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Knowledge Center NRI FAQs

ITA Definition of Resident & NRI
A Resident is one who during a Financial Year (FY) which is from April to March, satisfies any one of the following 2 basic conditions:

He is in India for at least
  1. 182 days in the FY OR
  2. 365 days out of the preceding 4 FYs AND 60 days in the FY.
Most of those going abroad for the first time may not be eligible to be an NRI because of the ‘b’ clause above which allows stay in India only for 60 days. This problem is bypassed the following additional provisions —
  1. Where an Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, the period of ‘60 days’ is to be replaced by ‘182 days’. Consequently, an Indian citizen going abroad for employment can stay in India up to 181 days for obtaining NRI status for that very year, even if he is in India for 365 days or more during the 4 preceding years.
  2. When an Indian citizen or a person of Indian Origin (PIO) who is abroad comes to visit India, the period of ‘60 days’ is to be replaced by 182 days.
The stay in India need not be continuous.
Finally, A person who is not a Resident is an NRI.
Resident but not Ordinarily Resident (RNOR)
To mitigate the shock of an NRI suddenly becoming a Resident, after returning to India permanently there is a transitional status of RNOR
Resident but not Ordinarily Resident (RNOR) is a person who satisfies one of the following 2conditions
  1. He has been a non-resident in India in nine out of the ten previous years preceding that year, or
  2. Has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.
An RNOR is not required pay tax in India on his forex income.

Consequently, anyone who returns after 7 or more financial years of being an NRI will become RNOR for 2 years. Those returning after 6 years will become RNOR for 1 year only. This is subject to his stay in India during the previous 7 years for 729 days or less.

Those returning after being NRIs for 5 continuous years or less will become Residents immediately

However, in rare cases a person can become an RNOR for 3 years.
FEMA Definition of a Resident
  1. A person residing in India for more than 182 days during the course of the preceding FY but does not include,
    (A) A person who has gone out of India or who stays outside India, in either case, the following 3 purposes —
    1. for or on taking up employment outside India, or
    2. for carrying on outside India a business or vocation ,or
    3. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
    (B) A person who has come to or stay in India, in either case, otherwise than the following 3 purposes
    1. for or on taking up employment in India, or
    2. for carrying on in India a business or vocation in India, or
    3. for any purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.
  2. Any person or body corporate registered or incorporated in India.
  3. An office, branch or agency in India owned or controlled by a person Resident outside India.
  4. An office, branch or agency outside India owned or controlled by a person Resident.
A person Resident Outside India (ROI) means a person who is not a Resident.

Note that the status, as per FEMA, gets changed immediately after the person goes abroad or comes back to India, unless the visit is of temporary nature. However, the status, as per ITA, depends strictly on the number of days stay in India. Staying for uncertain period connotes a fairly long period, if not permanent.

Note also that a even rank foreigner is an ROI, unless he has come to India for the purposes mentioned in clause ‘B’ above.
Person of Indian Origin (PIO)
FEMA defines a PIO to mean —
A citizen of any country other than Bangladesh or Pakistan, if —
  1. He at any time held an Indian passport, or
  2. He or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955.
  3. The person is a spouse of an Indian citizen or of a person referred to in (a) or (b) above.
PIO includes an ‘Overseas Citizen of India’ cardholder within the meaning of Sec. 7(A) of the Citizenship Act, 1955.

The definition of PIO differs from Rule to Rule.
FEMA treats a person who has gone abroad for an uncertain period as NRIs. . Through Circular 45 dt 8.12.03, RBI has declared that for the purpose of FEMA, students will be treated as NRIs as soon as they go abroad for studies the existing foreign exchange remittance facilities to students in regard to their academic pursuits continue to exist without getting diluted.

Consequently, they will be eligible for the benefits available to them as Residents as well as Non-Residents. The students are treated as NRIs only for FEMA purpose.

The ITA provisions have not been changed.

A student is a non-resident alien in the USA who is temporarily in the country on a ‘F’, ‘J’, ‘M’ or ‘Q’ visa and is not engaged in any activities that are prohibited by US immigration laws. If a non-resident alien receives a grant from outside sources, then it is not taxable in the USA.

Normally, the terms of a scholarship or fellowship grant specify that the amount or a part of it is to be used for tuition, enrollment fees, books and cost of supplies and equipment belonging to the institution that the student uses. This portion is not taxable but the portion representing payment for teaching, research or any service is taxable in the USA. It may also be taxable in India depending upon the Residential status of the student. Relief can be claimed from such tax during the period of education under Article 21 of DTAA between India and the USA

This benefit, in most cases, entitles a student to a refund of all or part of the money withheld. This can be exercised by filing a non-resident tax return. It is necessary to attach a covering note from the educational institution declaring that the whole or part of the scholarship or fellowship is an educational award and not money paid for personal services.

Similar Notification is long overdue in the case of deputies of an Indian concern posted abroad.
Residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management conducted by IIM are already exempt from service tax. The recent FA17 has omitted the term 'residential'. Consequently, services provided by IIMs even to NRI for such programmes are exempt from service tax. The intention is to restrict the exemption benefit on the services provided by IIMs to the day scholars and the students not residing in the campus.
Not Permanently Resident in India
A person with a foreign passport, Resident for employment of specific duration, irrespective of the length of its duration, or for non-specific duration not longer than 3 years, is defined by FEMA as a ‘Person not Permanently Resident’.
Such a person has many privileges and restrictions which are rather complex in nature. He will do well to study these, especially those related with salary received outside India, Amount he is allowed to remit abroad, taxes required to be paid in India and abroad, ect., rather carefully.
Overseas Citizen of India (OCI)
OCI facility is available to any overseas Indian (other than that of Pakistan or Bangladesh) as long as their home countries allow dual citizenship under their local laws. His children and grand children, minors or otherwise are also eligible.

Such a foreign national should have been
  • eligible to become citizen of India on 26.01.1950. Any person who or either of whose parents or any of whose grand-parents was born in India as defined in the Government of India Act, 1935 (as originally enacted), and who was ordinarily residing in any country outside India was eligible to become citizen of India on 26.01.1950. or
  • was a citizen of India on or after 26.1.50 or
  • belonged to a territory that became part of India after 15.08.1947, such as i) Sikkim from 26.04.1975 ii) Pondicherry from 16.08.1962 iii) Dadra & Nagar Haveli from 11.08.1961 and iv) Goa, Daman and Diu from 20.12.1961.
The benefits of OCI are —
  • Multi-purpose, multiple entry, lifelong visa for visiting India whereas for PIO cardholder, it is for 15 years.
  • PIO cardholder was required to register with local Police authority for stay exceeding 180 days in India on any single visit whereas an OCI can stay in India for any length of time.
  • Parity with NRIs in respect of all facilities to the latter in economic, financial and educational fields except in matters relating to the acquisition of agricultural/plantation properties.
  • No separate documentation required for admission in colleges and institutions or for employment;
  • Facilities as available to children of NRIs for obtaining admission to educational institutions in India, including medical colleges, engineering colleges, institutes of technology, institutes of management etc., under the general category
Indian Income of NRIs
The total income of any previous year of a person who is a non-resident includes all the income from whatever source derived which —
  • is received or is deemed to be received in India in such year by or on behalf of such person; or
  • accrues or arises or is deemed to accrue or arise to him in India during such year.
Therefore, the receipt of income refers to the first occasion when the recipient gets the money under his control. Once an amount is received as income abroad, any remittance or transmission of the amount to another place does not result in receipt income at any other place. For instance, an assessee after receiving an income outside India cannot be said to have received the same again when he brings or remits it to India. The position will remain the same if income is received outside India by an agent of the assessee who later on remits it to India. The same income cannot be received by the same person twice, once outside India and once within India. — Keshav Mills Ltd. v CIT (1953) 23ITR230(SC).
Global Income of Residents
ROR has to pay tax on his total global income, which includes all income, from whatever source derived. If your forex income gets taxed in India as well as abroad, you will get the benefit of Double Taxation Avoidance Agreement between India and your host country. Such agreements are available on ---

Taxability of an RNOR is the same as that of an NRI. He does not have to pay tax on the income which accrues or arises outside India, unless it is derived from a business controlled in or a profession set up in India. Viewed at it from another angle the taxability of RNOR is the same as that of a Resident with one exception. The income received and accrued outside India from a business controlled from outside India or a profession set-up outside India is not taxable in India.

NRI is not at all liable to tax in respect of income accruing or arising outside India, even if it is remitted to India. He is liable to pay tax only in respect of income received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India.
Income Tax Rates
The tax rates are applicable as per the following Table:

Income Tax Rates — Individuals & HUFs
Net Taxable Income Slab
Tax at Minimum
Marginal Rate
Up to 2,50,000 Nil Nil
2,50,001 – 5,00,000 Nil 5
Over 10,00,000 1,12,500 30
5,00,001 – 10,00,000 12,500 20
The tax amount is increased by cess @3%
For instance, if the income of an individual, (including NRI), is say, Rs. 1 crore, his tax liability would be ` 28,12,500 (= 112500 + (9000000 x 30%))

Corporation tax has been reduced by 5% and placed at 25% only for MSMEs. These are companies with a turnover of up to ₹ 50 crore.

The Government gave income tax exemptions to start-ups with certain conditions last year. For the purpose of carry forward of losses in respect of such start-ups, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues. Also the profit linked deduction available to the start-ups for 3 years out of 5 years is being changed to 3 years out of 7 years.

Surcharge on Income over ₹1 crore and ₹ 50 lakh
The surcharge on income tax is 15%. The marginal relief according to which the total income over the threshold of ₹1 crore will not exceed the tax payable, stands continued.

For clarity, take taxable amount of a non-senior individual having income of ₹ 1 crore ₹3 lakh. The income tax thereon, without surcharge is ₹29,02,500 (=2812500 + 30% of 300000). Surcharge thereon @15% works out at ₹4,35,375. Consequently, the surcharge payable on the extra of ₹ 3,00,000 happens to be ₹4,35,375. This is injustice. Therefore, the revenue concedes a marginal relief and the extra tax payable is ` 3 lakh only. The break-even point where the excess income equals the surcharge works out at ₹4,41,754.

The recent FA17 has roped in individuals having income exceeding ₹50 lakh but not exceeding ₹ 1 crore, by levying on them a surcharge of 10% of income tax with associated marginal relief. The breakeven extra income for such persons works out at ₹1,35,310.
Sec. 80C Deductions : Contributions to eligible schemes
U/s 80C, contributions to some specified schemes (Co-PF, PPF, LIC, NSC, ELSS, NPS etc.) up to an aggregate limit of ₹ 1.50 lakh qualify for a deduction from gross total income. There are no ceilings on deductions for individual schemes, unless the Rules of the schemes provide for their own limits. An NRI is not allowed to open a PPF account, unless, the individual possessed the account before becoming an NRI. An NRI is not allowed to opt for post-maturity continuation of PPF. So the only avenues open to NRIs are ELSS, LIC and 5-yr Bank special FDs.
Mediclaim : Sec. 80D on health insurance or check-up
The deduction available under this Section on health insurance premiums paid, along with expenses incurred on preventive health check-up, by an individual for himself and his spouse and dependant children is ₹25,000. The additional deduction for covering his parents is also ₹ 25,000. In both these cases, if the insured person/s happens to be a senior citizen, the deductions are higher at ₹30,000. Very senior citizens are normally unable to get health insurance. Thankfully, medical expenditure up to ₹30,000 is deductible if they are not covered by health insurance.

The premium is required to be paid in any mode other than cash, except for preventive check-ups.
Sec. 80TTA Deductions Interest on Savings Bank Accounts:
Interest on a savings account (and not fixed deposits) of an individual or HUF (and not a firm, AOP or BOI) with (i) a banking company, (ii) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank or (iii) a post office is deductible up to ₹ 10,000.
Only for Residents
The following are some of the salient provisions which are applicable only to Residents ---
  1. The tax threshold for ‘senior citizen’ (over 60 years in age) is ` 3 lakh and for very senior citizen’ is ` 5 lakh.
  2. The tax rebate applicable u/s 87A to the tax zone of ` 2.5 lakh to ` 5lakh.
  3. Tax @10% on dividend income in excess of ` 10 lakh.
  4. Deduction available to handicapped persons.
  5. e) Filing of tax returns only if the assessee possesses an Aadhar Number
Advance Tax
If the tax payable for the year is Rs. 5,000 or more, advance tax is payable without having to submit any estimate or statement of income in 4 installments during each FY as follows :

On or before

15th June : 15% of estimated tax for the year
15th September : 45% of estimated tax.
15th December : 75% less tax already paid. 15th March : 100% less tax already paid.
Every individual whose total income during the previous year exceeds the maximum amount which is not chargeable to income-tax of ₹ 2,50,000 (tax threshold) shall, on or before 31st July after the end of the FY furnish a return of his income. This is so, even if the tax payable works out at nil level after taking the various income deductions under chapter-VIA (Sec. 80C, 80D, etc.) and also the exempt Long-term Capital Gains into account. This is so even if the total tax deducted at source covers the tax payable liability more than sufficiently. Total income also includes the income of any other person in respect of which he is assessable under the Act (clubbing provision).
1-Page Return Form
A simple one-page Form will be introduced to be filed as Income Tax Return for individuals having taxable income up to ₹50 lakh other than business income. A person of this category who files income tax return for the first time would not be subjected to any scrutiny in the first year unless there is specific information available with the Department.

It is advisable to file the return, to maintain continuity as well as ward off any Departmental inquiry in future, if and when you become a full-fledged Resident.
E-Filing of Tax Returns
Detailed information is available on The basic process may be summarized as follows:
  • First select the appropriate Return form (see table)
  • Download a Return Preparation Software available on the site. This is nothing but a simple Microsoft Excel Utility.
  • Fill your return offline and generate an XML file.
  • Register and create a user id/password. In all cases, PAN of the taxpayer is the user id.
  • Login and click on relevant form on left panel and select "Submit Return"
  • Select XML file from your computer and click on "Upload" button
  • Upon successful upload, acknowledgement details would be displayed. Click on "Print" to generate a printout of acknowledgement/ITR-V Form.
  • n case the return is digitally signed, upon generation of the acknowledgement, the return filing process gets completed. You may keep a print of the acknowledgement for your record
  • In case the return is not digitally signed, upon successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by tax payers. This is an acknowledgement cum verification form. Duly filled, this form should be submitted with the local Income Tax Office within 15 days of filing electronically. This completes the return filing process for non-digitally signed returns.
Wealth Tax
FA15 has abolished Wealth tax in India.
Gift is Income
Though Gift Tax has been abolished by FA98, Sec. 56(vii) charges income tax on aggregate amount of gifts received by an individual or HUF in the form of some specified assets without consideration or for inadequate consideration, unless the aggregate amount is Rs. 50,000 or less. The specified assets are --- 1. Cash 2. land and building 3. shares and securities 4. jewellery 5. archaeological collections 6. drawings, paintings, sculptures or any work of art and 7. Bullion.

Movable property and immovable property will be considered at its fair market value and stamp duty value respectively. If it is received with inadequate consideration, the difference between the fair market value or stamp duty, and the inadequate consideration shall be taxed as the income, if it exceeds Rs. 50,000.

This clause shall not apply to such gifts received ---
  • From any relative.
  • On the occasion of the marriage of the individual.
  • Under a will or by way of inheritance.
  • In contemplation of death of the payer.
  • From any local authority.
  • From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in Sec. 10(23).
  • From any charitable trust or institution.
‘Relative’ means
  • Spouse
  • Brother or sister
  • Brother or sister of spouse
  • Brother or sister of either parents
  • Any lineal ascendant or descendant
  • Any lineal ascendant or descendant of the spouse.
  • Spouse of the persons referred in clauses (ii) to (vi).
Note that the donor has to be a relative as per the above definition. Take the instance of Miss X whose mother’s brother is Mr. Y. Yes, Y is a relative of X (mother’s brother) but X is not a relative of Y (sister’s daughter).
The recent FA17 has widened the scope of taxability to gifts to companies, firms etc. However, this Section will not apply to money or property received from an individual by a trust created or established solely for the benefit of a relative of the individual. Consequential amendment is carried out in Sec. 2(24) which defines income to include the receipt of money or value of property without consideration or for inadequate consideration.
Gift Procedure
To safeguard against any hassles, it is advisable to follow proper gift procedure. All that is required is an offer by the donor and acceptance thereof by the donee in black and white. The donee should request the donor for a gift and then the donor should remit the amount to the donee. Alternatively, the donor can offer the gift. In either case, it is necessary for the donee to accept the gift in writing (maybe through a thank you note). Only then it would be considered as a gift in India. It is preferable to mention the relationship between the donor and the donee.

Note that the Department has a right to inquire into the genuineness of the gift to ensure that it is not a payment made for any hawala or smuggling transaction or services rendered.

It is better to prepare a gift deed and get it registered (with related stamp duty) but such a precaution is normally needed in the case of high-value gifts, particularly those of real estate.

In the case of an inherited or gifted property, the cost of acquisition is the cost to the original holder (or FMV as on 1.4.2000).
Donations to Political Parties --- Electoral Bonds
Political parties registered with the Election Commission of India are exempt from paying income tax on satisfying certain conditions. In order to discourage the cash transactions and to bring transparency in the source of funding to political parties, Electoral Bonds, redeemable in a short period of time have been introduced. Anyone can buy these bonds through designated banks, without any limit and donate these to the political party of his choice, who, in turn, can encash these through any of the designated banks into the bank account of the party.

Sec. 13A has been amended with following additional conditions ---

  1. No donations of ₹2,000 or more shall be received otherwise than by a banking transaction or through new electoral bonds which will be launched soon.
  2. The political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.
  3. Political party shall furnish tax return on or before the due date.
Asset purchased in the name of spouse
For the purpose of income tax, the ownership of any asset, held jointly by two or more persons, has to be decided on the basis of the person who has subscribed funds for purchase of the asset and not on whose name is first.

There are many persons who buy an asset in the name of their spouses but the cost of acquisition of the asset is paid by the person and not the spouse. Such an action is taken under the mistaken belief that it is tax efficient. Yes, a person can donate the purchase consideration to the spouse to enable the spouse to purchase the asset. But in that case, the income from the asset will be clubbed in the hands of the donor.

If the house has been purchased by taking a part of the consideration through a loan from a housing finance company, the tax benefits attached to the loan are available only to the owner of the property and the person who has taken the loan.

Clubbing provisions are also applicable to gifts given to daughter-in-law but not son-in-law. These provisions are applicable only on the income from the original gift but not on income from income. The entire income on gifts given to minor children is taxable in the hands of the mother or father of the child, whose income before clubbing, is higher than that of the other spouse.

If you gift your flat to your major child, there will be no clubbing, but it will attract payment of stamp duty and registration charges, which, in the case of gift to close relatives, are lower than the normal.
As per the prevailing tax provisions, tax would be deducted at the rates of tax as per the relevant Finance Act or as per the Double Taxation Avoidance Treaty (DTAA) entered into by India with the host country of the NRI, whichever is lower. The individual needs to submit a signed declaration, in a prescribed format. He also needs to submit proof of his residence in the country. This can either be a residency certificate issued by the government of the country of residence or he can submit copy of IT returns filed in that country. In countries like UAE where there is no income tax, the declaration by the customer is sufficient.

The advantage to the investor is that when he files his returns in his country of residence, he can claim the benefit of the TDS and the advance tax already paid in India and only needs to pay the additional tax (if any) in that country. For example, if in that country the tax rate is 40% and he has paid tax @ 20% in India, he only needs to pay the balance 20% tax in that country and not the entire 40%.

This is the general vein followed by all DTAAs. However, some fine tuning may be required to be carried out depending upon the exact provisions of DTAA India as well as your host country. Such agreements are available on ---

Since such a fine tuning is a very complex exercise, you will do well by employing a consultant specializing in the field in your normal place of residence in India.
NRIs can own in India two types of bank accounts with repatriation rights — 1. Non Resident External (NRE) 2. Foreign Currency Non Resident (FCNR). The third account is Non-Resident Ordinary (NRO), which is non-repatriable except for some types of income and capital receipts.

The NRE account is maintained in Indian rupees and the FCNR in foreign currencies. The interest on NRE and FCNR is free from Indian taxes. These accounts can be opened and maintained by remitting funds through normal banking channels in freely convertible currency from abroad or by transfer of funds from other NRE or FCNR accounts.

NRO account mostly consists of funds owned by the holder of the account when he was a Resident in India.

Persons who have gone abroad for employment or business are treated as NRIs by FEMA and are entitled to open NRI-related accounts.

The interest on NRE and FCNR is free from Indian taxes. However, just as global income of a Resident Indian is taxable in India (with DTAA relief), the global income of an PIO may be taxable in his host country.
Premature Withdrawals of NRE & FCNR
A bank should allow premature withdrawal of a term deposit. It can determine its own penal interest. Interest on the deposit for the period that it has remained with the bank will be paid at the rate applicable to that period and not at the contracted rate. No interest is payable where premature withdrawal takes place before completion of the minimum period prescribed. However, the bank, at its discretion, may disallow premature withdrawal of large deposits held by entities other than individuals and HUFs. The depositors should be made aware of the applicable deposit rate, penal rate and also possibility of disallowing premature withdrawal of large deposits while accepting such deposits.
Under the Income Tax Act, it is mandatory for the banks to apply TDS (= Withholding Tax) on NRO interest. There is no income threshold under which TDS is not chargeable. Consequently, TDS is applicable @30.9% on the entire NRO interest (without any threshold) and nothing can be done in practice, to avoid it.

Some Indian banks offer the reduced tax rates as per the DTAA between India and the NRI’s country of residence. Appropriate papers have to be filed with the bank for availing of the reduced rate. NRIs should check with the bank concerned if it does indeed offer the lower DTAA tax rate on their NRO deposits.

The TDS is applicable on accrual basis on cumulative deposits. If your tax liability is less than the TDS, the only practical way to get the refund is to file the tax returns. Many NRIs go in for cumulative interest paying deposits under the wrong impression that the tax becomes applicable in India only when the interest is actually received.

The TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates which again depend upon your income, the exemptions, deductions and rebates you can claim. The TDS can be setoff against your actual tax payable and pay only the difference. In case the TDS is higher than the tax liability, you will get a refund.

For the purpose of getting the refund, you will have to file tax returns in India. You will require having a Permanent Account Number (PAN).

Form 15-G (for non-seniors) or 15-H (for senior citizens), requesting for non-application of TDS is not available for NRIs.
Resident Forex Currency (RFC)
Any person who was an NRI and now has become a Resident is eligible to open a RFC account, mainly for transferring his NRE and FCNR balances and the proceeds of assets held outside India to this account. The forex received as (i) pension, superannuation or other monetary benefits from the employer outside India; (ii) received or acquired as gift or inheritance from a person resident outside India (iii) sale of his assets abroad or (iv) received as the proceeds of life insurance policy, claims, maturity, surrender values settled in forex from an insurance company may also be credited to this account.

The main aspect is that the funds in RFC account are free from all restrictions regarding utilisation of forex balances including any restriction on investment outside India.

RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases. No loans or overdrafts will be permitted in these accounts. If and when the account holder again becomes an NRI he can transfer the funds from his RFC to NRE. Such accounts can be held jointly with resident relative as joint holder on 'former or survivor' basis, meaning thereby that such a relative cannot operate the account during the life time of the account holder.
Joint Accounts
NRIs can have Resident close relative/s in the case of NRE, FCNR, EEFC and RFC as joint holder only on ‘former or survivor’ basis though nomination facility is available. Such a joint holder shall operate the account as if he is a PoA holder during the life time of the NRI. Operations in the account by a PoA is restricted to withdrawals for permissible local payments or remittance to the accountholder himself through normal banking channels.

In the case of NRO, any Resident (not necessarily a close relative) could be a joint holder. RBI’s Master Direction 14/ 2015-16 related with ‘Deposits and Accounts’ requires a Resident joint holder to be also on former or survivor basis. For being able to issue any payments on behalf of the NRI holder, he will have to be granted a formal POA by the former NRI holder. An easier structure in terms of a Letter of Authority (LoA) of banks can be used for allowing the LoA holder to withdraw funds for local payments.

A Resident PoA holder—
  1. Can make all local payments in rupees including payments for eligible investments through NRO accounts.
  2. Can effect remittance outside India through normal banking channels, funds out of the balances in NRE and FCNR accounts to the NRI’s account abroad provided specific powers for the purpose have been given to that effect, and
  3. Shall not make payment by way of gift to a Resident or transfer funds from one NRE/NRO account to another account of a different person.
While making remittances, the limits and conditions of repatriability will apply.

Similarly, a Resident can include NRI close relative as joint holder in his resident bank accounts including EEFC/RFC but only on ‘former or survivor’ basis.

At the request of all the joint account holders, the bank may, at its discretion, allow deletion of existing or add the name of another person as a joint holder. In no case the term and the aggregate amount of the deposit should undergo any change. This should not be construed as premature withdrawal of the term deposit.
Before Leaving
When you become a Resident Outside India, you are required to inform all your banks and also all the DPs where you hold shares in demat format or MFs where you are unitholder about the change in your status within a reasonable time.

These entities will redesignate your accounts as Non-resident accounts. You can use these accounts the same way as you used it before becoming an NRI.

It is illegal for an NRI to continue to hold his normal Resident Indian bank account.
On Returning
When an account holder becomes a person Resident in India, he is expected to inform all the entities where he has investments regarding the change of his status. His bank deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. However, such deposits shall be treated as resident deposits from the date of return of the account holder to India. The interest on NRE becomes taxable from the date of the return whereas the FCNR interest is tax-free as long as the holder remains an NRI or an RNOR (under Income Tax Act). Alternatively, both the accounts can be converted into RFC without any penalty but - the interest on NRE becomes taxable from the date of return and the interest on RFC is tax-free only for RNORs. Yes, the interest is tax-free as long as the individual remains an RNOR but TDS is applicable @30.9% in any case. The facility of submitting Form-15G or 15-H for non-deduction of TDS is not applicable to NRIs.

It is also necessary to inform your DP where you hold your shares and MF houses where you hold units.

These actions should be taken within a reasonable time. Where the account holder is only on a short visit to India, there is no need to take any action. What is a reasonable time or short visit is not defined in the legislature.
Remittance of Current Income
‘Current account transaction’ mean a transaction other than a capital account transaction. It includes —
  1. Payments due in connection with foreign trade, other current business services and short-term banking and credit facilities in the ordinary course of business.
  2. Payments due as interest on loans and as net income from investments.
  3. Remittances for living expenses of parents, spouse and children residing abroad. and
  4. Expenses in connection with foreign travel, education and medical care of parents, spouse and children.
Remittance of current income of an NRI like rent, dividend, pension, interest, etc., is freely allowed. It can also be credited to NRO account. It can also be credited to NRE provided the AD bank is satisfied that the credit represents current income and the procedure for tax compliance has been followed correctly.
Remittance up to US$ 1 million
ADs may allow remittance of assets up to US$ 1 million per FY to ---

1. A foreign national (not being a PIO or a citizen of Nepal or Bhutan), if he or she
  1. has retired from employment in India;
  2. has inherited the assets from a person [referred to in Sec. 6(5) of FEMA] resident outside India who, when he was Resident held, owned, transferred or invested in Indian currency, security or any immovable property situated in India or inherited it from a person who was a Resident.
  3. is a non-resident widow or widower and has inherited assets from the person’s deceased spouse who was an Indian citizen Resident.
2. An NRI or a PIO,
  1. out of balances held in his/her NRO accounts, sale proceeds of assets and assets acquired in India by way of inheritance or legacy;
  2. out of assets acquired under a deed of settlement made by either of his/her parents or a relative. The settlement should take effect on the death of the settler. Any settlement without the settler retaining life interest may be reckoned as transfer by way of gift.
ADs may also allow remittance of balance amount, held by a foreign student in a bank account in India, after completion of his/her studies or training in India. In case the remittance is made in more than one installment, the remittance of all installments should be made through the same AD.

It is necessary to produce documentary evidence in support of the acquisition, inheritance or legacy of assets by the remitter. Additionally, proof of tax compliance is also necessary.

This US$ 1 million facility is over and above the repatriation of the sale proceeds of immovable property purchased through forex

AP (DIR) Circular 117 dt 7.5.12 has now permitted the transfer of such funds from his NRO account to NRE account within the overall ceiling of US$ one million per FY.

The tax, if any, must be paid out of the sale proceeds. The rest of the amount can be remitted abroad or credited to NRE.
Resident individuals including minors can remit up to us$ 2,50,000 per FY for any permitted capital or current account transactions or a combination of both.

There are no restrictions on the frequency of remittances under LRS.

Once a remittance has reached the LRS limit, no further remittance is possible during the FY even if some of the proceeds of the investments have been brought back into India.

Resident individuals (but not permanently Resident) who have remitted their entire earnings and salary and wish to further remit ‘other income’ may approach RBI through their AD bank for consideration.

The individual will have to designate a branch of an AD through which all the remittances under the Scheme will be made. The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance only for capital account transactions (not for current account transactions). He has to furnish Form A-2 regarding the purpose of the remittance along with all other documentation as required by the AD. The remitter needs to possess a PAN card.

However, if the amount does not exceed US$ 25,000 or its equivalent and the payment is made by a cheque or demand draft drawn on the applicant's bank account, a simple letter from the applicant (containing the basic information, viz., names and the addresses of the applicant and the beneficiary, amount to be remitted and the purpose of remittance) will suffice as long as the forex being purchased is for a permissible current account transaction.

The permissible capital account transactions by an individual under LRS are —
  1. Opening forex account with a bank abroad.
  2. Purchase of immovable property abroad.
  3. Making investments abroad (for acquisition of shares, ESOPs, ESOPs linked to ADR/GDR qualification shares, investment in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc.).
  4. Setting up Wholly Owned Subsidiaries and JVs abroad.
  5. Extending loans in INR to NRI relatives.
Expenses incurred by individuals for the following purposes are subsumed under LRS w.e.f. 26.5.2015 ---
  1. Private visits to any country (except Nepal and Bhutan).
  2. Gift or donation.
  3. Going abroad for employment.
  4. Emigration.
  5. Maintenance of close relatives abroad.
  6. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
  7. Expenses in connection with medical treatment abroad.
  8. Studies abroad.
  9. Any other current account transaction.
Definition: Capital Asset and Transfer
The term capital asset does not include personal effects such as wearing apparel, furniture, air conditioners, refrigerators, etc., held for personal use by the assessee. Even cars, scooters, cycles, motorcycles owned and used by the assessee are personal effects. Therefore, the sale of personal effects do not attract any capital gains tax. The sale of assets other than the above will entail capital gains tax liability in India.
Capital Gains Tax
A 'Short-Term capital asset' (ST) is a financial asset held for 36 months or less immediately preceding the date of transfer. The holding period is only 12 months for shares of a company, units of MFs, zero coupon bonds and listed scrips, bonds, debentures. An asset which is not ST is LT (Long-term).

The recent FA17 has amended Sec. 2(42A) to reduce the holding period of 36 months to 24 months in the case of immovable property, being land or building or both, to qualify as long-term capital asset. The holding period for all other assets remains unchanged.
Sec. 112(1c) as amended by FA12 provided concessional tax rate of 10% on LTCG arising from the transfer of unlisted securities in case of non-resident. The ambiguity as to its applicability to shares of a private company was clarified by FA16 stating that the share of company in which public are not substantially interested shall also be chargeable to tax @10% w.e.f. 1.4.17. As the concessional rate was provided with effect from 1.4.13, there was uncertainty about the applicability of the amendment to the intervening period. The recent FA17 has further clarified that the effective date shall be 1.4.13 and not 1.4.17.
FA14 has taken away debt-based MF schemes from this concessional lower period of 12 months. The normal period of 36 months will be applicable.

Note the word ‘held’ in this provision. The assessee need not be an owner of the property and can hold it as a lessee, as a mortgagee, under a hire purchase agreement, or on account of part performance of an agreement.

In the case of other financial assets like houses, jewellery, etc., STCG is taxed like any other income at the rates applicable to the assessee. LTCG is taken as a separate block, charged to tax at a flat rate of 20% with indexation benefit.
The recent FA17 has changed the base date from 1.4.1981 to 1.4.2001. Accordingly, starting with FY 2001-02 as the base year, the RBI will notify ‘Cost Inflation Index’ (CII) every year.

LT gains are computed by deducting from the full value of the consideration i) any expenditure (brokerage, stamp duty, etc.) incurred in connection with the transfer, ii) indexed cost of acquisition and iii) indexed cost of improvement. Indexed cost is computed by multiplying the cost of acquisition or improvement of the asset by the ratio of the CIIs for the years of sale and acquisition.

For assets acquired prior to 1.4.2001, the option of substituting the fair market value (FMV) in place of original cost is possible. In other words, if the cost of acquisition is lower than FMV as on 1.4.2000, the assessee may adopt the FMV as his cost. If it is higher, he may adopt it as his cost of acquisition. The CII based on 2000-01 only will be taken into account, whatever be the choice for the cost.

An assessee has the right to take the FMV as on 1.4.2000 even for bonus shares allotted to him prior to that date. Same is true for other assets, normally required to be taken at nil value.

We are awaiting the notification.
Exchange Rate Risk
Protection provided by First Proviso to Sec. 48 has become meaningless for NRIs because of total freedom from tax on long-term capital gains. However, it still is applicable to short-term gains on shares or debentures of an Indian company (private or public) acquired by utilising foreign currency.
In such cases, capital gains shall be computed by deducting the cost of acquisition from the net value of the consideration received or accruing into the same foreign currency as was initially utilised for the purchase of shares or debentures. The capital gains so computed in such foreign currency shall be reconverted into Indian currency. Thus the NRI is protected against the exchange risk.
Prohibited Transactions
An ROI shall not make investment in India, in any form directly or through any entity, whether incorporated or not, which is engaged or proposed to be engaged in -
  1. Chit fund or Nidhi Company.
  2. Agriculture or plantation activities. These exclude -
  3. Housing and real estate business or construction of farm houses. 'Real estate business' means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure. Further, earning of rent income on lease of the property and also investment in units of Real Estate Investment Trusts (REITs) shall not be treated as real estate business.
  4. Trading in Transferable Development Rights (TDRs). This is a certificate issued in respect of land acquired for public purpose by government for surrender of land by the owner without monetary compensation. These are transferable in part or whole.
  5. Lottery, gambling and betting in casinos or otherwise, including government, private or on-line lotteries.
  6. Partnership firms and proprietorship concerns having investments as per FEMA are not allowed to be engaged in print media sector.
  7. Retail Trading except single brand product retailing.
  8. Atomic Energy.
  9. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
The same restrictions are applicable to a Resident in respect of the amount borrowed, if any.
Prohibited Remittances
Prohibited remittances out of India by any person or entity are --
  1. Income from lottery winnings, racing, riding, or any other hobby.
  2. For purchase of lottery tickets, banned or proscribed magazines, football pools, sweepstakes, etc.
  3. Payment of commission on exports of equity investment in Joint ventures or wholly owned subsidiaries abroad of Indian companies or on exports under Rupee State Credit Route except commission up to 10% of invoice value of tea and tobacco.
  4. Dividend by any company to which the requirement of dividend balancing is applicable.
  5. Payment related to 'Call Back Services' of telephones.
  6. Drawal of exchange for travel to Nepal or Bhutan and also transactions with a person resident therein, unless specifically exempted by the RBI by general or special order.
However, remittance of prize money or sponsorship of sports activity abroad by a person other than international, national or state level sports bodies, if the amount involved exceeds US$ 1,00,000 requires permission from Ministry of Human Resources Development, Department of Youth Affairs and Sports.
Transactions with Terrorist Countries
Capital account remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF) as 'non-cooperative countries and territories' and remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism, are banned. Further, AP (Dir) Circular 28 dt 25.1.17 prohibits an Indian Party from making direct investment in an overseas entity (set up or acquired abroad directly as JV/ WOS or indirectly as step down subsidiary) located in such countries. The list of these is available on
Security Transaction Tax (STT) is a minuscule amount of tax collected from the following transactions taking place in a recognised stock exchange in India —
  1. Purchase and sale of shares.
  2. Sale of equity-based MFs.
  3. Sale of Options in securities.
  4. Sale of Futures in securities.
STT is also charged on redemption of equity-based units of MFs, (but not on debt-based) directly with the fund house which had issued these units. The LTCG arising out of any transaction which has suffered STT is exempt and STCG is taxed at a concessional rate of 15% only.

There are two hidden bombs in this provision. 1. If the gains are exempt, the loss is also exempt and cannot be set off against any other ST or LT gain. 2. Tax on STCG @15% is beneficial only to those who are in 20% or 30% zone; not to 10%.

The exemption is misused by certain persons for declaring their unaccounted income as exempt LTCG by entering into sham transactions. To address this abuse, Sec. 10(38) has been amended to provide that this exemption for income arising on transfer of equity share acquired or on after 1.10.04 shall be available only if the STT had been paid at the time of acquisition. However, to protect the exemption for genuine cases where the STT could not have been paid like acquisition of share in IPO, FPO, bonus or right issue by a listed company, acquisition by non-residents in accordance with FDI policy etc., suitable notifications to exempt these will be issued soon.

It appears that now private sale/purchase transactions between two parties and ESOPs may have to pay the tax.

A new Sec. 50CA has been inserted to provide that where consideration for transfer of share of a company (other than quoted share) is less than the FMV of such share determined in accordance with the prescribed manner, FMV shall be deemed to be the full value of consideration for the purposes of computing capital gains.

The requirement to have the deal in a recognised stock exchange in India applied only to sales and not purchases. Therefore, when bonus shares are sold in the market, after a holding period of 1 year, the tax concessions apply. These used to attract heavy tax since their cost of acquisition was required to be taken as nil. Same is the case for IPOs and right issues but to a lesser extent. Those who have lost the record of cost and date of acquisition need not now worry.
10%-or-20% Option
In the case of listed shares and securities which are not sold on any recognised stock exchange in India, such as a ‘buy-back’ of its own shares by the company or direct transaction between two persons, as well as Zero Coupon Bonds (alternatively termed as Deep Discount Bonds) which do not suffer any STT, LT gains is charged to tax @10% without indexation (= sale - cost = profit) or 20% with indexation (= sale - indexed cost), whichever is lower. ST gains are to be added to the normal income of the assessee and charged to tax at the rate applicable to his slab of income.

Debt-based schemes of MFs were in the same league. FA14 has taken away the option of 10% without indexation from the debt-based units of MFs. Now, such units have joined the league of all other assets, such as houses, jewellery, etc., where LTCG is taken as a separate block, charged to tax @20% with indexation and STCG is taxed like any other income at the rates applicable to the assessee.

FA16, consequent upon the judgement of various courts related with the definition of ‘securities’ under SCRA, has clarified that the LTCG arising from transfer of shares of a private limited company shall be charged to tax @10%. Moreover, the period for getting benefit of LTCG in case of shares of unlisted companies has been reduced from 3 to 2 years.
Dividend Distribution Tax (DDT)
U/s 10(34), dividend received from a domestic company and u/s 10(35) income distributed by any MF, is tax-free. However, this dividend suffers DDT @15%, payable by the company before distributing the dividend to its stakeholders. With the surcharge of 15% (raised from 12% by FA16), and educational cess of 3%, the effective rate works out at 17.7675% (= 15 × 1.12 × 1.03).

In other words, if the company desires to pay Rs. 100 as dividend, it can pay Rs. 82.3535 to the shareholder and pay Rs. 17.7675 to the exchequer.

This DDT is in addition to the normal income tax.

In the case of MFs, the equity-based schemes are exempt from this DDT u/s 115R(2). For individuals & HUFs, on all debt-based funds of MFs, DDT rate is 25%. (= 29.6125%). For all other categories of taxpayers, the rate is 30% (= 35.535%).

MFs have become the best investment avenue for one and all.

If you have risk appetite, go for equity-based schemes. The dividend is tax-free and there is no DDT. Otherwise, go for close-ended growth-based FMPs. These are almost devoid of any volatility because the fund manager invests in investment-graded assured returns schemes.
Exemption from LTCG Tax : NHAI & REC Bonds
Sec. 54EC offers exemption of long-term capital gains on all assets, if the LT gains are invested in Bonds of National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) or some more entities as will be notified by the authorities (thanks to the recent FY17) within 6 months from the date of earning capital gain. These Bonds come with a lock-in period of 3 years.
There is a ceiling of Rs. 50 lakh per FY on deposits in these Bonds.

The total relief obtained shall not exceed Rs. 50 lakh though investment can be made during the FY when the CG occurs and the subsequent FY but within the stipulated period of 6 months.

The current rate of interest is 5.5% fully taxable.
Exemption from LTCG Tax: Residential House
The ITA provides other opportunities for saving tax on long-term capital gains such as by way of Sec. 54 & Sec. 54F. Sec. 54 gives exemption from tax on capital gains arising out of sale (or transfer) of a residential house, self-occupied or not, provided the assessee has purchased within 1 year before or 2 years after the date of sale or has constructed within 3 years after that date, a residential house. If only a part of the LTCG is used, the exemption would be pro-rata and the excess will be taxed.

Sec. 54F deals with capital gains arising out of assets other than residential houses. The stipulations are essentially the same but with 3 differences —
  1. The assessee should not be an owner of more than one residential premise on the date of transfer.
  2. Sec. 54F requires reinvestment of the net consideration (sale value less expenses) whereas Sec. 54 is content with reinvestment of only the amount of capital gains.
  3. In the case of Sec. 54, the assessee is required not to sell the new house within 3 years. If this condition is not satisfied, the cost of the new asset is to be reduced by the amount of LTCG exempted from tax on the original asset and the difference between its sale price and such reduced cost will be chargeable as short-term capital gain earned during the year in which the new asset is sold.
Sec. 54F also requires the assessee not to sell the new house within 3 years. In addition, he is expected not to purchase within 1 year or construct within 3 years, another residential house. If any of these conditions are not satisfied, the capital gain originally exempted shall be treated as long-term capital gain of the year in which the house is sold or another house is purchased or constructed.
NRI’s Transactions in India
An NRI may purchase, sell, receive gift from or give gift of property to an NRI, PIO or Resident. A PIO also has similar rights except that he cannot sell property to either an NRI or PIO.

If the property is agricultural land or plantation property or farm house, an NRI can sell the property or give it as a gift to a Resident. A PIO has also similar rights but he can sell or gift the property only to Indian citizens permanently residing in India. No other transactions are permitted.

An NRI or PIO (or even a rank foreigner) can receive inheritance of any immovable property with specific approval of RBI provided he had inherited it or had acquired it in accordance with the provisions of the then existing forex law in force.

An NRI or PIO who has acquired any immovable property under the general permission of RBI need not file any papers with RBI.

Mortgaging property to party abroad requires RBI’s prior approval.

The payment of purchase price should be made out of funds received in India through normal banking channels by way of inward remittance from any place outside India or funds held in any non-resident account maintained in India and no other mode such as traveller’s cheque, foreign currency notes, etc. No payment can be made outside India.
Repatriation of Sale Proceeds
Repatriation of sale proceeds of residential property purchased by NRI/PIO is permitted to the extent of the amount paid for acquisition of immovable property in forex. Such repatriation is restricted to not more than 2 such properties. There is no restriction on repatriation of number of commercial properties. The balance amount, if any, can be credited to the NRO account and can be remitted under US$ one million facility.
Remittance of Rent
The rental income being a current account transaction is repatriable irrespective of whether the property was purchased through forex or otherwise, subject to tax compliance. Where the house is purchased through housing finance and it is rented out, the entire rental income, even if it is more than the prescribed installment, should be first applied towards repayment of the loan. If it is less than the prescribed installment, the borrower should remit the amount to the extent of the shortfall from abroad or pay it out of his NRE or NRO accounts in India.
Self-occupied House
Sec. 23 provides for determination of the annual value of house property, subject to the deductions u/s 24. Annual value of a house or part of a house shall be taken as nil if it —
  1. is in the occupation of the owner for his own residence or
  2. cannot be occupied by him because of his employment, business or profession at any other place and he has to reside at that place in a building not belonging to him. If the assessee has more than one self-occupied house, the annual value of only one of such houses, at his option, can be taken as nil. All the others will be deemed to have been let out. The option can change from year to year.
Sec. 24 allows a deduction on interest payable on capital borrowed (inclusive of processing fee) for acquiring, constructing, repairing, renewing or reconstructing the property with a ceiling of Rs. 30,000 on self-occupied property. FA14 raised the deductibility of interest up to Rs. 2.0 lakh, with two caveats — i) The house should be completed within 3 years (raised to 5 years by FA16) from the end of the year during which the loan is taken, and 2. This higher limit is applicable only for acquisition or construction but not for repairs, renewals or reconstruction, for which the old limit of Rs. 30,000 continues to be applicable.
Rented or Deemed to be Rented Properties
If an assessee has two or more residential properties, only one of the properties at his option, can be treated as self-occupied one. The other one, even if it is not actually rented out, will be deemed to be rented at standard rent depending upon the location and age of the property. A standard deduction of 30% of the annual value is allowed. Thereafer if the property is purchased through housing finance, the entire interest was fully deductible. In other words, the interest amonut should be first set-off from the rent received (under the head ‘Income from house property’) and the balance loss, if any, can be set-off against income under any other head.

The recent FA17 has inserted Subsec(3) in Sec. 71 to put a cap of ` 2 lakh per year on such a set-off under any other head. The balance loss, if any, can be carried forward for similar set-offs for 8 subsequent years as per the normal provisions.

For clarity, suppose the rent received or deemed to be received is ` 1.50 lakh and the interest paid is ` 4.00 lakh for the year. After the set-off of the interest against the rent, the resultant loss is 2.50 lakh. The anount that can be additionally set-off against any other income is ` 2.00 lakh. The balance loss of ` 50,000 can be carried forward.

The balance ` 50,000 cannot be carried forward, If hee has two or more let-out houses, acquired mainly through housing finance, the amount allowed to be set-off remains put at ` 2 lakh against the total interest on all the loans put together.

If this assessee has an additional self occupied house, on which he is paying an interest of ` 2,50 lakh, he can set off ` 2 lakh against income under any head. Unfortunately, the balance ` 50,000 is not allowed to be carried forward. We hope the authorities will take corrective measures at next budget.

Both the concessions, deduction for repayment of capital u/s 80C and of interest u/s 24 are allowed only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value is known. However, if the interest payable is for a period prior to the year in which the property was acquired or constructed, it shall be deducted in 5 equal annual installments commencing from the year of purchase or construction. Similar facility is not available for repayment of capital u/s 80C.

If the construction or acquisition is completed any time in a FY, the interest paid during the entire FY is deemed to be the normal interest though a part of the FY is pre-construction period.

There is no restriction on the source of the funds borrowed to claim the exemption of interest. It is only the tax deduction u/s 80C that requires the loan to be taken from specified sources.

Housing loan is cheap and the tax concessions make it cheaper. Therefore take as large a loan as possible for as long a period as possible, even if you have enough funds on hand.
It is mandatory to quote PAN on challans for any payments due to the Department, and in all documents pertaining to most of some financial transactions, such as purchase and sale of shares and MF schemes, gold, ornaments, housing properties, etc. Though NRIs are not mandatorily required to possess a PAN, it is advisable to possess a PAN.
How to Obtain PAN
UTI Investor Services Ltd. (UTIITSL) and National Securities Depository Ltd. (NSDL) are authorised to issue PAN cards. Details of service charges and delivery time are available on their respective websites.
The Vice President The Vice President
IT PAN Processing Centre ncome Tax PAN Services Unit, NSDL
UTI Investor Services Ltd. 4th Floor, Trade World, A Wing
Plot No. 3, Sector - 11 Kamala Mills Compound
CBD, Belapur S. B. Marg, Lower Parel
Navi Mumbai-400 614 Mumbai-400 013
e-mail.- e-mail.-
Tel 022-27561690 Tel 022-2499 4650
Fax 022-27561706 Fax 022-2495 0664
Coupon number or Acknowledgement number, as the case may be, should be mentioned in all communications.

Application Form-49A can be downloaded from the websites of the Department, UTIISL or NSDL or or photocopied (on A4 size 70 GSM paper).

It is illegal to obtain or possess more than one PAN.
With an objective of simplifying the procedures, Foreign Portfolio Investments (FPI) and Foreign Direct Investments (FDI) have been merged together in respect of all the applicable terms and conditions along with composite sectoral caps. ‘Total foreign investment’ in an Indian company will be the sum total of direct and indirect foreign investments. Consequently, Portfolio Investments up to aggregate foreign investment level of 49% or sectoral/statutory cap, whichever is lower, will not be subject to any Government approval or compliance, provided such investment does not result in change in ownership. Other foreign investments will be subject to conditions of government approval and compliance of sectoral conditions as laid down in the FDI policy and the related FEMA Regulations.

Since 90% of such investments come through automatic route the recent FA 17 has taken a further logical step by abolishing Foreign Investment Promotion Board (FIPB) to eliminate the regulatory hurdles and moreover However, strategic areas like defense, telecom etc., will still need clearances.

This is yet another positive step to further liberalise FDI policy framework and attracting investments.

A company shall be considered as owned by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by Resident Indian citizens.

Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) having underlying of instruments being in the nature of debt, shall not be treated as foreign investment under such composite limit. However, any equity holding by an ROI resulting from conversion of any debt instrument shall be reckoned as foreign investment under the composite limit

For the purpose of these regulations, Notification FEMA 361/2016-RBI dt 15.2.16 has defined an NRI to mean an individual NRI or a PIO with an OCI card. Under PINS, an NRI may acquire securities or units on a Stock Exchange in India on repatriation or non-repatriation basis, subject to the terms and conditions specified in Schedule-3 or Schedule-4 respectively. For the purpose of these Schedules, the term ‘share’ also includes convertible preference shares, convertible debentures and warrants of an Indian company or units of an investment vehicle, including REITs, InvIts, AIFs, etc.
An NRI should operate only through one AD.
The bank shall ensure that amounts due to sale proceeds of shares acquired by modes other than PINS, such as underlying shares acquired on conversion of ADRs/GDRs, shares purchased outside India from other NRIs, shares acquired under private arrangement, shares purchased while he was a Resident, do not get credited or debited to his PINS accounts.

The NRI shall operate on delivery basis for shares purchased and sold. In other words, short selling (sale without having the scrip in his godown) is not permitted.

For the purpose of these regulations, Notification FEMA 361/2016-RBI dt 15.2.16 has defined an NRI to mean an individual NRI or a PIO with an OCI card. Under PINS, an NRI may acquire securities or units on a Stock Exchange in India on repatriation or non-repatriation basis, subject to the terms and conditions specified in Schedule-3 or Schedule-4 respectively. In the case of these Schedules, the term ‘share’ also includes convertible preference shares, convertible debentures and warrants of an Indian company or units of an investment vehicle, including REITs, InvIts, AIFs, etc.
An NRI may purchase or sell shares, convertible preference shares, convertible debentures and warrants of an Indian company or units of an investment vehicle and warrants of an Indian company or units of an investment vehicle, on repatriation basis, under PINS through a designated AD branch within a limit of 5% of paid-up value on individual basis. Additionally, the limit is 10% on the aggregate paid-up value of these instruments of any company purchased by all NRIs on repatriation basis.

This limit of 10% may be raised to 24% if a special resolution to that effect is passed by the General Body of the Indian company.

The NRI investor should take delivery of the shares/convertible preference shares/ convertible debentures /warrants and units purchased and give delivery of the same when sold;

The investment shall be subject to the provisions of the FDI policy and Schedule 1 of these Regulations in respect of sectoral caps wherever applicable.

All this limit business need not bother you. RBI monitors this limit assiduously on a case-by-case basis and puts the scrip on ‘Caution List’ when the trigger limit is very near the cap. Thereafter it grants permission on first-come first-served basis. When the limit is reached, such shares are kept on banned-for-purchase list.

An NRI may open a designated NRE account with an AD, for routing the receipt and payment for transactions relating to sale and purchase of shares under this Schedule. The designated account will be called an NRE (PINS) Account. The designated branch shall ensure that sale proceeds of securities or units which have been acquired by modes other than Portfolio Investment Scheme such as underlying shares acquired on conversion of ADRs / GDRs, shares / convertible preference shares / convertible debentures / warrants acquired under FDI Scheme or purchased outside India from other NRIs or acquired under private arrangement from residents / non-residents or purchased while Resident, do not get credited in the NRE (PINS) Account and vice versa.

Permitted Credits to NRE (PINS) are —
  1. Inward remittances in forex though normal banking channels.
  2. Transfer from the NRI’s other NRE or FCNR accounts maintained with AD in India.
  3. Net sale proceeds (after payment of applicable taxes) of shares sold on stock exchange through registered broker, and
  4. Dividend or income earned.
Permitted Credits to NRE (PINS) are —
  1. Outward remittances of dividend or income earned.
  2. Amounts paid for purchase of shares on stock exchanges through registered broker under PINS
  3. Any charges on account of sale / purchase of securities or units under the Scheme, and
  4. Remittances outside India or transfer to NRE / FCNR (B) accounts of the NRI or any other person eligible to maintain such account.
Schedule-4 : Non-Repatriable Investments
Such transactions should take place only through NRO (PINS) account of the NRI.

Mostly the shares held prior to becoming an NRI or out of Indian assets earned or received thereafter, are non-repatriable. NRIs can invest in SEBI approved Exchange Traded Derivative Contracts on non-repatriable basis, subject to the limits prescribed.

An NRI, including a company, a trust and a partnership firm incorporated outside India and owned and controlled by non-resident Indians, may acquire and hold, on non-repatriation basis, equity shares, convertible preference shares, convertible debenture, warrants or units, without any limit, either on the stock exchange or outside it. This will be deemed to be domestic investment at par with the investment made by residents.

An NRI may contribute, on non-repatriation basis, to the capital of a partnership firm, a proprietary firm or a Limited Liability Partnership without any limit.

The consideration for investment under this Schedule shall be paid by way of inward remittance through normal banking channel from abroad or out of funds held in NRE / FCNR / NRO account maintained with a bank in India:

The sale/maturity proceeds (net of applicable taxes) of the securities or units acquired under this Schedule shall be credited only to NRO account irrespective of whether the consideration for acquisition was paid by direct remittances from abroad or the type of account maintained in India.
General Conditions
Use of credit card in India by an ROI shall not be deemed as borrowing or lending in rupees.

The rate of interest and margin on all loans may be decided by the ADs, subject to the latest RBI directives.

The funds borrowed either by a Resident or an ROI can be used for his personal requirements and / or own business but not for —
  1. Business related with the prohibited transactions such as chit fund, agriculture or plantation, TDRs, etc.
  2. Any investment, whether by way of capital or otherwise, in any company, partnership firm, proprietorship concern, any entity whether incorporated or not, or for relending. Such investment includes purchase of immovable property or shares, debentures, bonds, etc., issued by companies in India, including margin trading or derivatives.
Loans can be granted against the security of NRE, FCNR and NRO term deposits but not SB. The term of the loan shall not exceed the balance maturity period of the deposit. The facility of premature withdrawal of NRE / FCNR deposits shall not be available where loans against such deposits are availed of. This requirement should be specially brought to the notice of the deposit holder while sanctioning the loan.

ADs may permit overdraft in the account of the holder.
Loans to Depositor and 3rd Party against NRE / FCNR
An AD or its overseas branch or correspondent can grant loans against security of the funds to the account holder or a third party in or outside India without any limits. Premature withdrawal of such deposits is not permitted.
Rupee loans may be granted by ADs provided —
  • There is no direct or indirect forex consideration paid to the NRI depositor for agreeing to pledge his deposits.
  • There is no transaction between the guarantor and the borrower involving forex until the guarantee is invoked or the loan is settled. If the guarantor is forced to discharge his guarantee, the NRI may enforce his claim against the Resident borrower. If the liability is discharged by payment out of rupee balances, the amount recovered becomes non-repatriable
  • A Resident, being a principal debtor can make payment to any ROI who has met his liability. The amount remitted or credited shall not exceed the rupee equivalent of the amount paid by the ROI guarantor against the invoked guarantee.
Forex loans in or outside India can be granted by ADs provided the document is executed by the deposit holder himself and not by his PoA or LoA holder.

If the repayment is made by using the NRO account, the interest has to be charged at the full commercial rate in force.

FEMR (Deposit) permits a branch outside India of an AD to give a forex loan against the security of NRE or FCNR deposit.
Loans to NRIs against Shares/Properties, Non-repatriable
An AD can grant a loan in India in rupees to NRIs on non-repatriable basis against the security of shares or other securities or immovable property in India.
Forex Borrowing by Residents from NRI Relatives
AP (DIR) Circular 24 dt 27.9.03 grants general permission to borrow up to US$ 2,50,000 or its equivalent on a repatriable basis by an individual Resident from his close NRI relative subject to—
  • The loan shall be free of interest.
  • The minimum maturity period of the loan shall be 1 year.
  • The amount of loan is received by inward remittance in free forex through normal banking channels or by debit to the NRE account of the NRI.
AP (DIR Series 2011-12) Circular 95 dt 21.3.12 allows the borrower to repay the installments, interest and other charges directly to NRE account of the lender concerned.
Rupee loan or Gift to a NRI/PIO close relative
A resident individual is permitted to make a rupee loan or gift to a close relative NRI/PIO by way of crossed cheque or electronic transfer subject to:
  1. The loan is free of interest and the minimum maturity of the loan is one year.
  2. The loan (or Gift) amount should be within the overall LRS limit of US$ 250,000 per FY.
  3. The loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes in India. It shall not be utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited.
  4. The loan(or Gift) amount should be credited to the NRO a/c of the NRI /PIO.
  5. The loan (or Gift) amount shall not be remitted outside India.
  6. Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the NRO or NRE account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
Borrowing in Rupees by Residents, Non-repatriable
A Resident individual, partnership or proprietorship firm, may borrow in rupees on repatriable or non-repatriable basis from an NRI subject to—
  • The term of the loan shall not exceed 3 years
  • The rate of interest should not exceed 2% over the bank rate.
Penalty on Professionals for Furnishing Incorrect Reports or Certificates
Various provisions do exist to penalise the defaulting assessee in case incorrect information is furnished to the Department. However, there is no penal provision for furnishing of incorrect information by the person who is responsible for certifying the same. A new Sec. 271J has been inserted to levy penalty on an accountant, merchant banker or registered valuer who furnish the incorrect information in a report or certificate. The amount of penalty shall be ` 10,000 for each such inaccurate report or certificate.
Source:  Mr. A. N. SHANBHAG (Income Tax & Investment advisor)
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