NRI Basics & Banking

I was helping my husband who has been away from the country for the past one year to invest in an Indian mutual fund. We chose the fund. We decided how much we wanted to invest. What happened next should happen with most in the lot. It dawned upon me - when I began filling up his details in the application - that my husband had, a while ago, joined the NRI Club.

In such a dazzled "Oh-no!" state, I scourged out answers to all the questions that should arise in any mind of a the same state. Hope this helps.

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WHO IS AN NON-RESIDENT INDIAN [NRI]

A Non Resident Indian (NRI) as per FEMA 1999 is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period.An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year.

What is Repatriation

Repatriation is the transfer of funds from India to accounts held overseas.

Bank Accounts
One of the first things you should know as an NRI is that your existing bank accounts are no longer valid. The Foreign Exchange Management Act (FEMA) requires you to inform all the banks where you have an account, be it savings or deposits, about your changed residential status.
The banks will then classify your account as NRO (Non-resident Ordinary). Except for the change in nomenclature, there is nothing new about the account. You can continue using it as before. Payment of EMIs (Equated Monthly Instalment) can go on. You can also hold the NRO account jointly with a resident. But the balance in the NRO account cannot be remitted outside India. (non-repatriable)
If you want the funds in your account to be freely repatriable outside India, an NRE (Non-Resident External) account would be ideal. This account will be maintained in rupees and any debit or credit of foreign exchange will be converted into rupees.
It cannot be opened jointly with a resident but you can allow a resident to operate it on your behalf.
For example, you can authorise your mother to make local payments or even remit money to you through this account by giving her a power of attorney.

What is the difference between NRE and NRO accounts?

A. Funds remitted from abroad or local funds, which can otherwise be remitted abroad to the account holder, can be credited to NRE Accounts. Local funds, which do not qualify for remittance outside India, are required to be credited to NRO accounts. Funds can be freely transferred from NRE account to NRO account. However, no funds can be transferred from NRO account to NRE account.

Which investments can be made by NRIs on repatriation basis?

A. NRIs can invest on repatriation basis in:

* Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme (PIS).

* Shares and convertible debentures of Indian companies under FDI (Foreign Direct Investment Scheme).

* Shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

* Government dated securities/treasury bills through authorized dealers.

* Units of domestic mutual funds.

* Bonds issued by a public sector undertaking (PSU) in India.

Funds for such investments are to be received through foreign inward remittance or by debit to NRE/FCNR a/cs. The above securities can be sold through authorised stock brokers on a recognized stock exchange or by tendering units of mutual funds to the issuer for repurchase/ maturity proceeds or by tendering Govt. dated securities/Treasury Bills to RBI for maturity proceeds. The sale proceeds can be repatriated, net of Indian Tax.

Channels of RepatriationNRI Accounts:

1. NRE (Non Resident External Account) account (Savings/Current/ Fixed Deposits): Is freely repatriable (principal and interest) and does not require prior permission from RBI. Many banks like HDFC, PNB, SBI, ICICI et al offer NRE facilities.




2. FCNR (Foreign Currency Non Resident Account) (Deposits): FCNR Deposits are fully repatriable (principal and interest). And the entire deposit is exempt from tax. All major banks HDFC, ICICI, SBI offer this facility.




3. NRO account Non- Resident Ordinary Account(Savings): NRO deposits are not repatriable (principal) except on current NRI income like rent, dividend, pension, etc. and remittances indicated under "Repatriation of NRO Funds" only after payment of taxes due in India. Interest is freely repatriable. The NRI may remit up to USD one million per calendar year.




4. RFC account (Resident Foreign account): This account is available for returning Indians only, that is Indian who have permanently returned to India after holding NRI status. Funds can be repatriated on a need basis.

Q21. On return to India, can the NRI retain his assets abroad?

A21. Yes, on return to India, NRI need not declare or surrender their foreign currency assets and the income earned thereon.

Q22. Can NRIs hold funds acquired overseas in foreign currency account in India?

A22. Yes. They can be held in RFC (Resident Foreign Currency ) Accounts.

Q23. What amounts can be credited to RFC A/c?

A23. 1) Sale / maturity proceeds of assets held abroad & income on them
2) Pension received abroad
3) Currency notes / TCs brought into India at the time of returning to India
4) Balances in FCNR / NRE a/cs.

Q24. Can the proceeds of NRE / FCNR a/cs be credited to RFC a/cs by premature closure?

A24. Yes. No penalty for premature closure will be levied, for credit to RFC a/cs. However, the deposit so closed will earn interest at the rate applicable for the period for which it has run.

Q25. Can foreign currency notes be credited into an RFC account?

A25. Yes. If the amount exceeds US$5000 or its equivalent, it should have been declared in the currency declaration form.

Q26. Can Travellers cheques be credited into an RFC account?

A26. Yes. If the amount exceeds US$10,000 or equivalent, it should have declared in the CDF (Currency Declaration form).

Q27. Can a person who returns to India after a short assignment abroad open an RFC a/c?

A27. Yes.

Q28. Can the funds in RFC accounts be used for making local payments?

A28. Yes.

Q29. Can a returning Indian on going abroad again transfer his funds from RFC to FCNR(B) / NRE a/cs?

A29. Yes.

Q30. Is the amount in RFC accounts fully repatriable?

A30. Yes.

Q31. Can RFC accounts be opened jointly ?

A31. Yes with another person eligible to open RFC account.

Q32. For how many years can an RFC accounts be held?

A32. RFC accounts can be held for any number of years.

Q33. Is interest income on RFC deposits taxable?

A33. Interest income on RFC deposits is taxable when the NRI loses RNOR (resident not ordinarily resident) status and becomes an ordinary resident.

Q34. What is RNOR?

A34. A returning Indian would have RNOR status if he has been a non resident for at least 9 of the previous 10 years or if he had been in India for not more than 729 days in the previous seven years.

Q35. In what currencies are RFC a/cs denominated?

A35 At present RFC accounts can be opened in US$ onlyat in our Bank. Shortly we will be opening them in Euro and British Pounds.

Q36. Is there any tax deducted at source on interest earned on RFC accounts?

A36 Yes. TDS is deducted on RFC interest where the depositor does not hold RNOR status.
Repatriation for Non Residents

Q37. Can a non resident repatriate his pension received in India?

A37. Yes.

Q38 Can an NRI repatriate interest income on non repatriable deposits held in India?

A38 Yes.

Q39. Can an NRI repatriate rent received from his house/flat in India?

A39. Yes.

Q40. What are the formalities for repatriation of such amounts?

A40 Such amounts should normally be credited to the NRO account of the Non resident Indian. He should submit an undertaking and certificate from a Chartered Accountant that the income tax thereon has been paid / provided for /deducted. If the Non Resident does not have taxable income in India, he may submit a simple declaration that he/she is not a tax payer in India. Such declaration or certificate from the CA will be retained by the branch for submission to IT authorities.