Fema - Quick Guide For NRIs [Compatibility Mode]

Foreign Exchange Management Act

Quick Guide for NRIs

CA Vinit V DeoChartered Accountant

Overview

• Overview of Opportunities in FEMA

• Definition of NRI

• Possession & Surrender of Foreign Exchange

• Bank Accounts

• Loans to NRIs

• Loans by NRIs• Loans by NRIs

• Investment in Immoveable Property

• Investments in India

• Starting a Business

• Insurance Policies

• Derivative Contracts

• Remittance of Assets

• Special Cases of Residents

Person Resident Outside India

• Means a Person who is not a Resident in India

Vinit V DeoChartered Accountant

Definitions - NRI

• Means a person resident outside India who is a citizen of India or a person of Indian Origin

Exception: Applicable only under the Foreign Exchange

Management (Remittance of Assets) Regulations

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


Case Study

• Mr Kulkarni, a Senior Citizen, goes to USA for

medical treatment in March 2007. The Doctors

advise him that the medical treatment will last for

10 months and he decides to stay with his son in

California. He comes back in Jan 07. What his California. He comes back in Jan 07. What his

residential status for:

– FY 2006-07

– FY 2007-08

– FY 2008-09


Case Study

• Pravin Shah, a software engineer is deputed by

his Company for an overseas assignment in

Australia for a period of 200 months starting 1st

Jan 2007. What is his residential status for:

– FY 2007-08

– FY 2008-09

• Would it make a difference if he was not deputed

by his company but went on his own accord to

work for the Company in Australia?


Not Permanantly Resident

Means a Person resident in India:

• For employment of a specified duration

(irrespective of the length), OR

• for a specific job or assignment of a duration not • for a specific job or assignment of a duration not

exceeding 3 years

Special Feature:

• Can retain currency without limit travellers

cheques etc acquired/owned when he was a

resident outside India and brought into India


Definitions - PIO

• Means a citizen of any country other than of a

Prohibited Country,if

a) He at any time held Indian Passport: or

b) He or either of his parents or any of his grand-b) He or either of his parents or any of his grand-

parents were a citizen of India by virtue of the

Constitution of India or the Citizenship

Act,1955.or

c) The person is a spouse of an Indian citizen or

a person referred to in sub-clause (a) or (b).


Prohibited Countries

• Indian Citizens who are now taken citizenship / carry passport of the

following countries are not considered as PIOs i.e. they get the same

treatment as Foreigners under FEMA.

Regulation Prohibited CountriesBorrowing or Lending in Rupees Bangladesh,Pakistan

Remittance of Assets Bangladesh,Pakistan

Non Resident Accounts Bangladesh,Pakistan

Investment in Shares Bangladesh,Pakistan, Sri Lanka

Acquisition and Transfer of

Immoveable Property

Bangladesh,Pakistan, Sri Lanka,

Afghanistan, China,Iran,Nepal,

Bhutan


PIO Card

• Privileges– No Visa Required to come to India– No separate Student / Employment Visa– Exempt from registration requirement if single stay in India does

not exceed 180 days– Parity with NRIs in facilities in Economic, Social and Financial

fieldfield

• Validity – 15 Years from the date of issue

• How to Apply– Submit the prescribed Form accompanied by documentary

evidence that person is PIO– Form to be submitted to the Indian Embassy where the person is

a Resident– Fee is Rs 15,000 for (Rs 7,500 for children upto 18 years of age)


Possession & Surrender of

Foreign ExchangeForeign Exchange


Brining and Retention of Foreign

Exchange in India• Brining Foreign Exchange

ANY PERSON can at ONE TIME get the following amounts to India:

– USD 5,000 of foreign currency– USD 10,000 in currency and travellers cheques including the

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

• Retention of Foreign Exchange• Retention of Foreign ExchangePERSON RESIDENT IN INDIA can AT ANY GIVEN TIME retain upto USD 2,000 only if the same are acquired are as follows:– Unspent amount out of foreign exchange purchase for foreign

travel– Payment for services outside India, if the services are not arising

from any business or anything done in India– Gift, Honorarium, payment for services or settlement received

from a Person Resident Outside India visiting India– Gift or Honorarium while on a visit outside India


Surrender of Foreign Exchange

• Periods of Surrender

• 180 days from:• In case of Receipt – Date of Receipt

• In case of any amount is unused – Date of PurchasePurchase

• In case of unspent – Date of return to traveller

• Exchange brought back can be utilised for next visit

• Unspent exchange can also be deposited in RFC (D) Account


Bank Accounts


Bank Accounts – Which One?

NRE NRO

Used for international Used for local receipts Used for international

receipts and payments

Used for local receipts

and payments

Fully Repatriable Non-Repatriable (Now

repatriation allowed for certain types of

payments upto USD 1 Mn per year)


Permissible CreditsNRE/FCNR (B) NRO-Remittances from abroad

-Cheques, travellers cheques, currency etc. deposited during temporary visit to India

-Transfer from other NRE/FCNR Account

- Remittances from Abroad

- Legitimate dues in India of the Account holder

-Interest on funds in the Account

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

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

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

Permissible DebitsNRE / FCNR (B) NRO-Local disbursements

-Remittances outside India

-Transfer to NRE / FCNR Account of self or any other person

-Investment in shares,securities,

-Payment of local expenses

-Investments

-Remittance of current income out of India net of taxes

-Investment in shares,securities, commercial paper of Indian company

-Purchase of immoveable property


Bank Accounts - INon-Resident (External) Rupee Account

Foreign Currency (Non Resident) Bank Account

Non Resident Ordinary Account

Popularly known as

NRE Account FCNR (B) Account

NRO Account

Currency in which the Account can be maintained

Rupees Rupees Pound Sterling,

US Dollar,

Deutsche Mark,

Japanese Yen,

Euro

Who Can Open NRI / PIO NRI / PIO Any Person

Resident outside

India (i.e. even

Foreigners)


Bank Accounts - II

Non-Resident (External) Rupee Account



Type of Account Current Account,

Savings Account, Term (Fixed) Deposit

Current Account,

Savings Account, Savings Account,

Recurring

Deposit, Fixed

Deposit

Deposit

Period of Fixed Deposit is between 1 and 3 years only

Savings Account,

Recurring

Deposit, Fixed

Deposit

Joint Accounts Only Between NRIs / PIOs

Only Between NRIs / PIOs

Account be held

jointly with

Residents


Bank Accounts - IIINon-Resident (External) Rupee Account



When the Non

Resident

becomes a

- Account to be

redesignated as

Resident Account

NRI can ask for

redemption of the

deposit, or

Account to be

redesignated as

Resident Account becomes a

Resident

Resident Account

i.e. normal bank

account in India,

or

- Funds in the

Account can be

transferred to

Resident Foreign

Currency Account

deposit, or

Deposit is allowed

to continue till its

due date and then

redeemed

Deposit is

converted into

resident Foreign

Currency Account

on maturity

i.e. normal bank

account in India


Issues – Bank Accounts

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

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

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

– With different banks– With different banks

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

– NRE to FCNR and vice versa

– NRO to FCNR and vice versa

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


Remitting Money to India

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

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

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


Loans to NRIs


Loans to NRIs

• Personal Loans– Loan for personal use against Shares,

Property etc.

• Housing Loans• Housing Loans– To purchase residential and commercial

property

• Loans against Bank Accounts

• Temporary Overdraft

• NRI Employees of Indian Companies


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


Personal Loans – Against Security

• Purpose– Own personal requirements or for own business

purpose

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

• Loan amount not to be credited to NRE Account

• Loan amount not to be remitted outside India

• Repayment from– Remittance from outside India

– Debit to NRE / FCNR / NRO Account of borrower

– Sale of property against which loan is availed


Other Loans – I

• Purpose

– Any purpose as per the Loan Policy laid down

by the Board of Directors of the Authorised

Dealer except:Dealer except:

• Chit Fund, Nidhi Company

• Agricultural Loans, Plantation, Real Estate, Farm

House

• Trading in TDR

• Investment in Capital Market including margin

trading and derivatives


Other Loans – II

• Other Conditions– Amount not to be credited to NRE / FCNR Accounts

– Loan amount not to be remitted outside India

• Repayment:– Remittance from outside India– Remittance from outside India

– Debit to NRE / FCNR / NRO Account of borrower

– Sale of property against which loan is availed


Housing Loans

• Purpose: Purchase of Residential Property

• No. of Properties: No Limit

• Amount of Loan: No Limit

• From Whom Can they Loans be availed• From Whom Can they Loans be availed

– Banks (SBI, ICICI etc) or Financial Institutions

(HDFC)

• Bank Account in India: Not Required

• Mortgage: Compulsory. In addition, Bank can

also take lien of borrowers other assets


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


Housing Loans - III

• Can Banks keep different terms and conditions for NRI?

• No. The quantum, repayment period and margin money have to be same for margin money have to be same for Residents and NRIs

• Exception: Rate of Interest can be different


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

General Features of Loans in India

General Features of Loans in India

• Purpose of Loan– Personal or Business purposes

– Investment in firms and companies on non-repatriation basis

– Purchase of residential house for own use

• Loan cannot be used for Relending, Agricultural / plantation activities, Real estate business

• Third Party can be Individual, Firms or Companies

• No consideration e.g. commission can be paid to NRI for agreeing to pledge his deposits

Vinit V Deo

Chartered Accountant

Temporary Overdraft

NRE / FCNR (B) NRO

Maximum Amount Rs 50,000 As per Bank’s

judgement


Period Maximum 2 Weeks As per Bank’s

judgement

NRI Employees of Indian

Companies• A Body Corporate registered in India or Indian Company

can grant loans to employees who are NRI / PIO

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

• Amount to be credited to NRO Account

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• Amount to be credited to NRO Account

• Repayment to be made by borrower himself through remittance outside India or debit to NRE / FCNR / NRO Account

• Loans can be also given for buying ESOP subject to:– Maximum of Rs 20 Lacs

– Loan amount not to exceed 90% of purchase price of shares

Questions

• What happens to the Loan / Overdraft given by the Bank to a Resident if he become a Non-Resident?

• How does one repay a Loan if the Lender


• How does one repay a Loan if the Lender becomes a Non-Resident?

• What happens when the borrower becomes a Non-Resident

Solutions

• An Authorised Dealer may allow continuance of

the loan subject to:

– Period of the loan cannot exceed the period originally

granted

– Repayment is made by inward remittances or from


– Repayment is made by inward remittances or from

NRE/FCNR/NRO Accounts

• If the Lender becomes Non-Resident, amount

should be paid to his NRO A/c

• If the Borrower becomes Non-Resident, he can

repay out of NRO / NRE Account

Loans by NRIs

Loans by NRIs

• Loans to Individuals

• Loans to Relatives

• Loans to Companies

• Loans against Bank Accounts• Loans against Bank Accounts

– As discussed in the Bank Accounts section

Loans to Individuals

• NRI can given loan to any Resident

• Principal is not repatriable

• Loan to be given out of remittance outside India or from NRE/NRO/FCNR Account


India or from NRE/NRO/FCNR Account

• Maximum Period of Loan: 3 Years

• Interest: 2% over the Bank Rate

Loans to Relatives

• Indian Resident can borrow only from ‘Close Relatives’

• Minimum maturity is 1 Year

• Maximum Amount is USD 250,000

• Loan is Free of Interest• Loan is Free of Interest

• Loan received from remittance outside India or debit to NRE / FCNR Account

• Loan amount if fully repatriable

Vinit V Deo


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

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• Period: Not less than 3 years

• Additional Conditions– Non-Repatriation basis: Remittance from outside India / NRE /

FCNR / NRO Account– Repatriation Basis

• NRO Account not allowed for investment

• Percent holding by all NRIs should be within FDI Limit

Immoveable Property

Immoveable Property - Eligibility

• Definition of Person of Indian origin excludes citizens of:– Pakistan

– Bangladesh

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– Bangladesh

– Sri Lanka

– Afghanistan

– China

– Iran

– Nepal

Non-Resident IndiaWhat can be Acquired Any immoveable property other

than Agricultural property, plantation or farm house

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

Transfer of Agricultural Land, Only to person resident in IndiaTransfer of Agricultural Land, Plantation or Farm House

Only to person resident in India

Transfer of Any Other Property To:Person Resident in India

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

Vinit V Deo


PIO – Acquisition of PropertyType of Property Mode of

AcquisitionStatus of Transferor

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

Any Mode other than Gift and Inheritance

Resident (Indian and Foreign Citizen)

NRI

PIO

Any immoveable property Gift Resident (Only Indian



Gift Resident (Only Indian Citizen)

NRI

PIO

Any Property Inheritance Resident (Indian and Foreign Citizen) NRI

PIO

PIO – Transfer of PropertyType of Property Mode of

TransferStatus of Transferee


Sale Person Resident in India ie. Resident. PIO

Foreign Citizen Resident in India

Agricultural property, Gift, Sale Indian Citizen Agricultural property, plantation or farm house

Gift, Sale Indian Citizen Resident in India

Residential or Commercial Property

Gift Resident

NRI

PIO resident outside India

Foreign Citizen Resident in India

Vinit V Deo


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

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– In case of residential property, the remittance

is restricted to 2 such properties

• Purchased out of Rupee Funds

– Entire amount, subject to a maximum of USD

1 Mn can be remitted

Investment in Securities

Definition of Securities

• Shares, Stocks

• Bonds

• Debentures

• Units of Mutual Fund


• Units of Mutual Fund

• Government Securities

• Savings Certificates

Investment in Listed Cos.• Share / Convertible Debentures of an Indian Company• Through Registered Broker on a recognised Stock Exchange• Single NRI can invest upto 5% of Total Paid up value of shares /

debentures• Aggregate investment by all NRIs not to exceed 10% of Total

Paid up Value– This limit can be increased to 24% by the Company by passing a

Special Resolution in General Meeting

• NRI has to take delivery of shares


• NRI has to take delivery of shares• Repatriation Basis: Payment must be made out of foreign

remittance, NRE, FCNR Account• Non-Repatriation Basis: Payment can be made out of NRO

Account

Investment in Listed or Unlisted Cos.

• Shares / Convertible Shares of listed or unlisted company

• Shares can be issued by Public Issue or Private Placement

• Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation business


• Company cannot be chit fund, nidhi fund, real estate, agriculture or plantation business

• No limit on % of holding and amount of investment

• Payment must be made out of foreign remittance,NRE,FCNR, NRO Account

• Amount of sale consideration, net of taxes to be credited to NRO Account

• Principal and gains are not repatriable

Housing & Real Estate

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

– Development of serviced plots and

construction of residential premisesconstruction of residential premises

– Development of townships

– City & Regional level Infrastructure facilities

including roads and bridges

– Manufacture of building materials


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

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

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– The above permission is not required for companies in IT sector

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

Starting a Business in India

Proprietary Concern / Firm

• NRI / PIO can invest in the capital of Proprietary Concern / Firm on the following conditions:– Amount received by inward remittance or

though non-resident Bank Accountthough non-resident Bank Account

– Firm is not in the agricultural or plantation activity or in real estate or Print Media

– Amount invested is not eligible for repatriation

Vinit V Deo


Insurance Policies

Insurance Policies

• General / Life Insurance Policies taken by a

Person when he was a Non-Resident can

continue after he becomes a Resident

• If the premium has been paid by remittance

from India, the maturity proceeds have to be from India, the maturity proceeds have to be

brought back to India through Banking channel

within 7 days of receipt


Derivative Contracts

Derivative Contracts• NRI can enter into Rupee Forward Contract to

hedge:

– Dividend due on shares held in Indian Company

– Balances held in FCNR and NRE Accounts

– Investment made under the Portfolio Investment

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Scheme

• Cross currency exposure in FCNR Account

• Investment made in India since 1st Jan 93

• Proposed Foreign Investment in India

Remittance of Assets

Remittance of Assets

• Which assets can be remitted:

– Deposit with Bank, Firm or Company

– Provident Funds, Superannuation benefits

– Maturity proceeds / claims from insurance


– Maturity proceeds / claims from insurance

company

– Sale proceeds of shares or securities

– Sale proceeds of immoveable property

– Sale proceeds of any other assets held in

accordance with FEMA Regulations

Normal Remittance – NRI / PIO

• Upto USD 1 Million (Approx Rs 4 Crs) can be remitted out of:– Balance in NRO Account

– Sale proceeds of Assets

– Assets acquired by way of legacy or inheritance


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

Some Provisions Applicable to

ResidentsResidents

Special Case:Indians going out

• Amounts that can be freely taken out:

– Immigration : USD 100,000 of the limit

prescribed by the destination country

– Employment: USD 100,000


– Education: USD 100,000 per academic year

or estimate from the Educational Institution,

whichever is higher

Resident Foreign Currency A/c• Who can Open: A person Resident in India (ie all categories

including Firms, Companies etc.)• Type: Current or Term Deposit• Permissible Credits

Foreign Exchange Received:

– As pension/any superannuation/other monetary benefits

– On realised on conversion of assets referred in sub-section 6(4) & repatriated to Indiarepatriated to India

– FE received as gift or inheritance

– FE received as proceeds of Life Insurance claims / maturity / surrender values

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

Vinit V Deo


Resident Foreign Currency (Domestic)– Who can Open: Resident Individual (ie No Firms, Companies etc.)

– Currency : Any foreign currency

– Type: Current Account without interest

– Permissible Credits

Only in the form of currency notes or travellers cheques received by way of:

• While on a visit abroad, payment for services not arising from any business in India

• Payment received as honorarium,gift or settlement of lawful obligation from a person on a visit to India

• Hororarium or Gift received on a visit outside India

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• Hororarium or Gift received on a visit outside India

• Unspent amount of foreign exchange taken for foreign travel

• Gift from a close relative

• Earning from Export of Goods or Services, Honorarium, Royalty or any other lawful means

• Disinvestment proceeds from sponsored ADR/GDR issue

• Insurance claim or maturity value of life insurance policy

– Permissible Debits• All Current and Capital Account transactions

– No ceiling on amount of balance in the Account

USD 200,000 Scheme

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

• Purpose can be any capital or current • Purpose can be any capital or current account transaction

• Resident can open a Bank Account with a foreign bank for this purpose

Vinit V Deo


Thank You

Vinit Deo


+91 9822088313

[email protected]

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