Foreign Exchange Management Act A primer for NRIs

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Content Overview

1. Overview of Opportunities in FEMA 2. Definition of NRI 3. Possession & Surrender of Foreign Exchange 4. Bank Accounts 5. Loans to NRIs 6. Loans by NRIs 7. Investment in Immoveable Property 8. Investments in India 9. Starting a Business 10. Insurance Policies 11. Derivative Contracts 12. Remittance of Assets 13. Special Cases of Residents nri

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Person Resident outside India

• Means a Person who is not a Resident in India

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Definitions -NRI

• Means a person resident outside India who is a citizen of

India or a person of Indian Origin.

Exception: Applicable only under the Foreign Exchange Management

(Remittance of Assets) Regulations

• Means a person resident outside India who is a citizen of

India. nristr

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Case Study

• Mr. Khan, a Senior Citizen, goes to USA for medical treatment in March 2007. The Doctors advise him that the medical treatment will last for 10 months and he decides to stay with his son in California. He comes back in Jan ‘08. What his residential status for:

FY 2006-07 FY 2007-08 FY 2008-09

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Case Study

• Sunny Singh, a software engineer is deputed by his Company for an

overseas assignment in Italy for a period of 20 months starting 1st

Jan 2007. What is his residential status for: FY 2007-08 FY 2008-09

• Would it make a difference if he was not deputed by his company but went on his own accord to work for the Company in Australia?

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Not Permanently Resident

Means a Person resident in India:

• For employment of a specified duration (irrespective of the length), or

• For a specific job or assignment of duration not exceeding 3

years.

Special Feature:

• Can retain currency without limit like travellers’ cheques etc

acquired/owned when he was a resident outside India and

brought into India.

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Definitions -PIO

• Means a citizen of any country other than of a Prohibited Country, if

a) He at any time held Indian Passport: or

b) He or either of his parents or any of his grand- parents were a citizen of

India by virtue of the Constitution of India or the Citizenship Act,1955, or

c) The person is a spouse of an Indian citizen or a person referred to in sub-

clause (a) or (b).

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Prohibited Countries

• Indian Citizens who are now taken citizenship / carry passport of the following countries are not considered as PIOs i.e. they get the same treatment as Foreigners under FEMA.

Regulation Prohibited Countries Borrowing or Lending in Rupees Bangladesh, Pakistan

Remittance of Assets Bangladesh, Pakistan

Non Resident Accounts Bangladesh, Pakistan

Investment in Shares Bangladesh, Pakistan, Sri Lanka

Acquisition and Transfer of Immoveable Property

Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan

NRE / FCNR (B) NRO

Maximum Amount Rs. 50,000 As per Bank’s judgement

Period Maximum 2 Weeks As per Bank’s nri

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PIO Card

• Privileges No Visa Required to come to India No separate Student / Employment Visa Exempt from registration requirement if single stay in India does not exceed 180 days Parity with NRIs in facilities in Economic, Social and Financial field

• Validity – 15 Years from the date of issue • How to Apply Submit the prescribed Form accompanied by documentary evidence that person is PIO Form to be submitted to the Indian Embassy where the person is a Resident Fee is Rs 15,000 for (Rs 7,500 for children upto 18 years of age)

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Possession & Surrender of Foreign Exchange

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Brining and Retention of Foreign Exchange in India • Brining Foreign Exchange

ANY PERSON can at ONE TIME get the following amounts to India: • USD 5,000 of foreign currency • USD 10,000 in currency and travellers cheques including the currency

mentioned above (Amounts in excess of above: Currency Declaration Form)

•Retention of Foreign Exchange

PERSON RESIDENT IN INDIA can AT ANY GIVEN TIME retain upto USD 2,000 only if the same are acquired are as follows:

• Unspent amount out of foreign exchange purchase for foreign travel • Payment for services outside India, if the services are not arising from any

business or anything done in India • Gift, Honorarium, payment for services or settlement received from a Person

Resident Outside India visiting India • Gift or Honorarium while on a visit outside India nri

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Surrender of Foreign Exchange

• Periods of Surrender • 180 days from:

• In case of Receipt – Date of Receipt • In case of any amount is unused – Date of Purchase • In case of unspent – Date of return to traveller

• Exchange brought back can be utilised for next visit • Unspent exchange can also be deposited in RFC (D) Account

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Bank Accounts

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Bank Accounts – Which one?

NRE NRO Used for international receipts and payments

Used for local receipts

Fully Repatriable Non-Repatriable (Now repatriation

allowed for certain types of

payments upto USD 1 Million per

year)

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Permissible Credits

NRE/FCNR (B) NRO -Remittances from abroad -Cheques,

travellers cheques, currency etc. deposited

during temporary visit to India -Transfer from

other NRE/FCNR

Account -Interest on funds in the Account

-Interest and maturity of Government securities and units of MFs if they were bought in Foreign Currency

-Refund of share/debenture subscription if original payment made from NRE

-Refund of amount paid for flat booking if paid in foreign currency

-Remittances from Abroad -

Legitimate dues in India of the

Account holder

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Permissible Debits

NRE / FCNR (B) NRO -Local disbursements -Remittances outside India -Transfer to NRE / FCNR Account

of self or any other person -Investment in shares, securities, commercial paper of Indian Company -Purchase of immoveable property

-Payment of local expenses -Investments -Remittance of current income out

of India net of taxes

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Bank Accounts -I

Non-Resident (External) Rupee Account

Foreign Currency (Non Resident) Bank Account

Non Resident Ordinary Account

Popularly known as

NRE Account FCNR (B) Account

NRO Account

Currency in which the Account can be maintained

Rupees Rupees Pound Sterling, US Dollar, Deutsche Mark, Japanese Yen, Euro

Who Can Open NRI / PIO NRI / PIO Any Person Resident outside India (i.e. even Foreigners)

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Bank Accounts -II

Non-Resident (External) Rupee Account

Foreign Currency (Non Resident) Bank Account

Non Resident Ordinary Account

Type of Account Current Account, Savings Account, Recurring Deposit, Fixed Deposit

Term (Fixed) Deposit Period of Fixed Deposit is between 1 and 3 years only

Current Account, Savings Account, Recurring Deposit, Fixed Deposit

Joint Accounts Only Between NRIs / PIOs

Only Between NRIs / PIOs

Account be held jointly with Residents

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Bank Accounts -III

Non-Resident (External) Rupee Account

Foreign Currency (Non Resident) Bank Account

Non Resident Ordinary Account

When the Non Resident becomes a Resident

- Account to be Re-designated as Resident Account i.e. normal bank account in India, or - Funds in the Account can be transferred to Resident Foreign Currency Account

NRI can ask for redemption of the deposit, or Deposit is allowed to continue till its due date and then redeemed Deposit is converted into resident Foreign Currency Account on maturity

Account to be Re-designated as Resident Account i.e. normal bank account in India

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Issues – Bank Accounts

• What happens to the Savings Bank Accounts when a resident becomes a Non-Resident?

• What happens to the NRE/NRO/FCNR Accounts when a non- resident becomes a resident?

• Can one open more than one Accounts: With different branches of the same Bank With different banks

• Is money freely transferable between: NRE to NRO and vice versa NRE to FCNR and vice versa NRO to FCNR and vice versa

• Can the Accounts be opened and operated by a Power of Attorney (POA) holder? Are there any restrictions on the transactions that a POA holder can undertake? nri

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Remitting Money to India

Q: Are there restrictions / limits on sending money to India?

A: No. They can send money in any form without limit.

Exception: Loans to relatives in India (Maximum Amount is USD 250,000)

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Loans to NRIs

• Personal Loans – Loan for personal use against Shares, Property etc.

• Housing Loans – To purchase residential and commercial property

• Loans against Bank Accounts • Temporary Overdraft • NRI Employees of Indian Companies

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Personal Loans -I

• Types:

– Against Security Security of shares or securities Security of immoveable property other than Security of immoveable property other than agricultural land, plantation or

farm house

• Other Loans

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Personal Loans – Against Security

• Purpose

Own personal requirements or for own business purpose

Not to be utilised for business of chit fund, nidhi company, trading in TDR, agricultural or real estate business

• Loan amount not to be credited to NRE Account • Loan amount not to be remitted outside India • Repayment from Remittance from outside India Debit to NRE / FCNR / NRO Account of borrower Sale of property against which loan is availed

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Other Loans – I

• Purpose

– Any purpose as per the Loan Policy laid down by the Board of Directors of

the Authorised Dealer except:

• Chit Fund, Nidhi Company • Agricultural Loans, Plantation, Real Estate, Farm House • Trading in TDR • Investment in Capital Market including margin trading and derivatives

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Other Loans – II

• Other Conditions • Amount not to be credited to NRE / FCNR Accounts • Loan amount not to be remitted outside India

• Repayment: Remittance from outside India Debit to NRE / FCNR / NRO Account of borrower Sale of property against which loan is availed

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Housing Loans

• Purpose: Purchase of Residential Property • No. of Properties: No Limit • Amount of Loan: No Limit • From Whom Can they Loans be availed

– Banks (SBI, ICICI, Axis etc) or Financial Institutions (HDFC)

• Bank Account in India: Not Required • Mortgage: Compulsory. In addition, Bank can also take lien of borrowers other assets

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Housing Loans – II

• Repayment: The loan can be repaid in any of the following 4 ways:

Transferring the amounts from your Bank account outside India Making the payments out of funds in NRE / FCNR / NRNR / NRO Accounts in India Rental Income of property which you have acquired Asking a relative in India to make the payment on your behalf

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Housing Loans -III

• Can Banks keep different terms and conditions for NRI? • No. The quantum, repayment period and margin money have to be same for Residents and NRIs • Exception: Rate of Interest can be different

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Loans against Bank Accounts

NRE / FCNR (B) NRO

To Account Holder / Third Parties in India

Allowed (Against security of FD and for specified Purposes as given in next slide)

Allowed (Against security of FD and for specified Purposes as given in next slide)

Foreign Currency Loan to Account Holder / Third Party outside India

Allowed (Against security of funds held in Account for any bonafide purpose)

Not Allowed

All the above loans are now restricted to Rs 20 Lacs

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General Features of Loans in India

• Purpose of Loan Personal or Business purposes Investment in firms and companies on non-repatriation basis Purchase of residential house for own use

• Loan cannot be used for Relending, Agricultural / plantation activities, Real estate business • Third Party can be Individual, Firms or Companies • No consideration e.g. commission can be paid to NRI for agreeing to pledge his deposits

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Temporary Overdraft

Regulation Prohibited Countries Borrowing or Lending in Rupees Bangladesh, Pakistan

Remittance of Assets Bangladesh, Pakistan

Non Resident Accounts Bangladesh, Pakistan

Investment in Shares Bangladesh, Pakistan, Sri Lanka

Acquisition and Transfer of Immoveable Property

Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan

NRE / FCNR (B) NRO

Maximum Amount Rs. 50,000 As per Bank’s judgement

Period Maximum 2 Weeks As per Bank’s judgement nri

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NRI Employees of Indian Companies

• A Corporate registered in India or Indian Company can grant loans to employees who are NRI / PIO

• Loan to be accordance with the Staff Welfare Scheme / Staff Housing Loan Scheme ie conditions to be same

• Amount to be credited to NRO Account • Repayment to be made by borrower himself through remittance outside India

or debit to NRE / FCNR / NRO Account • Loans can be also given for buying ESOP subject to: Maximum of Rs. 20 Lacs Loan amount not to exceed 90% of purchase price of shares

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Questions

• What happens to the Loan / Overdraft given by the Bank to a Resident if he becomes a Non-Resident? • How does one repay a Loan if the Lender becomes a Non-Resident? • What happens when the borrower becomes a Non-Resident?

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Solutions

• An Authorised Dealer may allow continuance of the loan subject to: Period of the loan cannot exceed the period originally granted Repayment is made by inward remittances or from NRE/FCNR/NRO Accounts

• If the Lender becomes Non-Resident, amount should be paid to his NRO A/c • If the Borrower becomes Non-Resident, he can repay out of NRO / NRE Account

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Loans by NRIs • Loans to Individuals • Loans to Relatives • Loans to Companies • Loans against Bank Accounts

– As discussed in the Bank Accounts section

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Loans to Individuals

• NRI can give loan to any Resident • Principal is not repatriable. • Loan to be given out of remittance outside India or from NRE/NRO/FCNR Account • Maximum Period of Loan: 3 Years • Interest: 2% over the Bank Rate

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Loans to Relatives

• Indian Resident can borrow only from ‘Close Relatives’ • Minimum maturity is 1 Year • Maximum Amount is USD 250,000 • Loan is Free of Interest • Loan received from remittance outside India or debit to NRE / FCNR Account • Loan amount if fully repatriable.

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Loans to Companies • Company must be incorporated in India • Repatriation and Non Repatriation basis • Company is borrowing by way of Non-Convertible Debentures issued by way of Public

Offer • Rate of Interest :SBI PLR + 3% • Borrowing Company does not carry out activities of agriculture, real estate, chit fund,

nidhi fund • Period: Not less than 3 years • Additional Conditions – Non-Repatriation basis: Remittance from outside India / NRE / FCNR / NRO Account – Repatriation Basis

• NRO Account not allowed for investment • Percent holding by all NRIs should be within FDI Limit

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Immoveable Property -Eligibility

• Definition of Person of Indian origin excludes citizens of:

– Pakistan – Bangladesh – Sri Lanka – Afghanistan – China – Iran – Nepal

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Non-Resident India

What can be Acquired Any immoveable property other than Agricultural property, plantation or farm house

Payment Mode Remittance from outside India or debit to non-resident account

Transfer of Agricultural Land, Plantation or Farm House

Only to person resident in India

Transfer of Any Other Property To a Person Resident in India

i.e. Indian Citizen, NRI, PIO, Foreigner

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PIO – Acquisition of Property

Type of Property Mode of Acquisition

Status of Transferor

Any immoveable property other

than Agricultural property,

plantation or farm house

Any Mode other than Gift and Inheritance

Resident (Indian and Foreign Citizen) NRI PIO

Any immoveable property other than Agricultural property, plantation or farm house

Gift Resident (Only Indian Citizen) NRI PIO

Any Property Inheritance Resident (Indian and Foreign Citizen) NRI PIO

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PIO – Transfer of Property

Type of Property Mode of Transfer

Status of Transferee

Any immoveable property other than Agricultural property, plantation or farm house

Sale Person Resident in India ie. Resident. PIO Foreign Citizen Resident in India

Agricultural property, plantation or farm house

Gift, Sale Indian Citizen Resident in India

Residential or Commercial Property

Gift Resident NRI PIO resident outside India Foreign Citizen Resident in India

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Remittance of Sale Proceeds

• Purchase in Foreign Currency

Amount cannot exceed the remittance originally made to acquire the property

In case of residential property, the remittance is restricted to 2 such

properties

• Purchased out of Rupee Funds

Entire amount, subject to a maximum of USD 1 Mn can be remitted

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Investment in Securities

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Definition of Securities

• Shares, Stocks • Bonds • Debentures • Units of Mutual Fund • Government Securities

• Savings Certificates

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Investment in Listed Companies

• Share / Convertible Debentures of an Indian Company • Through Registered Broker on a recognised Stock Exchange • Single NRI can invest upto 5% of Total Paid up value of shares / debentures • Aggregate investment by all NRIs not to exceed 10% of Total Paid up Value • – This limit can be increased to 24% by the Company by passing a Special Resolution in General Meeting

• NRI has to take delivery of shares • Repatriation Basis: Payment must be made out of foreign remittance, NRE, FCNR Account • Non-Repatriation Basis: Payment can be made out of NRO Account

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Investment in Listed or Unlisted Companies

• Shares / Convertible Shares of listed or unlisted company • Shares can be issued by Public Issue or Private Placement • Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation

business • No limit on % of holding and amount of investment • Payment must be made out of foreign remittance, NRE, FCNR, NRO Account • Amount of sale consideration, net of taxes to be credited to NRO Account • Principal and gains are not repatriable.

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Housing & Real Estate

• Only NRIs are allowed to invest upto 100% in the following:

– Development of serviced plots and construction of residential premises construction of residential premises – Development of townships – City & Regional level Infrastructure facilities including roads and bridges – Manufacture of building materials.

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Investment in Other Securities

• NRI can without limit on Repatriation or Non-Repatriation basis invest in:

Government dated securities, Treasury Bills, Units of Mutual Fund Bonds issued by PSU Shares in PSU disinvestment

• NRI can invest without limit on. Non-Repatriation basis:

National Plan / Certificates

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Transfer of Shares

• NRI can transfer shares or convertible debentures only to other NRI by

way of Sale or Gift

If the Transferee has other venture or tie up or collaboration etc in India in the same, prior permission of Central Government required The above permission is not required for companies in IT sector

• NRIs need prior permission of RBI to transfer shares to person resident in India.

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Starting a Business in India

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Proprietary Concern / Firm

• NRI / PIO can invest in the capital of Proprietary Concern / Firm

on the following conditions:

Amount received by inward remittance or through non-resident Bank Account resident Bank Account Firm is not in the agricultural or plantation activity or in real estate or Print Media Amount invested is not eligible for repatriation.

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Insurance Policies

• General / Life Insurance Policies taken by a Person when he was a Non-Resident can continue after he becomes a Resident

• If the premium has been paid by remittance from India, the maturity proceeds

have to be brought back to India through Banking channel within 7 days of receipt.

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Derivative Contracts

• NRI can enter into Rupee Forward Contract to hedge: Dividend due on shares held in Indian Company Balances held in FCNR and NRE Accounts Investment made under the Portfolio Investment Scheme

• Cross currency exposure in FCNR Account

• Investment made in India since 1st

Jan ‘93 • Proposed Foreign Investment in India.

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Remittance of Assets

• Which assets can be remitted? • Deposit with Bank, Firm or Company • Provident Funds, Superannuation benefits • Maturity proceeds / claims from insurance company • Sale proceeds of shares or securities • Sale proceeds of immoveable property • Sale proceeds of any other assets held in accordance with FEMA

Regulations

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Normal Remittance – NRI / PIO

• Upto US$ 1 Million (Approximately Rs 4.5 Crores) can be remitted out of: Balance in NRO Account Sale proceeds of Assets Assets acquired by way of legacy or inheritance

• If remittance is made in multiple instalments, all of them to be made through the same Authorised Dealer

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Some Provisions Applicable to Residents

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Special Case: Indians going out

• Amounts that can be freely taken out:

Immigration : USD 100,000 of the limit prescribed by the destination country Employment: USD 100,000 Education: USD 100,000 per academic year or estimate from the Educational Institution, whichever is higher

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Resident Foreign Currency A/c

• Who can Open: A person Resident in India (ie all categories including Firms, Companies etc.)

• Type: Current or Term Deposit • Permissible Credits Foreign Exchange Received:

As pension/any superannuation/other monetary benefits On realised on conversion of assets referred in sub-section 6(4) & repatriated to India FE received as gift or inheritance FE received as proceeds of Life Insurance claims / maturity / surrender values

• Permissible Debits: This A/c is free from all the restrictions regarding utilisation of FC balance including any restriction on investment in any form, by whatever name called outside India

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Resident Foreign Currency (Domestic)

• Who can Open? Resident Individual (ie No Firms, Companies etc.) • Currency : Any foreign currency • Type: Current Account without interest • Permissible Credits

Only in the form of currency notes or travellers cheques received by way of: While on a visit abroad, payment for services not arising from any business in India Payment received as honorarium, gift or settlement of lawful obligation from a person on a

visit to India Honorarium or Gift received on a visit outside India Unspent amount of foreign exchange taken for foreign travel Gift from a close relative Earning from Export of Goods or Services, Honorarium, Royalty or any other lawful means Disinvestment proceeds from sponsored ADR/GDR issue

Insurance claim or maturity value of life insurance policy

– Permissible Debits • All Current and Capital Account transactions

– No ceiling on amount of balance in the Account nri

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USD 200,000 Scheme

• A Resident Individual can freely remit abroad upto USD 200,000 per

financial year • Purpose can be any capital or current account transaction • Resident can open a Bank Account with a foreign bank for this purpose

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Thank You Visit

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