),free allowance is 50% of the allowanceadmissible to an adult passenger of thatcategory.

The General Free Allowance of passengeris not clubbable with similar allowance ofanother passenger ( for example, husbandor wife or any other relative traveling withthe passenger ) to permit clearance of a costlyarticle of baggage.

Laptop computer ( computer notebook)brought by a passenger of the age of 18 yearsand above has been exempted w.e.f from9-1-2004.

Alcoholic liquor or wines up to two litres,200 cigarettes and jewellery upto Rs. 20,000/- for a lady and Rs. 10,000/- for a gentlemancan be brought as part of the free baggageallowance. Import of cinematography films,exposed but not developed, brought as partof baggage has also been made duty free.

In case a single article exceeding the limitof Rs. 12,000 ( or Rs. 25,000 in value) isbrought, 35% flat rate of duty with no SADor CVD is payable on excess value. 40%without SAD & CVD is also the effectiverate of duty for any article of bona fidebaggage brought in excess of free allowanceexcept for fire arms, cartridges of fire armsexceeding 50 and excess cigarettes, cigarsor tobacco.

But in terms of exemption Notification No.49/96-Cus., dated 23-7-1996, specifiedgoods covered under listed Headings andNotifications therein attract merit rate ( asapplicable to cargo) even if imported asbaggage. Conditions, if any, prescribed in thelisted Notification will apply to importsunder baggage also. Free allowance isrestricted in case of visit to contiguouscountries like Maldives, Sri Lanka, Nepal

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and Bhutan.

‘Baggage’ does not include motor vehicle,fire arms and goods of commercial natureor in commercial quantities.

There are value/ quantity restrictions onbringing jewellery, cigarettes and liquor.However, primary gold up to ten kgs. perpassenger and silver up to one hundred kgs.per passenger can be imported on paymentof normal duties in convertible foreignexchange provided the concerned passengeris coming to India after at least six months’stay abroad. For crew members of a vesselor aircraft, free allowance for petty gifts isRs 600/-.

TRANSFER OF RESIDENCE

In the case of passengers transferring theirresidence to India after stay abroad of twoyears or more, personal and householdeffects in use abroad and six new specifiedhousehold gadgets are exempt from duty but15 % flat duty without SAD has to be paidon 17 listed articles of consumer durableswithin value ceiling of 5 lakhs. In the caseof transfer of residence after stay abroad ofat least one year, other personal andhousehold effects in use abroad and notexceeding Rs. 75,000/- in aggregate valuecan be brought in free. In addition, there arefree allowances of varying value forprofessional artisans coming to India after 3

months/6 months ( duty free householdarticle worth Rs. 12,000/- and professionalequipment worth Rs. 20,000/- /40,000/-).

Allowance for gifts as well as for travelsouvenirs in the case of foreign tourists isRs. 8,000/-( Rs.6,000/- in the case of touristsfrom Pakistan origin), apart from personaleffects in use of the tourist. Peak rate of dutyfor baggage goods of Heading 98.03 is 150%non-bona fide baggage is in addition to fineand penalty.

Foreign Travel Tax and Inland Air Travel Taxhave been exempted for all passengers witheffect from 9-1-2004.

Passengers not carrying any dutiable goodscan walk through the Green Channel. Othersare required to come to the Red Channel andreport at customs counter. There are now norestrictions on resale of baggage goods.

Passengers importing / exportingcommercial samples as accompaniedbaggage should follow the procedure laiddown in this behalf. If an importer is desirousof paying duty on an article at the cargo ratebut by mistake he has brought the said articleas baggage, he can rectify the error by fillingan application before the authorities alongwith submission of a bill of entry (Collectorv. A.K.Dhawan)

Please visit the website www.cbec.gov.in forthe complete Baggage Rules 1998

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VISA RULES

GENERAL VISA REQUIREMENTS FOR ENTRY / STAY IN INDIA

UNITED STATES OF AMERICA

Visa application forms (available at www.indiacgny.org) should be accompanied for alltypes of visas by two photographs and applicant’s original passport should have validity ofsix months.

Type of Visa Other requirements/conditions

Tourist Visa Nil

Transit Visa Copy of airline tickets

Entry Visa Issued to People of Indian Origin only

Business Visa Letter from the sponsoring organization indicating nature ofapplicant’s business, probable duration of stay, validity of visa,places and organizations to be visited and also a guaranteeto meet maintenance expenses etc.

Employment Visa Contract with the employer

Student Visa A letter confirming admission to the institution along withevidence of financial arrangements for stay in India.In case ofadmission in medical or paramedical courses in India, NOCfrom Ministry of Health, Govt. of India.In case of admission ingraduate or post graduate courses in engineering/technicalinstitutions in India, NOC from Ministry of Human ResourcesDevelopment (Department of Education)

Research Visa Approval of Ministry of Human Resource Development

Journalist Visa Given to professional journalists and photographers for uptothree months stay in India

Conference Visa Letter of invitation from the organizer of the conference

UNITED KINGDOM

Visa application forms (available at http://www.hcilondon.net) should be accompanied forall types of visas by two photographs and applicant’s original passport should have validityof six months.

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Tourist Visa Nil

Business Visa Letter explaining the nature of business and duration fromUK company and letter of invitation from an Indian Company

Conference Visa Letter of invitation from the conference organizer

Transit Visa Evidence of onward travel outside India is required

Entry Visa Issued to People of Indian Origin only

Long Term Visa This settlement visa is issued to people of Indian origin

Student Visa Letter of admission from recognized educational institutionwith duration of the course

Journalist Visa Letter from employer where applicable

Employment Visa An employment contract signed by both the parties should besubmitted

Sports Visa Invitation Letter from India

SOUTH AFRICA

Visa application forms (available at http://www.indconjoburg.co.za) should be accompaniedfor all types of visas by two photographs, original passport (South Africa or any othercountry), one air ticket copy (except two for business visa) and birth certificate/South AfricanID.


Tourist Visa Nil

Business Visa Two copies of invitation letter from India and two copies ofletter from South African company

Study Visa Letter from School, Institution or college (Duration of studymust be mentioned)

Employment Visa Employment Letter from company and letter of NOC fromMinistry of Labour, India

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MAURITIUS

Visa application forms (available at http://indiahighcom.intnet.mu) should be accompaniedfor all types of visas by three passport size photographs, photocopy of confirmed return airticket and applicant’s original passport should have validity of six months.

Type of Visa Proof/ Other requirements/conditions

Tourist Visa Hotel booking in cities intended to travel in India, Travellerscheques or receipt of exchange of money in the name ofapplicant $50 per day per person for stay in India or notarizedletter of sponsorship from person residing in India, guaranteeingall expenses of stay, travel etc of the applicant in India or CreditCards accompanied by covering letter of Bank

Business Visa Business in Mauritius Letter from company in Mauritiusshowing exact nature of business to be transacted and detailsof person deputed for the purpose and Letter from companyin India, indicating the details of person, visiting India and thenature of Business

Education Visa Eligibility certificate from concerned universityfor freshers

Student Visa Eligibility certificate from concerned universityExtension Photocopy of college Identity Card, Bonafide certificate,

Residence permit photocopy

Note: the above VISA rules are not applicable to the holders of diplomatic and official passport.

MALAYSIA

Visa application forms (available at http://www.indianhighcommission.com.my) shouldbe accompanied for all types of visas by three photographs and applicant’s original passportshould have validity of six months.


Transit Visa Confirmed Air Ticket

Tourist Visa Nil

Business Visa Proof of business in India

Student Visa Proof of admission in recognized institution in India

Employee Visa Proof of employment in India

Other Visa Consult the counter

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UNITED ARAB EMIRATES

Visa application forms (available at www.indianembassy.org.sa) should be accompanied forall types of visas by two photographs, Saudi exit/re-entry visa on the passport and applicant’soriginal passport should have validity of two months beyond the validity of visa,


Tourist Visa Letter of recommendation from sponsor

Business Visa Letter of request from business establishment in Saudi Arabia

Transit Visa Letter of recommendation from sponsor

Student Visa Provisional admission letter from recognized educationalinstitution in India. Letter of financial support/guardian alongwith a bank guarantee worth Saudi riyals Seven Thousand.Letter of recommendation from sponsor

Visa to visit Names and complete addresses of relatives to be visited inrelatives or for India. Medical Reports/Hospital References in case of medical

treatment.Medical Treatment Letter of recommendation from sponsor.

Employment Visa Copy of contract signed with the employer in India or letterregarding offer of appointment in India. Letter ofrecommendation from sponsor.

Diplomatic/ Note verbale from the applicant’s embassy indicating theOfficial Visa purpose of the visit

CANADA

Visa application forms (available at http://www.hciottawa.ca) should be accompanied forall types of visas by one photograph for the business visa and two photographs for the restand a valid passport.

Type of Visa Others requirements/conditions

Business Visa Letter from the applicant’s company stating the purpose of visitand another letter from Indian company inviting the applicantAdditional Business Information Sheet to be filled in

Student Visa Letter of admission from Government of India recognizedschool/institution

Long Term Visa Sufficient reason with documentary proof for granting long termvisa

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and audited accounts. The registration isgranted only to such association, which hasproven track record of functioning in thechosen field of work during last three years,and after registration, such organization isfree to receive foreign contribution from anyforeign source for stated objectives.Registration is granted only after thoroughsecurity vetting of the activities andantecedents of the organization and officebearers thereof. However, such organizationswhich are newly established and do not haveproven track record of functioning may alsoreceive foreign contribution for specificactivities, for a specific purpose and from aspecific source after seeking project basedprior permission (PP) from the Ministry ofHome Affairs.

In order to bring in transparency in theadministration of the Foreign Contribution(Regulation) Act, 1976 and the Rules framedthere under, improve the functioning,disseminate the information and enhanceuser friendliness of the various proceduresthe web-site is uploaded with all the FCRAforms, Citizens’ Charter, list of registeredassociations, State-wise status of applicationfor registration/prior permission, etc. In ourefforts to bring in further improvements inthe system, the following additional charters/materials are uploaded for information andguidance of all concerned:

FOREIGN CONTRIBUTION(REGULATION) ACT, 1976

INTRODUCTION

Foreign Contribution (Regulation) Act, 1976(FCRA) was enacted in the year 1976 withthe prime objective of regulating theacceptance and utilization of foreigncontribution and foreign hospitality bypersons and associations working in theimportant areas of national life. The focusof this Act is to ensure that the foreigncontribution and foreign hospitality is notutilized to affect or influence electoralpolitics, public servants, judges and otherpeople working the important areas ofnational life like journalists, printers andpublishers of newspapers, etc. The Act alsoseeks to regulate flow of foreign funds tovoluntary organizations with objective ofpreventing any possible diversion of suchfunds towards activities detrimental to thenational interest and to ensure that suchindividuals and organizations may functionin a manner consistent with the values ofsovereign democratic republic.

The organizations seeking foreigncontributions for definite cultural, social,economic, educational or religiousprogrammes may either obtain registrationor prior permission to receive foreigncontribution from Ministry of Home Affairsby making application in the prescribedformat and furnishing details of the activities

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FOREIGN CONTRIBUTION REGULATION ACT, 1976

NOTE: Contributions made by a citizen ofIndia living in another country, from hispersonal savings, through the normalbanking channels, is not treated as foreigncontribution. It is advisable to obtain thepassport details of the concerned citizen ofIndia before accepting such contributions.

What is a Foreign Source

Foreign source means the government of anyforeign country or territory or its agency;international agency; a foreign company;citizen of a foreign country. For more detailssee section 2(1)(e) of the ForeignContribution (Regulation) Act, 1976.

Who cannot Receive ForeignContribution

Foreign contribution cannot be accepted bya candidate for election; correspondent,columnist, cartoonist, editor, owner, printeror publisher of a registered newspaper;judge, government servant or employee ofany corporation; member of any legislature;political party or office bearer thereof.

Who can Receive Foreign Contribution

An association having a definite cultural,economic, educational, religious or socialprogramme can receive foreign contributionafter it obtains the prior permission of theCentral Government, or gets itself registeredwith the Central Government.

Forms Prescribed for this Purpose

An application for seeking prior permissionto accept foreign contribution is to be madein Form FC – 1A and for grant of registrationin Form FC – 8 respectively.

• Citizens charter

• Charter for NGO/Associationsapplying for grant of Prior permission/Registration under the FCRA.

• Charter for NGOs/Associationsgranted Prior permission/Registrationunder the FCRA.

• Charter for the Chartered Accountants.

• Charter for the Banks.

• Dealing officers

CITIZENS CHARTER

Receipt of Foreign Contribution

The provisions of the Foreign Contribution(Regulation) Act, 1976 regulate the receiptof foreign contribution in the country. TheForeign Contribution (Regulation) Rules1976 contain the various forms prescribedfor this purpose.

What is Foreign Contribution

Foreign contribution means the donation,delivery or transfer, made by any foreignsource of any,

a) Article, not given to a person as a gift,for personal use, if the market value,in India, of such article exceeds onethousand rupees;

b) Currency, whether Indian or foreign;or,

c) Foreign security as defined in clause2(i) of the Foreign ExchangeRegulation Act, 1973.

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Designated Bank Account

An association granted prior permission orregistration under the Act can receive theforeign contribution and subsequently utiliseit using a single designated bank account,as intimated in the application form. Do notdeposit any local funds in this bank account.

Maintenance of Accounts

An association granted prior permission orregistration under the Act must maintain aseparate set of accounts and recordsexclusively for the foreign contributionreceived and utilised in the prescribedmanner. For more details see rule 8 of theForeign Contribution (Regulation) Rules,1976.

Receipt of Scholarships etc

A citizen of India receiving any scholarship,stipend or any payment of a like nature fromany foreign source is required to give, withinthirty days of such a receipt, an intimationto the Central Government as to the amountof the scholarship, stipend or other paymentreceived; the foreign source from which andthe purpose for which, such scholarship,stipend or other payment has been, or isbeing received. The intimation is to be givenin Form FC – 5.

Time Taken to Dispose Application

An application for registration is normallydisposed within six months. An applicationseeking prior permission is disposed within90/120 days. It is advisable to obtain acertificate, in the format incorporated at the

end of the application form, from any of thecompetent authority mentioned therein viz.,Any concerned Collector of District;Department of the State Government;Ministry / Department of the Governmentof India.

Where should the Application be Sent

An application (one copy only) for seekingprior permission or registration is to be sentby registered post to the Secretary, Ministryof Home Affairs, Foreigners Division,Jaisalmer House, 26 Man Singh Road, NewDelhi 110011.

Proper Filing of Application

Please familiarise yourself with theprovisions of the Foreign Contribution(Regulation) Act, 1976 and the ForeignContribution (Regulation) Rules, 1976before making an application. Please fill therelevant application form with due care.Ensure that you furnish information exactlyin the manner stated in the form. Anincomplete application will be summarilyrejected.

Filing of Returns

An association permitted to accept foreigncontribution is required to submit an annualreturn, duly certified by a CharteredAccountant, giving details of the receipt andpurpose-wise utilization of the foreigncontribution. The return is to be filed forevery year (1st April to 31st March) within aperiod of four months from the closure ofthe year i.e. by 31st July of each year. The

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return is to be submitted, in duplicate, inForm FC–3. It is to be accompanied withthe balance sheet and statement of receiptand payment, duly certified by a CharteredAccountant, also in duplicate.

Availability of Forms

Please use the correct and current form. Theforms can be obtained, free of cost, from theabove-mentioned address. The forms arealso available on the Ministry of HomeAffairs’ web site – http://mha.nic.in/fore.htm

Penalties for Violation

Whoever accepts, or assists any person,political party or organisation in acceptingany foreign contribution or any currencyfrom a foreign source, in contravention ofthe provisions of the Foreign Contribution(Regulation) Act, 1976, or the rules madethereunder, shall be punished withimprisonment for a term, which may extendto five years, or with fine or with both. “Allthe above services & commitments will behonoured without the citizens having to payany bribe.”

CHARTER FOR NGOs /ASSOCIATIONs APPLYING FORGRANT OF PRIOR PERMISSION /REGISTRATION UNDER THEFOREIGN CONTRIBUTION(REGULATION) ACT, 1976.

• Any NGO wishing to receive ForeignContribution (FC) must have a definitecultural, economic, educational,religious or social programme.

• It shall neither receive nor utilise anyFC without obtaining either priorpermission or registration from theCentral Government.

• Details of FC received prior to obtainingeither prior permission or registrationshould be mentioned clearly at the timeof applying for prior permission orregistration, as the case may be.

• An application for seeking priorpermission to accept foreigncontribution is to be made in Form FC–1A, and for grant of registration inForm FC–8, respectively. The formscan be downloaded from Ministry ofHome Affairs Web Site at http://mha.nic.in/fcra.htm

• The application should be complete inall respects and no column should beleft blank.

• Each Prior permission applicationshould be sent for receiving a specificamount, for a specific purpose andfrom a specific donor. The donor’scommitment letter specifying theamount of FC and copy of project forwhich FC is solicited should invariablybe sent along with the FC-1A form.

• Copies of following documents arerequired to be sent along with FC-1Aand FC-8 form.

1. Copy of certificate of registrationissued under the Societies RegistrationAct, 1860 or Trust deed, as the casemay be;

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2. Details of activities during the lastthree years;

3. Copies of audited statement ofaccounts for the past three years (Assetand Liabilities, Receipt and Payment,Income and Expenditure);

4. If any printed work is brought out bythe association, a certificate from thePress Registrar that the publication isnot a newspaper in terms of section1(1) of the Press Registration of BooksAct, 1867.

CHARTER FOR NGOs /ASSOCIATIONs GRANTED PRIORPERMISSION OR REGISTRATIONUNDER THE FOREIGNCONTRIBUTION (REGULATION)ACT, 1976.

• An association granted priorpermission or registration under theForeign Contribution (Regulation) Act,1976 (FCRA) should receive the FCand subsequently utilise it using anexclusive designated bank account, asintimated in the application form. Donot deposit any local funds in this bankaccount.

• An association granted priorpermission or registration under FCRAis required to carry out the activities,for which FC is received, in India onlyand the amount should not be utilisedfor purposes other than for which it isreceived.

• Any fixed asset acquired out of the FCand any article received in kind fromthe foreign source should be in thename of the association and not in thename of any individual in theassociation.

• Not more than 30% of the FC shall bedefrayed to meet administrativeexpenses of the association.

• An association granted priorpermission or registration under FCRAshould maintain a separate set ofaccounts and records, exclusively forforeign contribution received andutilised.

i. In Form FC-6, where the FCrelates only to articles;

ii. In the cash book and ledgeraccount on double entry basis,where the FC relates to currencyreceived and utilised.

iii. In Form FC-7, where the FCrelates to foreign securities.

• Every account giving details of thereceipt and purpose-wise utilisation ofthe FC, including the interest earnedon the FC amount, should bemaintained on an yearly basis,commencing on the 1st day of Aprileach year and every such yearlyaccount, duly certified by a charteredaccountant in Form FC-3 along with abalance sheet and statement of receiptand payment should be furnished induplicate, within four months of the

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closure of the year i.e. before 31st July.Even if no FC is received during a year,a ‘Nil’ return is required to be filed withthe Ministry of Home Affairs withinthe prescribed time limit.

• No FC should be transferred to anassociation, which has not obtainedeither prior permission or registrationunder FCRA or to any person orassociation, prohibited under FCRAfrom receiving any FC.

• Change of name, address, registration,nature of activities or aims andobjectives of an association should beintimated to the Ministry of HomeAffairs within 30 days of effecting thechange, alongwith the documentaryevidence effecting the change.

• Prior permission of Ministry of HomeAffairs should be obtained forreplacing 50% or more of the officebearers.

• Prior permission of Ministry of HomeAffairs should be obtained forchanging bank account for valid andconvincing reasons.

• The forms can be downloaded fromMinistry of Home Affairs Web Site athttp//mha.nic.in/fcra.htm.

CHARTER FOR THE CHARTEREDACCOUNTANTS

Since the FCRA Act, 1976 is nationalsecurity legislation; NGOs are required to

exercise extreme care and caution in dealingwith foreign contribution from the time ofits receipt to its final utilization. As theChartered Accountants (CA’s) audit theaccounts of the NGOs and they certify theaccounts before being submitted to theFCRA division, CA’s are required to providemeaningful guidance to the NGOs.

• To verify whether the associations areeligible to receive foreign contribution

• To guide the applicant organization toapply to the Home Ministry fornecessary registration / priorpermission;

• To assist in the proper maintenance ofprescribed books of accounts;

• To furnish the required certificate inthe prescribed format after carefulscrutiny of the accounts of the NGO;

• Before certifying the accounts of anassociation in FC-3 returns, the CAconcerned must ensure that they havebeen prepared in accordance with theprovisions of FC(R) Act, 1976 andRules framed thereunder.

CHARTER FOR THE BANKS

• No bank should credit any foreigncontribution to the account of anassociation/NGO unless it producesdocumentary evidence of havingobtained registration/prior permissionfrom the Central Government for thesame.

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• In case any foreign contribution iscredited to the account of an NGO/Association/Trust directly, the bankshould not allow utilization of suchfund and inform the NGO/Association/Trust concerned to obtain necessarypermission/registration from theCentral Government for the same.Simultaneously, the bank shouldinform the Deputy Secretary (FCRA),Ministry of Home Affairs, Govt. ofIndia, New Delhi about such receipt.

• Non-compliance of the above by thebank will constitute a violation andwill render the defaulting bank liablefor appropriate action by the ReserveBank of India.

CHECKLIST FOR ENSURINGPROPER SUBMISSION OFAPPLICATIONS, UNDER THEPROVISIONS OF THE FOREIGNCONTRIBUTION (REGULATION)ACT, 1976, FOR ACCEPTANCE OFFOREIGN CONTRIBUTION

Eligible Category

An association with a definite cultural,economic, educational, religious or socialprogramme.

Types of Permission

(i) Registration under section 6(1)(a);and,

(ii) Prior permission under section 6 (1A).

Application Form

(i) For grant of registration in form FC–8 and,

(ii) For grant of prior permission in formFC-1A.

ESSENTIAL REQUIREMENTS

(A) Bank Account

Open a separate bank account for the receiptand utilisation of foreign contribution in abank of your choice and furnish particularsof the same at the appropriate place.

Note: Do not deposit any local funds, otherthan the essential initial deposit specified bythe bank for opening an account, in thisaccount.

(B) Documents

Remember to enclose copies of the followingdocuments with your application –

a) Certified copy of registrationcertificate or Trust deed, as the casemay be;

b) Details of activities during the lastthree years;

c) Copies of audited statement ofaccounts for the past three years (Assetand Liabilities, Receipt and Payment,Income and Expenditure);

d) Commitment letter from foreign donorspecifying the amount of foreigncontribution (only with priorpermission application);

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e) Copy of project for which foreigncontribution was solicited is beingoffered (only with prior permissionapplication);

f) If functioning as editor, owner, printeror publisher of a publication registeredunder the Press and Registration ofBooks Act, 1867, a certificate from thePress Registrar that the publication isnot a newspaper in terms of section1(1) of the said Act.

Miscellaneous

Furnish information exactly in the mannerasked for in the form, especially the namesand addresses of the members of theExecutive Committee/Governing Counciletc. The forms can be downloaded fromMinistry of Home Affairs Web Site at http://mha.nic.in/fcra/intro/forms.htm

Chartered Accountants / Banks

Chartered Accountants, before certifying theaccounts of an association in form FC – 3,must ensure that they have been prepared inaccordance with the provisions of theForeign Contribution (Regulation) Act, 1976and the Rules framed thereunder.

No bank should credit any foreigncontribution to the account of an association/organisation unless it produces documentaryproof of having obtained registration/priorpermission from the Central Government forthe same. Crediting of foreign contributionby a bank to the account of an association /organisation that has not obtained

registration or prior permission from theCentral Government constitutes a violationand will render the defaulting bank liable foraction by the Reserve Bank of India.

COMMON GROUND FORREJECTION OF APPLICATIONUNDER FCRA

To remove certain lacunae noticed duringadministration of the FCRA and the Rulesmade there under, certain guidelines werelaid down for considering applications forgrant of prior permission /registration underthe Act. Some of the common grounds forrejection of applications are enlisted belowas illustrations to bring in transparency andbenefit the applicants in taking due care andcaution:

• If the association is not registeredunder the Societies Registration Act,1860 or Indian Trusts Act, 1882 orsection 25 of the Companies Act, 1956.

• If any of the office bearers/trustees,including the chief functionary is aforeign national, other than of Indianorigin.

• If the association has a single officebearer/member.

• If the association is found to have beenformed for personal gain or fordiversion of the funds for undesirablepurposes.

• If the association is found to befictitious or ‘benami’ in nature.

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• If the credibility of any member of thegoverning body is in doubt.

• If the association has close links withanother association which has beenrefused registration under FCRA orprohibited under FCRA or violated theprovisions of FCRA.

• If the association has links with anybanned organization.

• If the principal office bearers of theassociation have been convicted by anycourt of law under any act or if aprosecution for any offence is pendingagainst them.

• If the principal office bearers of theassociation have been found guilty ofdiversion or misutilisation of funds ofthe said association or any otherassociation in the past.

• If the activities of the association arefound to be aimed at conversionthrough inducement or force, eitherdirectly or indirectly, from onereligious faith to another.

• If the association is found to bepropagate sedition or to advocateviolent methods to achieve its ends.

• If the association is found to becreating communal tensions ordisharmony.

• If the office bearers of the associationare also office bearers of anotherassociation and one of these

association has come to adverse notice.

• If the association’s printed work is notcertified by the Press registrar of Indianot to be a newspaper in terms ofsection 1(1) of the Press Registrationof Books Act, 1867.

• If the source of foreign contribution isfound to be adverse to the interests ofthe country.

• If the acceptance of foreigncontribution by the association is likelyto be prejudicial to (a) the sovereigntyand integrity of India; (b) free and fairelection to any Legislature or Houseof Parliament; (c) public interest; (d)friendly relations with a foreign state;or (e) harmony between any religious,social, linguistic, regional groups, casteor community.

• If the association has not filed itsannual FC-3 returns, of receipt andutilization of foreign contributionreceived with prior permission, withinthe stipulated period.

• If the association has violated anyprovisions of the Act or Rules in thepreceding three years and the saidviolation has not been remedied orrectified.

Additional Grounds for Rejection ofApplications for Registration

• If the association is not in existencefor three years at least.

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• If the association has not carried on anyactivity in chosen field during the lastthree years.

• If the association has not receivedforeign contribution with priorpermission, during the preceding threeyears.

• If the association has not made anysubstantial contribution, excludingexpenditure on administration,(Rs.6,00,000 over a period of threeyears or Rs.2,00,000 per year) in itsfield of interest.

Additional Grounds for Rejection ofApplications for Prior Permission

• If the application is not accompaniedby the ‘commitment letter’ of thedonor.

• If the application is not accompaniedby the copy of project for which foreigncontribution was solicited/is beingoffered.

Frequently Asked Questions ( FAQs )

Q.1. What is foreign contribution?

A.1. Foreign contribution means thedonation, delivery or transfer, madeby any foreign source of any,

a) Article, not given to a person as agift for personal use, if the marketvalue, in India, of such articleexceeds one thousand rupees;

b) Currency, whether Indian or foreign;or

c) Foreign security

Q.2. What is foreign source?

A.2 Foreign source includes theGovernment of any foreign countryor territory or its agency; aninternational agency; a foreigncompany; and citizen of a foreigncountry. Agencies of the UnitedNations, World Bank and some otherInternational agencies/multilateralorganisations ate exempted from thedefinition of ‘foreign source’. List ofsuch exempted agencies/organisations is available on thewebsite http://mha.nic.in/fore.htm

Q.3. Whether donation given by Non-Resident Indians (NRIs) is treatedas ‘foreign contribution’?

A.3. Contributions made by a citizen ofIndia living in another country(i.e.Non-Resident Indian), from hispersonal saving, through the normalbanking channels, is not treated asforeign contribution. However, whileaccepting any donations from suchNRI, it is advisable to obtain hispassport details to ascertain that he/she is an Indian passport holder.

Q.4. Whether donations by person ofIndian Origin (PIO) Card holderor Persons of Indian Origin (PIO)who hold other country’spassports or registered OverseasCitizens of India (OCI) would beconsidered ‘foreign source’?

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A.4. Yes, because persons under all thesethree categories are foreign nationalsand hold passports of the country oftheir nationality.

Q.5. Whether foreigners can beappointed as Executive Committeemembers?

A.5. Foreign nationals are generallydiscouraged from being appointed asmember of Executive Committee byan association. However, foreignnationals, fulfilling the followingconditions, may be appointed asExecutive Committee members,after obtaining prior permission ofthe Central Government:

a) The foreigner is married to anIndian citizen;

b) The foreigner has been livingand working in India for at leastfive years;

c) The foreigner has madeavailable his/her specialisedknowledge, especially in themedical and health relatedfields on a voluntary basis inIndia, in the past;

d) The foreigner is part of theBoard of Trustees/ExecutiveCommittee in terms of theprovisions in an intergovernmental agreement;

e) The foreigner is part of theBoard of Trustee/Executive

Committee, in an ex-officiocapacity representing amultilateral body which isexempted from the definitionof foreign source.

The need for such an appointmentshould, however, be adequatelyjustified.

Q.6. Who can receive foreigncontribution?

A.6. An association having a definitecultural, economic, educational,religious or social programme canreceive foreign contribution after itobtains the prior permission of theCentral Government, or gets itselfregistered with the CentralGovernment. An illustrative but notexhaustive list of activities which arepermissible and may be carried outby associations of different nature areavailable on the website http://mha.nic.in/fore.him

Q.7. Who cannot receive foreigncontribution?

A.7. Foreign contribution cannot beaccepted by:

i. A candidate for election;

ii. Correspondent, columnist,cartoonist, editor, owner,printer or publisher of aregistered newspaper;

iii. Judge, Government servant oremployee of any Corporation;

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iv. Member of any legislature;

v. Political party or office bearerthereof; and

vi. Individuals or associationsspecifically notified undersection 10 (a) of foreigncontribution (Regulation) Act,1976 who have been prohibitedfrom receiving foreigncontribution.

Q.8. Can foreign contribution bereceived in and utilised frommultiple Bank Accounts?

A.8. No, All foreign contribution shouldbe received in and utilised from samesingle Bank Account mentioned inthe order for registration or priorpermission granted by MHA. Thisaccount number is same as has beenintimated by the organisation in theirapplication for registration/priorpermission. Use of multiple bankaccounts is legally prohibited.

Q.9. Can foreign contribution be mixedwith local receipts?

A.9. No, foreign contribution should notbe mixed with local funds beinghandled by the organisation.

Q.10. Can foreign contribution bereceived in rupees?

A.10 Yes. Any amount received from‘foreign source’ in rupees or foreigncurrency is construed as ‘foreigncontribution’ under law. Such

transactions even in rupees term areconsidered foreign contribution.

Q.11. Will interest earned from foreigncontribution be considered foreigncontribution?

A.11 Yes.

Q.12. What is the Procedure for changeof designated Bank Account?

A.12. For the change of Bank account, anapplication in prescribed formmentioning the details if the old bankaccount and the proposed new bankaccount alongwith justification forchange may be submitted to MHAalongwith copy of resolution of theexecutive committee for suchchange. This form is available onwebsite http://mha.nic.in/fore.htm.This new account may be madeoperational only after seekingMHA’s approval.

Q.13. What are the eligibility criteria forregistration?

A.13. An organisation in formative stageis not eligible for registration. Suchorganisation may apply for grant ofprior permission under the law. Forgrant of registration, the associationshould:

a) be registered under theSocieties Registration Act,1860 or the Indian Trusts Act,1882 or section 25 of theCompanies Act, 1956;

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b) be in existence for at least threeyears and have madesignificant contribution inchosen area of activity. For thispurpose, the association shouldhave spent at least Rs. 6,00,000over last three years on itsactivities, excludingadministrative expenditure.Statement of Income &Expenditure duly audited byChartered Accountant for lastthree years may be enclosed tosubstantiate financialparameter.

Q.14. Whether recommendation ofDistrict Collector, etc. ismandatory?

A.14. No, Submission of verificationcertificate from the DistrictCollector, etc. is not mandatory.However, in certain cases, if the areaof activity of an association is in non-border/coastal/tribal region andamount applied for prior permissionis less than Rs.50 lakhs, submissionof such a certificate assists in speedyclearance of the application

Q.15. What are the eligibility criteria forgrant of prior permission?

A.15. Prior permission is granted forreceipt of specific amount fromspecific donor for carrying outspecific activities/projects. For thispurpose, the association should:

A.15. a) be registered under theSocieties Registration Act,1860 or the Indian Trusts Act,1882 or section 25 of theCompanies Act, 1956;

b) submit commitment letter fromthe donor; and

c) submit copy of project forwhich foreign contribution issolicited/is being offered.

Q.16. What are the documents to beenclosed with the application?

A.16. i. Following documents shouldbe enclosed with theapplication for grant ofregistration:

a) certified copy of registrationcertificate or Trust deed, as thecase may be;

b) details of activities during lastthree years;

c) copies of audited statement ofaccounts for the past threeyears (Assets and Liabilities,Receipt and Payment, Incomeand Expenditure);

d) if functioning as editor, owner,printer or publisher of apublication registered underthe Press and Registration ofBooks Act, 1867, a certificatefrom the Press Registrar thatthe publication is not a

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newspaper in terms of section1(1) of the said Act.

ii. Following documents shouldbe enclosed with theapplication for grant of priorpermission:

a) certified copy of registrationcertificate or Trust deed, as thecase may be;

b) commitment letter fromforeign donor specifying theamount of foreigncontribution;

c) copy of project for whichforeign contribution wassolicited/is being offered;

d) if functioning as editor, owner,printer or publisher of apublication registered underthe Press and Registration ofBooks Act, 1867, a certificatefrom the Press Registrar thatthe publication is not anewspaper in terms of section1(1) of the said Act.

Q.17. Is there any restriction on transferof funds to other organizations?

A.17. Yes, No foreign contribution can betransferred from an associationgranted registration or priorpermission under FCRA to anotherassociation unless the letter has alsoobtained either registration or priorpermission under FCRA.

Q.18. How to find the status of pendingapplication for registration/priorpermission?

A.18. Status of pending application forgrant of registration or priorpermission may be checked on linefrom the Ministry of Home Affairswebsite http://mha.nic.in/fore.htm.One needs to fill in the numbers onacknowledgement letter or anycorrespondence from MHA(Foreigners Division) in the blankformat, which pops on the screenafter selection of status enquiry icon(registration/prior permission, as thecase may be).

Q.19. What is the procedure to befollowed by a Liaison Office toreceive foreign contribution?

A.19. Prior permission under FCRA isrequired by a Liaison Office of aforeign company for receivingremittances from its Head Officeabroad for conducting conferences orcarrying out other activities/programmes, etc. in India.

Q.20. What is the procedure for filingof FC -3 returns ?

A.20. An association permitted to acceptforeign contribution is requiredunder law to maintain separate set ofaccounts and records exclusively forthe foreign contribution received andutilized and submit an annual return,duly certified by a Chartered

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Accountant, giving details of thereceipt and purpose-wise utilizationof the foreign contribution. Thereturn is to be filed for every financialyear (1st April to 31st March) withina period of four months from theclosure of the year i.e. by 31st July ofthe year. Submission of even a ‘Nil’return if there is no receipt/utilizationof foreign contribution during theyear, is mandatory, under law.

The return is to be submitted, inprescribed Form FC–3, dulyaccompanied with the balance sheetand statement of receipt andpayment, which is certified by aChartered

Accountant. The form is available onMHA’s web-site – http://mha.nic.in/fore.htm

Q.21. What is foreign hospitality?

A.21. Foreign hospitality means any offer,not being a purely casual one, madeby a foreign source for providing aperson with the cost of travel to anyforeign country or territory or withfree board, lodging, transport ormedical treatment.

Q.22. Who cannot accept foreignhospitality without prior approvalof MHA ?

A.22. No member of a legislature, officebearer of a political party, judge,Government servant or employee ofany corporation shall, while visiting

any country or territory outside India,accept, except with the priorpermission of the CentralGovernment any foreign hospitality.

Q.23. How one can seek permission ofthe Government for receivingforeign hospitality?

A.23. Application form (form FC-2) for hispurpose is available on MHA’s web-site – http://mha.nic.in/fore.htm. Onemust apply on this form through thecontrolling officer at least threeweeks in advance to seek priorapproval of the Government forreceiving foreign hospitality.

Q.24. Where should the applications besent?

A.24. All applications be sent to theSecretary, Ministry of Home Affairs,Foreigners, Division,

Jaisalmer House, 26, Man SinghRoad, New Delhi – 110011. Theforms can be downloaded from theweb-site–http://mha.nic.in/fore.htm.

Q.25. What is the procedure for seekingchange in the name/address of theassociation?

A.25. For seeking change in the name/address of the association, oneshould use the prescribed fromavailable on MHA’s web-site – http://mha.nic.in/fore.htm.

26. Who should be contacted for anyinformation on FCRA?

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A.26. Names of the officers, their contactdetails including telephone numbersare available on MHA’s web-site –http://mha.nic.in/fore.htm.

Q.27. Which other materials on FCRAare available on the MHA’swebsite?

A.26. Following material on FCRA areavailable on MHA’s web-site – http://mha.nic.in/fore.htm.

1. Foreign Contribution(Regulation) Act, 1976

2. Foreign Contribution(Regulation) Rules, 1976

3. Citizens charter, Charter forNGOs/Associations applyingfor grant of prior permission/registration under FCRA

4. Charter for NGOs/Associations granted priorpermission/registrations underFCRA

5. Charter for the CharteredAccountants

6. Charter for the Banks

7. Illustrative programmespermitted to be carried out byassociation having differentnature.

8. Check List for ensuring propersubmission of applications

9. Agencies not covered by thedefinition of ‘foreign source’

10. Common grounds for rejectionof applications

11. Details of registeredassociations

12. On-Line status of pendingapplications

13. Annual summary on FCRA,FC forms

14. List of associations placed inprohibited category/priorpermission category u/s 6(1),10 (a) and 10 (b) of the Act

15. Directory of officers dealingwith FCRA.

Q.28. Can an organization, whoseviolation under FCRA has beencondoned, apply for registration/prior permission?

A.28. After the violation committed by anassociation has been condoned, theassociation can apply for priorpermission (PP) only by submittingan application in form FC 1-A. Oncethe PP has been granted and foreigncontribution received for specificpurpose has been fully/partiallyutilised and organisation hassubmitted annual FC3 returns andaccounts in prescribed formatpertaining to the PP, it becomeseligible for consideration ofregistration under FCRA.Registration would be granted underFCRA, if other parameters arefulfilled by the association.

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Q.29. Can NGOs use the foreigncontributions for investment inMutual Funds and otherspeculative investments?

A.29. No. The foreign contributionsreceived after prior permission/grantof registration under the Act are toutilise for the purpose for which theyhave been received and they are notto be invested in any speculativeinvestments. Further, it is clarifiedthat foreign contributions can bereceived through a single BankAccount designated for the purposeunder the order for registration/priorpermission or changed thereafterwith prior approval of theGovernment.

Q.30. Whether Capital Assets purchasedwith the help of foreigncontributions can be acquired inthe name of the office bearers ofthe association?

A.30. No. Every assets acquired out offoreign contributions should beacquired and possessed in the nameof the association since associationhas a separate legal entity distinctfrom its members.

Q.31. Can the NGOs/Trusts invest inprofitable ventures and proceedscan be utilised for welfareactivities?

A.31. No. The NGOs/Trusts should utilisethe funds for the welfare purpose orrelated activities for which it is

received. The utilization should bein line with the objectives of theassociation. However, foreigncontributions can be utilised for self-sustaining activities, not meant forcommercial purposes.

Q.32. Whether interest earned out offoreign contribution be shown asfresh foreign contribution receiptduring that year or not?

A.32. Yes, the interest earned out of suchdeposit should be shown as second/subsequent foreign contributionreceipt in the FC-3 returns during theyear in which it is earned.

Q.33. Whether grant received fromMNCs be treated as FC or not?

A.33. If the funds are received from anIndian Company incorporated underthe Company Act, 1956 the same willnot be treated as foreign contribution.But if the ownership and controlrights of the company are vested inforeign source, it will be treated asforeign contribution.

Q.34. If an application for registrationis submitted on-line by an NGO,does it need to submit theapplication in physical form also?

A.34. Yes. When an application is filed on-line, a printout of the same may betaken after submission and thereafter,it should be submitted alongwith therequisite enclosure, duly signed, toMinistry of Home Affairs.

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SPECIAL ECONOMIC ZONES


INTRODUCTION

India was one of the first in Asia to recognizethe effectiveness of the Export ProcessingZone (EPZ) model in promotingexports, with Asia’s first EPZ set upin Kandla in 1965. With a view to overcomethe shortcomings experienced on accountof the multiplicity of controls and clearances;absence of world-class infrastructure, andan unstable fiscal regime and with a viewto attract larger foreign investment inIndia, the Special Economic Zone(SEZs) policy was announced in April2000.

The policy intended to make SEZs an enginefor economic growth supported byquality infrastructure complemented byan attractive fiscal package, both at theCentre and State level, with the minimumpossible regulations. SEZs in Indiafunctioned from 1.11.2000. to 09.02.2006under the provisions of the Foreign TradePolicy and fiscal incentives were madeeffective through the provisions of relevantstatutes.

The SEZ Act, 2005, supported by SEZ Rules,came into effect on 10th February 2006,providing for drastic simplification ofprocedures and for single window clearanceon matters relating to central as well as stategovernments. The main objectives of theSEZ Act are:

a) Generation of additional economicactivity

b) Promotion of exports of goods andservices;

c) Promotion of investment fromdomestic and foreign sources;

d) Creation of employment opportunities;

e) Development of infrastructurefacilities;

It is expected that this will trigger a largeflow of foreign and domestic investment inSEZs, in infrastructure and productivecapacity, leading to generation of additionaleconomic activity and creation ofemployment opportunities.

The SEZ Act 2005 envisages key role forthe State Governments in export promotionand creation of related infrastructure. Asingle window SEZ approval mechanism hasbeen provided through a 19 member inter-ministerial SEZ Board of approval (BOA).The application duly recommended by therespective State Government /UTAdministration are considered by this BOAperiodically. All decisions of the Board ofapprovals are with consensus.

The SEZ Rules provide for differentminimum land requirement for differentclass of SEZs, Every SEZ is divided into aprocessing area where alone the SEZ units

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would come up and the non-processing areawhere the supporting infrastructure is to becreated.

The SEZ Rules provide for:

• Simplified procedure for development,operation, and maintenance of theSpecial Economic Zones and for settingup units conducting business in SEZs;

• Single window clearance for setting upof an SEZ;

• Single window clearance for settingup a unit in a Special Economic Zone

• Single window clearance on mattersrelating to Central as well as StateGovernments;

• Simplified compliance procedures anddocumentation with an emphasis onself certification.

APPROVAL MECHANISM ANDADMINISTRATIVE SET UP OF SEZS

(a) Approval Mechanism

The developer submits the proposal forestablishment of SEZ to the concerned StateGovernment. The State Government has toforward the proposal with its recommendationwithin 45 days from the date of receipt of suchproposal to the Board of Approval. The applicantalso has the option to submit the proposal directlyto the Board of Approval.

The Board of Approval has been constitutedby the Central Government in the exerciseof the powers conferred under the SEZ Act.All the decisions are taken in the Board ofApproval by consensus. The Board ofApproval has 19 members. Its constitutionis as follows:

1. Secretary, Department of Commerce Chairman

2. Member, CBEC Member

3. Member, IT, CBDT Member

4. Joint Secretary (Banking Division) Department of Economic Affairs,Ministry of Finance Member

5. Joint Secretary (SEZ), Department of Commerce Member

6. Joint Secretary, DIPP Member

7. Joint Secretary, Ministry of Science and Technology Member

8. Joint Secretary, Ministry of Small Scale Industries and Agro andRural Industries Member

9. Joint Secretary, Ministry of Home Affairs Member

10. Joint Secretary, Ministry of Defence Member

11. Joint Secretary, Ministry of Environment and Forests Member

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(b) Administrative Set Up

The functioning of the SEZs is governed bya three tier administrative set up. The Boardof approval is the apex body and is headedby the Secretary, Department of Commerce.The Approval Committee at the Zone leveldeals with approval of units in the SEZs andother related issues. Each Zone is headed bya Development Commissioner, who is ex-officio chairperson of the ApprovalCommittee.

Once an SEZ has been approved by theBoard of Approval and Central Governmenthas notified the area of the SEZ, units areallowed to be set up in the SEZ. All theproposal for setting up of units in the SEZare approved at the Zone level by theApproval Committee consisting ofDevelopment Commissioner, CustomsAuthorities and representatives of StateGovernment. All post approval clearancesincluding grant of importer-exporter codenumber, change in the name of the company

or implementing agency, broad bandingdiversification, etc. are given at the Zonelevel by the Development Commissioner.The performance of the SEZ units areperiodically monitored by the ApprovalCommittee and units are liable for penalaction under the provision of Foreign Trade(Development and Regulation) Act, in caseof violation of the conditions of the approval.

INCENTIVE AND FACILITIESOFFERED TO THE SEZs

The incentives and facilities offered to theunits in SEZs for attracting investments intothe SEZs, including foreign investmentinclude: -

• Duty free import/domesticprocurement of goods fordevelopment, operation andmaintenance of SEZ units.

• 100% Income Tax exemption on exportincome for SEZ units under Section

12. Joint Secretary, Ministry of Law and Justice Member

13. Joint Secretary, Ministry of Overseas Indian Affairs Member

14. Joint Secretary, Ministry of Urban Development Member

15. A nominee of the State Government concerned Member

16. Director General of Foreign Trade or his nominee Member

17. Development Commissioner concerned Member

18. A professor in the Indian Institute of Management or theIndian Institute of Foreign Trade Member

19. Director or Deputy Secretary, Ministry of Commerce andIndustry, Department of Commerce Member Secretary

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10AA of the Income Tax Act for first5 years, 50% for next 5 years thereafterand 50% of the ploughed back exportprofit for next 5 years.

• Exemption from minimum alternativetax under section 115JB of the IncomeTax Act.

• External commercial borrowing bySEZ units upto US $500 million in ayear without any maturity restrictionthrough recognized banking channels.

• Exemption from Central Sales Tax.

• Exemption from Service Tax.

• Single window clearance for Centraland State level approval.

• Exemption from State Sales Tax andother levies as extended by therespective State Governments.

The major incentives and facilities availableto SEZ developers include:

• Exemption from customs/excise dutiesfor development of SEZs for authorizedoperations approved by the BOA.

• Income Tax exemption on exportincome for a block of 10 years in 15years under section 80-IAB of theIncome Tax Act.

• Exemption from minimum alternativetax under section 115JB of the IncomeTax Act.

• Exemption from dividend distributiontax under section 115O of the IncomeTax Act.

• Exemption from Central Sales Tax(CST).

• Exemption from Service Tax (Section7 , 26 and Second Schedule of the SEZAct).

SEZ APPROVAL STATUS

Consequent upon the SEZ Rules coming intoeffect w.e.f. 10th February 2006, nineteenmeetings of the Board of Approvals havesince been held. During these meetings,formal approval has been granted to 404 SEZproposals and in-principle approval has beengranted to 167 SEZ proposals. Out of theformal approvals, 172 SEZs have beennotified.

BENEFITS DERIVED FROM SEZs

Benefits derived from SEZs are evident fromthe investment, employment, exports andinfrastructural developments additionallygenerated. Investment of the order of Rs.1,00,000 crores including FDI of US $ 5-6billion is expected by the end of December2007, 5,00,000 direct jobs are expected tobe created by December 2007. The benefitsderived from multiplier effect of theinvestments and additional economicactivity in the SEZs and the employmentgenerated thus will far outweigh the taxexemptions and the losses on account of landacquisition. Stability in fiscal concession isabsolutely essential to ensure credibility ofGovernment intensions.

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(a) Exports from the Functioning SEZsduring the Last Three Years are asunder:

Year Value Growth rate(Rs. Crore) (over the

previous year)

2003-2004 13,854 39%

2004-2005 18,314 32%

2005-2006 22,840 24.7%

2006-2007 34,787 52.3%

Projected exports from all SEZs for 2007-08: Rs. 67,088 crores

(b) Investment and Employment in theSEZs Set up Prior to the SEZ Act,2005

At present, 1332 units are in operationin the SEZs. In the SEZs establishedprior to the Act coming into force, there are1179 units providing direct employment toover 2.08 lakh persons; about 40% of whomare women. Private investment byentrepreneurs in these SEZs established priorto the SEZ Act is of the order of over Rs.5844 crore.

(c) Investment and Employment in theSEZs Notified under the SEZ Act2005:

Current investment and employment:

Investment Rs.52,193 Crores

Employment 46,814 Persons

Expected Investment and employment

Investment Rs. 2,85,279 Crores

Employment 21,42,089 Additional jobs

(d) Expected Investment andEmployment if 405 FormalApprovals become Operational:

Investment Rs. 3,00,000 Crores

Employment 4 million additional jobs

IMPACT OF THE SCHEME

The overwhelming response to the SEZscheme is evident from the flow ofinvestment and creation of additionalemployment in the country. The SEZ schemehas generated tremendous response amongstthe investors, both in India and abroad,which is evident from the list of Developerswho have set up SEZs:

• Nokia SEZ in Tamilnadu

• Quark city SEZ in Chandigarh

• Flextronics SEZ in Tamilnadu

• Mahindra world city in Tamilnadu

• Motorola DELL and Foxconn

• Apache SEZ (Adidas Group) inAndhra Pradesh

• Divvy’s Laboratories, Andhra Pradesh

• Rajiv Gandhi Technology Park,Chandigarh

• ETL Infrastructure IT SEZ, Chennai

• Hyderabad Gems limited, Hyderabad

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LIST OF WEBSITES

WEBSITE ADDRESSES OF IMPORTANT MINISTRIES/DEPARTMENTS

OVERSEAS INDIAN FACILITATION CENTER http://www.oifc.inMINISTRY OF OVERSEAS INDIAN AFFAIRS http://www.moia.gov.inCONFEDERATION OF INDIAN INDUSTRY http://www.ciionline.orgMinistry of Biotechnology http://dbtindia.nic.inBureau of Indian Standards http://www.bis.org.inMinistry of Chemicals & Petrochemicals http://chemicals.nic.inMinistry of Civil Aviation http://civilaviation.nic.inDepartment of Commerce http://commerce.nic.in

Ministry of Coal http://coal.nic.inMinistry of Company Affairs http://dca.nic.inDepartment of Education http://education.nic.inMinistry of Environment and Forests http://envfor.nic.inDepartment of Explosives http://explosives.nic.inMinistry of External Affairs http://www.meanindia.nic.in

Ministry of Finance http://finmin.nic.inDirectorate General of Foreign Trade http://dgft.delhi.nic.inDepartment of Heavy Industries http://dhi.nic.inDepartment of Industrial Policy & Promotion http://dipp.nic.inMinistry of Information and Broadcasting http://mib.nic.in

Department of Information Technology http://www.mit.gov.inMinistry of Labour http://labour.nic.inDepartment of Mines http://mines.nic.inMinistry of Non-Conventional Energy Sources http://mnes.nic.inOffice of The Controller General Of Patents http://patentoffice.nic.inMinistry of Petroleum And Natural Gas http://petroleum.nic.in

Ministry of Power http://powermin.nic.in

Ministry of Railways http://www.indianrailways.gov.inReserve Bank of India http://www.rbi.org.in

Ministry of Road Transport & Highways http://morth.nic.inDepartment of Shipping http://shipping.nic.in

Ministry of Small Scale Industries & Agro and Rural Industries http://ssi.nic.in

Ministry of Statistics and Programme Implementation http://mospi.nic.inDepartment of Telecommunication http://www.dotindia.comMinistry of Textile http://texmin.nic.inMinistry of Tourism http://tourismofindia.comMinistry of Urban Development http://urbanindia.nic.inMinistry of Water Resources http://wrmin.nic.in

LIST OF WEBSITES

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WEBSITE ADDRESS OF STATES/UNION TERRITORIES

Andaman & Nicobar (UT) http://andaman.nic.in

Andhra Pradesh http://www.andhrapradesh.com

Arunachal Pardesh http://arunachalpradesh.nic.in

Assam http://assamgovt.nic.in

Bihar http://bihar.nic.in

Chandigarh (UT) http://chandigarh.nic.in

Chhattisgarh http://chattisgarh.nic.in

Dadra & Nagar Haveli http://oidc.nic.in

Daman & Diu http://daman.nic.in

Delhi http://delhigovt.nic.in

Goa http://goagovt.nic.in

Gujarat http://www.gujaratindia.com

Haryana http://haryana.nic.in

Himachal Pradesh http://himachal.nic.in

Jammu & Kashmir http://jammukashmir.nic.in

Jharkhand http://jharkhand.nic.in

Karnataka http://www.karnataka.nic.in

Kerala http://www.kerala.gov.in

Lakshdweep(UT) http://lakshadweep.nic.in

Madhya Prdesh http://www.mp.nic.in

Maharashtra http://maharashtra.gov.in

Manipur http://manipur.nic.in

Meghalaya http://meghalaya.nic.in

Mizoram http://mizoram.nic.in

Nagaland http://nagaland.nic.in

Orissa http://orissagov.nic.in

Pondicherry(UT) http://pondicherry.nic.in

Punjab http://punjabgovt.nic.in

Rajasthan http://www.rajasthan.gov.in

Sikkim http://sikkimgov.nic.in

Tamil Nadu http://www.tn.gov.in

Tripura http://tripura.nic.in

Uttar Pradesh http://upgov.nic.in

Uttranchal http://gov.ua.nic.in

West Bengal http://www.wbgov.com

WEBSITES

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CONTACT DETAILS

Contact Details of Overseas Indian Facilitation Center

1. Mr. G. GurucharanJoint Secretary (FS)Ministry of Overseas Indian Affairs9th floor, Akbar BhawanChanakya PuriNew Delhi-110021Tel: 24676210, 24197916Email : [email protected]

2. Ms Subha RajanCEOOverseas Indian Facilitation CenterPlot No. 249-F, Sector 18Udyog Vihar, Phase IVGurgaon-122015HaryanaTel: +91 124 4014060-67 Extn. 374, 4014055Fax:+91 124-4014080Email:[email protected]

3. Ms. Anupma AggarwalKnowledge Partner on Taxation and Foreign Direct InvestmentDirectorPeeyush Aggarwal & Co. Consultants Pvt LtdB-132 Anand Vihar,Delhi-110092Tel: 011 2216 4800, 2216 4700Fax:+91 11 2216 4700Mobile: +91-9312276731Email: [email protected]: www.indialiaison.com

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Kindly give us your feedback on the document as this will help us in making the revisededition of this book more valuable. We will be obliged if any mistake, error or discrepancyis brought to our notice for carrying out necessary corrections and modifications.

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FEEDBACK FORM

FEEDBACK FORM

Please mail/fax/e-mail your suggestions to

Ms. Subha RajanCEO, Overseas Indian Facilitation Center (OIFC)& Director, Confederation of Indian Industry (CII)Plot No. 249-F, Sector 18, Udyog Vihar, Phase IVGurgaon-122015, Haryana, INDIA.Tel: +91 124 4014060-67 Extn. 374, 4014055(D)Fax: +91 124 4014080E-Mail: [email protected]: www.oifc.in