Non – Resident Indian Investors

7/30/2019 Non Resident Indian Investors

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Non Resident Indian Investors


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An NRI is an Indian citizen who stays outside

India:

(a) for purposes of carrying out employment or

any business or vocation;

(b) under circumstances indicating an intention

to stay outside India for an uncertain

duration

(c) any Indian citizen deputed outside India for a

temporary period in connection with

employment.


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A citizen of a foreign country (other than a

citizen of Bangladesh or Pakistan) is a PIO if

(a) he/ she at any time held an Indian passport; or(b) he/ she or either of his/ her parents or any of

his/ her grandparents was a citizen of India, or

(c) spouse of an Indian citizen or (a) or (b) above


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Persons of Indian nationality or origin resident abroad may open, with authorised

banks in India, Non-resident (External) Accounts (NRE Accounts) (Principal /

Interest Repatriable), designated in rupees.

can be maintained in the form of savings, current or term deposit accounts. Savings - The interest rates on NRE Savings deposits shall be at the rate applicable

to domestic savings deposits. Currently the interest rate is 3.5%.

Term deposits For 1 year to 3 years, the interest rates on fresh repatriable Non-

Resident (External) Rupee (NRE) Term deposits should not exceed the LIBOR/SWAP

rates, as on the last working day of the previous month, for US dollar ofcorresponding maturity plus 50 basis points.

The interest rates for three year deposits are also applicable in case the maturity

period exceeds three years.

The changes in interest rates will apply to NRE deposits renewed after their present

maturity period. Opening of NRE Accounts jointly in the names of two or more non residents is

permitted provided all the account holders are persons of Indian nationality or

origin.

Opening of a joint account by a non-resident person with a person resident in India

is not permitted under NR (E) Scheme.


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NRE Savings Bank A/C

Only for non-resident Indians (NRIs).

Can be a joint account with another NRI (In casethe joint account holder is the spouse, she / heshould also be an NRI).

Minimum balance Rs.1000/- (Rs. 5000/- in case of

Personal Banking Branches)

Note: Amounts in excess of $ 5000 (orequivalent) in currency or $ 10,000/- (orequivalent) in Travellers cheques should be

accompanied by a Currency Declaration Form.


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NRE Term Deposits

Rupee deposits of fixed tenure.

Min pd of 1 yr , Max pd 5 yrs.

Interest paid quarterly on Term Deposit Receipts (TDRs).

Principal & interest amount are fully repatriable.

Premature withdrawals permitted based on the following conditions:

Interest payable will be the applicable rate less 1%, for the period for which the

deposit has been with the bank.

No interest is payable for deposits less than 12 months.

Recurring Deposits

Investment of fixed sum monthly and on maturity - total amount with interest paid.

Special Term Deposits

Deposit money for a pd between 1 - 5 yrs.

Get 2 fold income, with interest both on deposit & on the interest accrued on it.

Investment in affordable/very low Min Deposit Amt of Rs. 1000/- only.

higher returns with compounded interest every quarter.

Access to accounts 24X7 from anywhere in the world, with Internet Banking facility.


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For opening these accounts, the funds are required to beremitted to India through

(a) proceeds of foreign exchange remittances from abroadthrough banking channels in an approved manner.

(b)credits of income from the account holders investmentfrom the funds in the account except where the investments

are permitted on non-repatriable basis. (c) proceeds of foreign currency notes and traveller cheques

brought into India by the NRI while on a temporary visit toIndia, provided bk is satisfied that the prospective accountholder has not ceased to be a NRI. The amount so tenderedwould be endorsed on the Currency Declaration Form CDF,before crediting the rupee equivalent to the account.

(d) transfer from an existing Non-Resident (External) /FCNRaccount of the same person.
http://www.vakilno1.com/forms/nri/cdf.dochttp://www.vakilno1.com/forms/nri/cdf.doc


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Other requirements:

The account holder has to furnish undertaking

that he would promptly intimate his bank ifand when he returns to India for permanent

residence.

Remittances from the account to the countryof residence of the account holder or any

other country are freely allowed.


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NRIs can grant power of attorney or such

other authority to residents in India foroperating their NR (E) Accounts in India. Such

authority is restricted to withdrawals for local

payments only.

The resident power of attorney holder cannot

repatriate funds held in the a/cs, outside

India, under any circumstances or make

payment of gifts on behalf of the accountholder.


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Safety :

Liquidity :can avail a loan / overdraft of up to 90% of deposit amount, againstdeposit.

Premature Withdrawal :on premature withdrawal of special term deposits - interest at 1.0% belowthe rate applicable for the period the deposit has remained with the bank.

Transferability :Transfer to any branch without any extra charges.

Timely Payment of Interest :

Flexibility of payment on maturity through cash (subject to limit specifiedfor cash repayments), banker's cheque, or credit to the bank account.

Tax Implications

exempt from IT


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Operation of NRE Accounts

There are certain restrictions on operation of

NR (E) accounts and Form A2 /Form A4is tobe completed for few transaction.

These forms may be completed either by the

resident party to the transaction or by the bkafter obtaining necessary information from

the resident party account holder.

Following transactions of debits/credits arepermitted in NR(E) accounts:
http://www.vakilno1.com/forms/nri/a2.dochttp://www.vakilno1.com/forms/nri/a4.dochttp://www.vakilno1.com/forms/nri/a4.dochttp://www.vakilno1.com/forms/nri/a2.doc


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Change of Status from Non-resident to Resident

Immediately upon return of the account holder to

India & on his becoming resident in India, NR (E)account will be redesignated as resident Rs. a/c orconverted to RFC a/c as per the option of the a/cholder.

However, if the a/c holder is on a short visit to India,the a/c will continue to be treated as NR (E) accounteven during his stay in India.

In respect of funds held in fixed deposits inNR(E)A/cs, interest will be payable at the rate originallyfixed, provided the deposit is held for the full evenafter conversions into resident a/c.

Ad f NRE A


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Advantages of NRE Account

1. Term deposits for 1 yr & above made by NRIs carry

interest at rates higher than that available toresidents in India.

2. The int on deposits & any other income accruing onthe bal in the a/cs are free of Indian IT.

3. Balances in the a/cs are free of Wealth-tax.4. Gifts to close relatives in India from out of balances in

the a/cs are free of Gift-tax, when gifted before 1stOctober, 1998, thereafter there is no gift tax in India.

5. The entire credit balance (inclusive of interest earnedthereon) can be repatriated outside India at any timewithout reference to the RBI.


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6. Local disbursement from the a/cs can be madefreely.

7. Purchases of Units of UTI, Central and State Govt

Securities and National Plan/Savings Certificates canbe made freely from the balances in these a/cs.

8. Sale proceeds/maturity proceeds/repurchase priceof Units of UTI, securities or certificates originally

purchased out of the funds in the a/c can be freelycredited to these accounts by banks, withoutreference to RBI.

9. A/c holders are supplied special series of cheques for

operations on these a/cs.10. A/c holders can avail of loans/o/ds from bks against

security of FDs in their NRE a/cs.


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Disadvantages of NR(E) Accounts

NR (E) a/cs are opened in Indian Rs. & all foreignexchange remittances received for credit to thosea/cs are first converted to Indian Rs. at the buyingrates by the bks. Withdrawal in foreign currencywill be permitted by the bank by converting Rs. in

the a/c to foreign currency at the selling rate. Thisconversion loss is to be borne by the a/c holder.

Exchange rates are subject to fluctuation on dayto day basis and Indian Re has depreciated

against all major foreign currencies in recent past.Balances held in Indian rupees in NR (E) accountsare thus exposed to exchange fluctuation risk.


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b) FCNR (B) (Principal/Interest Repatriable)

Deposits of funds in the account may be accepted insuch permissible currencies as may be designated by

RBI from time to time.

Presently the term deposit can be placed with ADs in

India in 6 specific foreign currencies (US Dollar,

Pound Sterling, EURO, Japanese Yen, Australian

Dollar and Canadian Dollar) + 4 others now.

Rate of Interest - Fixed or floating within the ceilingrate of LIBOR/SWAP rates for the respective

currency/corresponding term minus 25 basis points.


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Can be opened only by an NRI/PIO or jointly with other NRIs.

Accounts may be opened with funds remitted from outside, existingNRE/ FCNR accounts, etc.

Deposits can be opened in USD, EURO, GBP, CAN$, JPY, AUD, CHF, DKK,

NZD and SEK. Conversion to currency other than the designatedcurrency also permitted at the risk and cost of the remitter.

Deposit can be made for a min of 1 yr & a max of 5 yrs.

Minimum deposit USD 1000 or equivalent.

Both principal and interest are payable in foreign currency. Hence, no

exchange loss on principal and interest. Premature withdrawal subject to a penal interest of 1%.

No interest payable if the deposit is closed within a year.

Rupee loans can be taken in India against the security of the deposit. By the depositor(s)

By third parties Foreign currency loans can be availed against the security of FCNR

deposits.

Interest earned on FCNR accounts is exempt from Indian income tax.


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Features of FCNR Account

Only term deposits can be maintained in FCNRaccounts, in a time range of 6 months to 3 years.

As per RBI guidelines, now banks are free to offerinterest on FCNR deposits below LIBOR rates, less 25basis points for deposits between 6 months to oneyear, and LIBOR rates plus 50 basis points for

deposits over a year. Banks are also free to decide on a fixed or a floating

rate of interest on FCNR term deposits.

Interest rates are reviewed periodically and

determined by directives from RBI. The account holder can choose the periodicity of

interest, from half-yearly to annual payments.

For permissible debits and credits, the regulations forFCNR accounts are similar to the NRE accounts.


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For conversion of currencies, from designated currencyto rupees and vice versa, the days rate of conversionwill apply.

Funds from the FCNR account are allowed to movewithin the country at no extra cost to the accountholder.

For loans and overdrafts against FCNR accounts, the

same conditions as the NRE accounts apply. In case of premature withdrawal of the FCNR Term

Deposit, a penalty is levied. Interest paid on theaccount is calculated at a 1% below the committed rateif accounts are closed prematurely.

However, no interest is paid on deposits held for lessthan 6 months, and a penalty would have to be paid asper directives from the apex bank. The RBI guidelinesprevail on these terms, issued as and when required.


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FCNR A/c after Change in Resident Status

NRI deposits such as the FCNR can continue till the maturity date atthe contracted rate of interest even after the account holdersresident status changes to resident Indian.

However, except for interest rates and reserve requirements ofFCNR deposits, these accounts are treated as resident accountsfrom the account holders date of return to India.

On maturity, these accounts are converted to either an RFC accountor the Resident Rupee Deposit account.

As for joint accounts, the same rules as those for NRE accountsapply to FCNR deposits too.

For repatriation of funds from the FCNR account, the sameconditions as those for NRE accounts apply.

Other Features

RBI will not provide foreign exchange guarantee.


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c) NRO Accounts (Current earnings, repatriable)

Savings - Normally operated for crediting rupee earnings /income such as dividends, interest. Currently the interest

rate is 3.5 per cent. Term Deposits - Banks are free to determine interest rates.

Not tax free

Repatriation from NRO balances

Authorised Dealers can allow remittance/s upto USD 1million per financial year (April-March) for bonafide

purposes, from balances in NRO accounts subject topayment of applicable taxes. The limit of USD 1 million perfinancial year includes sale proceeds of immovableproperties held by NRIs/PIO.


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Joint account with other non-residents / resident Indians.

May be Savings Bank, Current Accounts, Term Deposit / Specialterm Deposit / Recurring Deposit.

Accounts can be withdrawn for making local payments in Rupees.

Investment in shares / securities / immovable properties on non-repatriable basis with general or specific permission from the RBI.

Balances up to a maximum of US$ one million per calendar year,can be repatriated for any bona fide purpose, subject to payment oftaxes, and production of a certificate and undertaking as per RBI

guidelines. Income Tax rates will be as per DTAA (Double Taxation Avoidance

Agreement). Customer can avail the DTAA benefit by submittingTax Residency Certificate and a Self-declaration. If no TaxResidency Certificate submitted by the depositor, then Income Taxat a rate of 30.90% deducted at source on interest earned in the

NRO accounts irrespective of the amount of interest. Advance against NRO term deposits is permissible.

Income in India and remittances from abroad can be credited toNRO accounts.

Multi-City Cheque (MCC) facility


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Recurring Deposits

Invest a small amount every month

earn at compounded rates of interest.Flexibility in period of deposit with maturity

ranging from 12 months to 120 months

Attractive interest rates i.e. from 8.75% to9.00% (rates are subject to change)

loan/overdraft against deposit available

Premature withdrawal allowed

Minimum monthly instalment of Rs.1000/-


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II. Other Investments on repatriation basis

Government dated securities/treasury bills.

Units of domestic mutual funds.

Bonds issued by a PSU in India.

NCDs of a company incorporated in India.

Shares in PSUs being dis-invested by the GOI, provided the

purchase is in accordance with the terms and conditionsstipulated in the notice inviting bids.

Shares and convertible debentures of Indian cos under FDIscheme (including automatic route & FIPB).

Shares and convertible debentures of Indian cos throughstock exchange under Portfolio Investment Scheme.

Perpetual debt instruments and debt capital instrumentsissued by banks in India.


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III. Other Investments on non-repatriation basis

Government dated securities (other than bearer securities)/TBs.

Units of domestic MFs.

Units of Money Market Mutual Funds in India.

NCDs of a company incorporated in India.

The capital of a firm or proprietary concern in India, not engagedin any agricultural or plantation activity or real estate business.

Deposits with a company registered under the Companies Act,1956 including NBFC registered with RBI, or a body corporatecreated under an Act of Parliament or State Legislature, aproprietorship concern or a firm out of rupee funds which do notrepresent inward remittances or transfer from NRE/FCNR(B)

Accounts into the NRO Account. Commercial Paper issued by an Indian company.

Shares and convertible debentures of Indian cos other than underPortfolio Investment Scheme.


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IV. Investment in immovable Property

May acquire immovable property in India other than agriculturalland/ plantation property or a farm house out of repatriable and

non-repatriable funds. In respect of such investments NRIs are eligible to repatriate sale

proceeds of immovable property acquired in India to the extent ofrepatriable funds used for acquiring the property, up to tworesidential properties. The balance will be repatriable through

NRO Account subject to conditions mentioned at item (I) (d). Refund of (a) application / earnest money / purchase

consideration made by house-building agencies/seller on accountof non-allotment of flats / plots and (b) cancellation ofbooking/deals for purchase of residential/commercial properties,

together with interest, net of taxes, provided original payment ismade out of NRE/FCNR(B) account/inward remittances.

Housing Loan in rupees availed of by NRIs from ADs / HousingFinancial Institutions can be repaid by the close relatives in India ofthe borrower.


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V. Facilities to returning NRIs/PIO

Returning NRIs/ PIO

May continue to hold, own, transfer or invest in foreigncurrency, foreign security or any immovable propertysituated outside India, if such currency, security orproperty was acquired, held or owned when resident

outside India. May open, hold and maintain with an authorised dealer in

India a Resident Foreign Currency (RFC) Account totransfer balances held in NRE/FCNR(B) accounts. Proceeds

of assets held outside India at the time of return, can becredited to RFC account. The funds in RFC accounts arefree from all restrictions regarding utilisation of foreigncurrency balances including any restriction on investmentin any form outside India.


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General

With a view to providing further incentives and wider options to personsof Indian Nationality/Origin residing abroad (NRIs) and OverseasCorporate Bodies predominantly owned by NRIs (OCBs) as well as givingopportunities to persons of non-Indian origin and overseas corporatebodies owned by them for making investments in India, Reserve Bank hasformulated Non-resident (Non-repatriable) Rupee Deposit Scheme. TheScheme came into effect from 15th June, 1992.

Scheme open to all NRIs including foreign citizens of non-Indian origin

(except Pakistani and Bangladeshi Nationals) and Overseas CorporateBodies owned by them. A/cs under the Non-resident (Non-Repatriable )Rupee Deposit Scheme may be opened in Indian Rs. by ADs out of thefunds in freely convertible foreign exchange transferred for the purposeto India, from the country of residence of the prospective non-residenta/c holder or from any other country. A/cs may also be opened by

transfer of funds from the existing NRE/FCNR A/cs of the non-residenta/c holder. No penal interest is charged on premature withdrawal ofexisting NRE/FCNR deposits for the purpose of making investment underthe scheme.


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Authorised dealers are free to fix the maturityperiod of such deposits between 6 mths & 3 yrs.They are also free to fix the rate of interest payable

on such deposits. The exact rates may beascertained from the concerned bank.

The maturity proceed of the deposit will not qualifyfor repatriation outside India at any time. However,the interest accrued on the deposits held under thescheme from the quarter beginning October 1, 1994are eligible for repatriation .

Income from deposits under the schemes will befree from Indian IT. Exemption from IT will, not beavailable to resident donees and those resident whobeing joint holders, become owners of the depositsas survivors of the non-resident depositor.


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NRNR vis- a- vis NRO Account

The depositor under both the schemes are acceptedin Indian rupees on non-repatriation basis. The main

points of distinction under both the schemes are asunder :

(a) Accounts under NR (NR) Scheme can be openedonly with proceeds of fresh remittances from abroad

or by transfer from existing NR (E) FCNR Accounts ofthe depositor, whereas legitimate local resourcesmay be utilised to open NRO Accounts.

(b) Advances against security of deposit under NRO

Scheme are governed by directives of Reserve Bankof India, whereas banks have freedom to determinerates of interest, margin etc. while granting advancesagainst security of deposits held under NR (NR)Scheme.


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Deposits under FCNR scheme were accepted by banks for

maturities from 6 months to 3 years. Acceptance of depositsfor shorter maturities was discontinued, in a phased manner &w.e.f. 15th Feb, 1994, deposits under FCNR scheme can beaccepted only for a maturity pd of 3 yrs.

To enable NRI depositors to continue with foreign currencydeposits of shorter maturities, a new scheme known as ForeignCurrency (Non-resident) Accounts (Banks) Scheme (FCNR(Banks) was introduced, w.e.f. 15th May, 1993. Basically no difffor the depositor between these 2 schemes except the pd ofdeposits.

For bks accepting deposits under this scheme, there are fewchanges. Exchange risk cover from RBI will not be available &will be borne by the bks themselves. There will be no obligationunder the SLR or priority sector lending. No obligation for CRR.Resources mobilised under the scheme can be invested by thebanks without any interest rate stipulation. However, non-resident depositors are not affected by these provisions.


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How to choose:

Over the years, the RBI has made repatriation

fairly liberal. Can freely repatriate NRE and FCNRbalances, NRO account balances are repatriableup to USD 1 million per financial year.

Important - are tax and currency risk.

Check tax impactInterest on the NRO account is taxable and forNRIs, tax is deducted at source at 30%. In case ofa Double Taxation Avoidance Agreement (DTAA)

between India and other countries, this TDS ratewould be lower.


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Interest on the NRE account and FCNR account are taxfree in India. However, countries like the US, which levytax on global income of its residents and citizens will

tax this income. So while interest on NRE and FCNRaccounts maybe tax free in India, a US resident orcitizen would have to add this interest to his totalincome in the US tax return and pay taxes thereon.

For NRIs in tax free zones like the Gulf region, the NREand FCNR option would work best. For residents of theUS, the choice would depend on the tax slab applicablein the US.

Assess currency riskCurrently, the rupee-dollar relationship is extremelyvolatile. In such times, currency risk is an importantconsideration while making investments in India.

Documents

Non – Resident Indian Investors