NON-RESIDENT INDIAN (NRI)

1) Who is a Non-Resident Indian (NRI)?
Ans: Non- Resident Indian (NRI) means a person resident outside India who is a citizen of India or a foreign citizen of Indian origin.

Under FEMA, a person is a non-resident if he/she goes or stays outside India for

  • Taking up employment & or
  • Carrying on any business or vocation & or
  • Any other purpose that indicates his/her intention to remain outside India for an uncertain period

NRI under Income Tax:

INDIVIDUALS: If the individual satisfies any one of the following conditions he is an NRI

  • Does not reside in India for 182 days or more during the previous year.
  • Does not reside in India for 60 days or more during the previous year AND 365 days or more during 4 proceeding previous years.

However, if an Indian citizen or a person of Indian origin, who is abroad, comes on a visit to India, in the previous year, the period of 60 days is extended to 182 days. A citizen, who leaves India in any year for employment, is not treated as resident in that year, unless he has been in India for 182 days or more.

HUF / FIRM / Association Of Person: The HUF / Firm / AOP is non - resident if control and management is wholly outside India.
COMPANY: An Indian Company is always treated as resident. Any other Company would be a non- resident if the control and management is partly outside India.

2) Who is a person of Indian origin ?
Ans: A citizen of any country (other than Bangladesh or Pakistan) is deemed to be of Indian origin if :

  • He/She at any time held an Indian Passport

Or

  • He/She or either of his/her parents or any of his/her grand parents was a citizen of India

Or

  • The person is a spouse of an Indian citizen or a person as referred above.


3) What is an Overseas Corporate Body (OCB) ?
Ans: Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of atleast sixty percent (60%) by Non-Resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by Non-Resident Indian directly or indirectly but irrevocably.

4) What is the Portfolio Investment Scheme ?
Ans: Under RBI's Portfolio Investment Scheme, NRIs / OCBs are permitted to acquire shares / debenture of Indian companies or units of domestic mutual fund through the stock exchanges in India, through a designated bank.

5) What is a designated branch ?
Ans: Reserve Bank has authorized few branches of each bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs / OCBs. These branches are the main branches of major commercial banks located close to the stock exchange/s. NRIs / OCBs will have to route their transactions/applications through any of the designated bank branches who have authorization from Reserve Bank. These branches are also known as 'authorised dealers'.

6) Can NRIs / OCBs deal through more than one designated branch ?
Ans: No. Each NRI / OCB has to select one branch for this purpose for investment on repatriation / non-repatriation basis.

7) What is the difference between NRE & NRO bank accounts?
Ans: Under NRE accounts, funds can be repatriated whereas funds under NRO accounts are non repatriable.

8) What is the difference between investment with repatriation benefits and investment without repatriation benefits ?
Ans: Under investment with repatriation benefits, NRIs / OCBs are allowed to remit their money (amount invested plus capital gains income thereon )from India, through the designated branch.

9) What is the procedure for investment under portfolio investment scheme?
Ans: RBI has given general permission for portfolio investment through the Authorized Dealer. The process is as under:

  • Open an NRE A/c with designated bank alongwith the application in Form RPC/ RPI
  • Open a Depository Beneficiary A/C with a depository participant.
  • Buy/Sell shares through a registered stock broker

10) Is there a limit on the holding of shares by the NRIs/OCBs ?
Ans: Individuals/OCBs cannot purchase more then 5% of the paid up capital of the Company and 10 % (now in most cases 24 % ) in aggregate i.e. all the NRIs/OCBs . The information is easily available with Banks who also provide you with a list of NRI/OCBs holdings in various companies. NRI/OCBs should take care of this before placing the order. The limit for some scrips has been increased to 40 % .

11) Can NRIs/OCBs invest in vyaj badla ?
Ans: No. As per the existing regulation, NRIs/OCBs are not permitted to participate in vyaj badla investments.

12) Do I require Power of Attorney ?
Ans: A power of attorney is required only in case a resident Indian acts on behalf of a NRI to facilitate investment in India. In case of on line trading, power of attorney is required for Depository transaction.

13) What is the tax incidence on NRI ?
Ans: For NRIs only income earned in India is taxable.
NRIs have an option not to file income tax returns if -

a) His/her total income consists only of investment income or income by way of long term capital gains or both, and
b) TDS has been deducted from such income.

Tax rates on investments gains are categorized as long term & short term capital gains.

(a) Long term capital gains
Long Term investments that are held for more than 12 months are termed as long-term capital assets. Profit on sale of such assets is termed as long-term capital gain (LTCG).
In case you have purchased these shares out of NRE/FCNR accounts through direct remittance from abroad, LTCG is to be computed in terms of the foreign currency from which the shares were purchased. This allows you to take advantage of rupee depreciation while calculating LTCG. Tax on LTCG in this case is 10%. In this case, benefit of indexation is not allowed.
In case you have purchased the shares on basis of an NRO account, you can take the benefit of indexation and compute the LTCG. The tax on such gains is levied at 20%. You also have an option to pay LTCG at 10% without the benefit of indexation. This is quite useful in case of bonus shares.

(b) Short term capital gains
Shares that are held for less than 12 months are classified as short-term capital assets. If such shares have been purchased out of NRE/FCNR accounts, short-term capital gains (STCG) are taxed at 20%.
In case shares have been purchased out of an NRO account, STCG will be treated as regular income and is taxed at normal rates.

14) What are the provisions for set off and carry-forward of capital-loss ?

Ans: Long term capital gains arising in the same year can be set-off against short term capital losses arising in the same year and vice-versa. Both long-term capital losses and short term capital losses can be carried forward for a period of eight years and adjusted against future gains.

15) What are the provisions for exemption of long term capital gains ?

Ans: Capital gains arising on transfer of a specified asset, is exempt from levy of any tax on fulfillment of the following conditions :
  • The asset transferred must be a long-term capital asset.
  • Net consideration must be invested in certain specified assets.
  • Investments to be made within 6 months of transfer.
  • Investment will be on non-repatriable basis
  • If only a portion of the net consideration is reinvested, then proportionate exemption is allowed.
  • New assets must be held for at least 3 years.

16) Can NRIs pledge the shares to obtain loan against them ?

Ans: NRIs can pledge the shares to obtain loan against them only after the specific approval of RBI is received. The application has to be made through the same bank in which the NRE/NRO account was opened.

17) Is it necessary to open a depository account ?

Ans: Since most of the high quality stocks are under compulsory demat trading, it becomes compulsory to open an account with a depository participant. The concept of depository participant has eased a lot of problems for everyone. The shares get transferred to your name immediately and the problem of bad delivery is taken care of.

18) Can NRIs speculate in shares ?

Ans: NRIs cannot sell the shares in the same settlement in which they buy them, but they can always sell them in the next settlement i.e. they can sell the shares without getting them transferred in their name.

19) What is the Mauritius route for investments into India ?

Ans: Due to a tax treaty between India and Mauritius income on investments routed through Mauritius in to India are not liable to Indian taxes. The applicable tax rate in Mauritius is negligible. One can use the Mauritius route in the following way :
  • One must have a permanent establishment (Overseas Corporate Body-OCB) in Mauritius.
  • OCB must maintain an account with an offshore bank in Mauritius.
  • The company should have at least two directors who are resident in Mauritius. One can be a lawyer and the other a chartered accountant.
  • The company's board meeting have to be held in Mauritius.
  • The maintenance of accounts, audit and filing of accounts should also be in Mauritius.

20) Do banks have to be informed after each trade of buy/sell ?

Ans: The Bank has to be informed after each buy/sell of the securities. In case of purchases, payment has to be made through the bank (cashiers order). In case of sale, a copy of the sale contract along with the original should be submitted to the bank. The sale proceeds should be deposited in the account, marked to the investment department of the bank. The investment in India is made by remittance through OCB A/C of Mauritius.

21) How can FCSL help me for investment in India?

Ans:
  • FCSL can guide and refer to the designated bank.
  • Clients can open their demat a/c with FCSL.
  • They can buy/ sell shares through FCSL.
  • Also, they can take the assistance of our research team and professional experts who can guide on tax and other matters.


 





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