Who is a non-resident Indian?

An Indian citizen who stays abroad for employment or business or takes up a vocation outside India or who stays abroad under circumstances indicating an intention to stay there for an uncertain period, is a non-resident. Persons posted in United Nations organizations and officials deputed abroad by Central/state government and public sector undertakings on temporary assignments are also treated as non-residents. Non-resident foreign citizens of Indian origin are treated on par with non-resident Indian citizens. Indian citizens who go abroad for business visit, medical treatment, study and such other purposes which do not indicate their intention to stay outside India for an indefinite period are considered as `persons resident in India' during their temporary absence from India.

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For the purpose of the facilities outlined in this pamphlet, a foreign citizen (other than a citizen of Pakistan or Bangladesh) is deemed to be of Indian origin, if,

(i) he, at any time, held an Indian passport, or
(ii) He or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1955).
Note: A spouse (not being a citizen of Pakistan or Bangladesh) of a person of Indian origin is also treated as a person of Indian origin.

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Non-resident Indian citizens and Persons of Indian Origin on their temporary visit/ stay in India without any intention to stay in India for an uncertain period shall continue to be treated as non-resident during their stay in India. Technically it shall not be a return to India and they will continue to get all the benefits that are available to non-residents. Their non-resident accounts/investments etc would continue without any change and they will also not be required to surrender any foreign exchange etc.

In other cases, non-resident Indians and Persons of Indian Origin who return to India and become residents in India are required to comply with the regulatory provisions of Section 8, 9, 14, 19, 24 and 25 of FERA. 1973.

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Ordinary Non- Resident Accounts

Ordinary non-resident accounts will be converted to resident accounts by banks in India on return of the account holder to India and consequently becoming resident in India.

Non-Resident (External) Rupee Accounts

NRE accounts will also be converted to resident rupee accounts or RFC accounts (if eligible) at the option in of the account holder on the return of the account holder to India and their becoming residents in India. In case of NR(E) Fixed Deposit, the accounts will continue to earn agreed rate of interest till maturity even after these being converted to resident account.

FCNR Accounts

FCNR accounts will be converted to resident rupee accounts or RFC account (if eligible) at the option of the account holder on the return of the account holder to India and their becoming residents in India.

In case the account is converted to resident rupee account, the foreign currency amount will be converted to Indian Rupees at TT buying rate ruling on the day of conversion. Interest on the new deposit would be payable at the relevant rate applicable on such deposit. In case the amount is transferred to RFC account, the rate of interest applicable to RFC account will be payable.

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No person resident in India can open or maintain an account in foreign currency abroad without prior approval of RBI. Persons who having been resident outside India, on return to India and attaining status of resident, are required are required to close their foreign currency accounts, if any maintained by them during their stay abroad and arrange to transfer the balance therein to India within 3 months from the date of their arrival in India. However, RBI has granted general permission to persons who have come or returned to India after a minimum continuous stay of one year abroad as non-resident in regard to the maintenance and operations on foreign currency accounts with banks abroad provided the funds held in bank accounts were acquired by such persons otherwise than in contravention of provisions of FERA, while they were residents outside India.Such persons, on return to India can therefore, continue to maintain their foreign currency accounts abroad. Funds held in these accounts can be used by resident account holders for making any payments to persons outside India. There will be no restriction on utilization of the balances in these accounts for any bonafide payments in foreign currency. The funds can also be utilized for making further investments in shares/ securities or immovable property etc. abroad provided the cost of such investments and/or any subsequent payments are met exclusively out of foreign currency held in these accounts.

The general permission granted by RBI also authorizes these payments to retain in foreign currency.

 

1. All income, i.e., interest, dividends etc earned on foreign exchange assets i.e., bank deposits, investment in foreign currency, shares or securities or immovable properties situated outside India or investment in business etc. outside India, lawfully acquired by such persons while resident outside India.
2. Sale proceeds of such investments received after return of account holders to India.
3. Pension received by such persons from erstwhile employment outside India.
4. In cases of persons who have retained their links abroad through employment, business or vocation outside India taken up or commenced while they were non-resident, foreign currency continued to be acquired through such employment, business or vocation outside India even after their return to India.
5. Credits to foreign currency accounts of such persons in respect of above will be permitted.

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Persons who dot satisfy the conditions under general permission granted by RBI, e.g., persons returning to India after short assignments abroad of less than one year, will be required to close their foreign currency accounts, if maintained by them during their stay abroad and arrange transfer of balances therein to India within 3 months from the date of arrival in India. If the accounts are desired to be continued for a slightly longer period, application in Form FAD 1 must be made to RBI within 3 months from the date of applicant’s arrival in India.

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Under Section 19(1)(e) of FERA, 1973, no person shall, except with the general or special permission of RBI, acquire, hold or dispose of any foreign security i.e., any security issued outside India or expressed to be payable in any currency other than Indian Rupee or elsewhere than in India.

By its Notification No- FERA 118/92-RB dated 7^th September 1992, RBI has granted general permission to persons resident in India to acquire, hold or dispose of any foreign security in the following cases:

1. Where it is obtained out of foreign exchange acquired by them (a) in a manner otherwise than in contravention of the provisions of FERA 1973 while they were resident outside India or (b) through employment, business or vocation outside India taken up or commenced while they were resident outside India and in either case, their stay outside India for a continuous period of not less than one year.
2. Where it is held since prior to 8^th July 1974 and for which the permission/ license of RBI was obtained.
3. Where it is acquired by way of gift or inheritance from persons referred to in category (a) and (b) above and covered by the exemption granted by RBI, provided in the case of gift, the recipient donee is a relative i.e. husband, wife, brother, sister or any lineal ascendant or descendant of the donee and the tax payable thereon has been paid in India.

The general permission also applied to acquisition of fresh securities out of the foreign exchange held by residents in terms of general exemption granted by RBI.

Persons satisfying the conditions for the general permission can credit the income or sale/ maturity proceeds of such securities to their foreign currency accounts abroad and in the case of persons referred to in category (a), the income or sale/ maturity proceeds of securities can also be credited to their RFC accounts with an authorized dealer in India.

Non- Residents returning to India and not covered under the general permission of RBI will be required to apply RBI for permission to hold/dispose foreign securities.

 

1. In terms of Section 25 of FERA, 1973, Indian Nationals resident in India are required to obtain permission of RBI to acquire, hold, transfer or dispose of by way of sale, mortgage, lease for a period exceeding five years, settlement or otherwise any immovable property situated outside India. By Notification No.- FERA 120/ 92- RB dated 7^th September, 1992 issued u/s 25 of FERA, 1973, RBI has granted general permission to Indian nationals to acquire/hold immovable property outside India to the following categories of persons-

 

1. Persons returning to India after a minimum continuous stay of one year abroad as persons resident outside India, provided the property has been purchased out of foreign exchange lawfully acquired by them while resident outside India or earned through employment, business or vocation taken up or commenced while resident outside India
2. Persons holding the property since prior to 8^th July 1974 and for which permission/ license of RBI was obtained.
3. Persons acquiring the property by way of gift or inheritance from persons referred to in category (a) and (b) above and covered by the exemption granted by RBI, provided in the case of gift, the recipient donee is relative and the tax payable thereon has been paid in India.

The general permission also applies to fresh acquisition (which includes holding/ disposal) of properties out of foreign exchange held by such persons in terms of general permission granted by RBI. Income on such properties can be credited to their foreign currency accounts abroad. In the case of persons referred to in category (a) above, the income can also be credited to their RFC accounts maintained with an authorized dealer in India.

 

1. Non-resident Indians returning to India who are not covered under the general permission as above should obtain permission of RBI to hold immovable property outside India. For this purpose, application in Form FAD 1 is to be made to RBI within 3 months of applicant’s arrival in India. Such persons will also be required to obtain permission of RBI to sell the property. Permission by RBI will be granted provided RBI is satisfied that the property is being sold at the best possible price and the seller has undertaken to repatriate sale proceeds to India through an authorized dealer. Reinvestment abroad of sale proceeds of property will not be permitted. Sale of immovable property to another resident in India is also not permitted. Transfer of property by gift, settlement, lease exceeding five years will also require prior permission of RBI.
2. Section 25 of FERA, 1973 is not applicable to foreign citizen. As such none of the above provisions will be applicable to foreign nationals of Indian origin who can acquire/ hold immovable property outside India without any general or specific permission of RBI.

Are persons resident in India required to surrender foreign exchange acquired/held by them?

Yes. Residents receiving foreign exchange from abroad by way of gift, inheritance, remuneration for services rendered, etc. are required to bring it to India within three months acquiring the foreign exchange and surrender it to an authorized dealer within seven days from its receipt in India. This rule also applies to non-residents who return to India for a purpose other than temporary visits.

Does this rule apply to other assets viz. foreign currency shares/securities or immovable property held abroad?

Residents are required to declare such assets to the Reserve Bank within three months from acquiring them and obtain permission of the Reserve Bank for holding them.

Are Returning Indians permitted to acquire fresh foreign currency assets by remittance from India?

Yes, provided the funds for the purpose are drawn out of their Resident Foreign Currency Accounts.

Are any concessions available to Returning Indians in respect of assets acquired by them while they were resident outside India?

Yes. Persons who have returned to India on or after April 18, 1992 and have stayed abroad for a continuous period of not less than one year have been granted general permission/exemption from the requirement of surrendering/declaring their foreign currency assets abroad. As a result they can continue to maintain their foreign currency accounts and other assets, viz., foreign currency shares/securities or immovable properties abroad. Under the general permission/exemption, Returning Indians can retain their foreign currency accounts with banks abroad and hold, transfer or dispose of their foreign currency assets, provided these funds/assets were lawfully acquired by them out of foreign exchange earned through employment, business or vocation outside India taken up or commenced while they were resident outside India and not in contravention of the provisions of the Foreign Exchange Regulation Act (FERA), 1973.

Is such an exemption available to any other categories?

Yes. Residents who had acquired foreign currency assets abroad before July 8, 1947 can continue to hold them abroad, provided they were held outside India with the general or special permission of the Reserve Bank as on 6th July 1994. This general permission/exemption has also been granted by the Government of India vide their Notification dated July 6, 1994.

Do resident donees or legal heirs require the Reserve Bank permission to receive or hold foreign currency assets by way of gift or inheritance from Returning Indians or from those holding assets since prior to July 8, 1947 with the permission of the Reserve Bank?

No. Resident donees or legal heirs of the persons covered under the general permission/exemption granted by the Government of India can continue to maintain their foreign currency assets provided in the case of gift the resident donee is a relative, i.e., husband, wife, brother, sister or any lineal ascendant or descendant of the donor and the tax, if any, has been paid in India. Resident donees not eligible for the exemption should surrender the foreign exchange to an authorized dealer against payment in rupees.

Can such overseas assets covered by the general permission/exemption be utilized freely?

Yes. The resident donees or legal heirs can freely utilize overseas assets covered by the general permission/exemption assets as well as income earned thereon or sale proceeds received subsequently, for bona fide payments in foreign currency.

Can persons covered by the general permission/exemption make any settlement or gift of any of their foreign exchange/foreign currency assets in favour of persons resident outside India?

Yes.

What about persons who are not covered by the general permission/exemption?

Persons who are not covered by the general permission/exemption are required to bring the overseas foreign currency assets to India within three months from the date of acquisition and surrender them to an authorized dealer within seven days from its receipt in India and/or obtain within three months of owning/date of return to India specific permission of the Reserve Bank for continuing to hold those assets.

What is the procedure for obtaining such permission?

Applications for the purpose should be made in form FAD 1 to the Reserve Bank of India. The forms are available with the Exchange Control Department (Foreign Accounts Section), Amar Building, Bombay-400 001. Returning Indians are also offered the facility of keeping their foreign currency funds with a bank in India. This facility is known as the Resident Foreign Currency (RFC) Account Scheme.

What is the Resident Foreign Currency Account Scheme?

This is a Scheme drawn up by the Reserve Bank permitting Returning Indians to open foreign currency accounts with banks in India for holding funds brought by them to India.

Is any permission from the Reserve Bank required for opening such accounts with authorized dealers?

No.

In which currencies can RFC accounts be maintained?

RFC accounts can be maintained in any convertible currency.

What funds can be credited to RFC accounts of Returning Indians?

The Returning Indians can credit to RFC accounts, the entire amount of foreign exchange brought to India at the time of their return to India for permanent settlement as well as the balances standing to the credit of their Not Resident (External) (NRE) and Foreign Currency Non-Resident (FCNR) accounts.

Can income received from their overseas assets in the form of dividends, etc., or sale proceeds of such assets be credited to RFC accounts?

Yes.

Can pension received by the account holder from abroad be credited to his RFC account?

Yes.

Non-resident Indians (NRIs) returning to India for permanent settlement were granted (RIFEE) facility. Is this facility still available ?

No. RIFEE facility has been replaced by the RFC accounts facility.

Can funds in RFC accounts be remitted abroad?

Yes. Funds in RFC accounts can be remitted abroad for any bonafide purpose of the account holder or his dependents.

Can funds in RFC accounts be utilized for local payments?

Yes. Funds in RFC accounts can be withdrawn freely for local payments in rupees.

Can RFC account holders take loan against the RFC balances?

No.

Can a Returning Indian desiring to go abroad again for employment, business or vocation transfer funds from RFC account to NRE/FCNR account?

Yes.

Can persons who have returned to India after a short assignment of less than one-year open RFC accounts?

Their applications for opening RFC accounts would be considered by the Reserve Bank. Persons who have gone abroad for studies, training, etc., are, however, not eligible for this facility.

Can Returning Indians continue to maintain their existing NRE/FCNR/NRO accounts in India?

No. Returning Indians are required to redesignate immediately on their return to India their NRE/FCNR accounts as resident rupee accounts or transfer the balances held in their NRE/FCNR accounts to Resident Foreign Currency (RFC) Accounts (if eligible). The Non Resident (Ordinary) (NRO) accounts also have to be redesignated as resident rupee accounts. The funds held in NRO accounts can not be credited to RFC accounts.

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Yes. Income from interest on moneys standing to the credit of NRE/FCNR accounts is exempt from income tax. Gifts from such accounts are also free of Gift-tax.

Are similar concessions available in respect of balances held in NRO accounts?

No.

What are the tax benefits to the NRNR deposit account holders?

They enjoy the following tax benefits :

i) Income from the deposits will be free from Indian Income Tax.

ii) The deposit will also be exempt from Gift Tax for one-time gifting (in the case of NRIs only).

iii) Exemption from Income-Tax will not be available to resident donee and those residents, who being joint holders, become owners of the deposit as survivor of the non-resident depositor.

What about tax benefits on funds held in FCNR accounts?

Tax Exemption on interest earned on deposit held in foreign currency is available to non-residents and persons who are not ordinarily resident in India as defined under Income Tax Act, 1961.

What is the approved method of sending remittances into India?

The approved method of sending remittances into India is through normal banking channels.

At what rates are remittances in foreign currencies made by NRIs converted by banks into rupees?

Such remittances will be converted by banks at the market rate of exchange.

Can remittances be sent into India otherwise than through the medium of a bank in the country of residence of the remitter?

Yes. Exchange Houses in the Gulf countries have been permitted to send remittances into India by means of DDs, MTs and TTs drawn on banks in India.

Can Exchange Houses draw drafts in foreign currencies?

Yes. Exchange Houses can draw drafts in U.S. dollar or Pound sterling on a limited number of branches of the drawee bank in India, if they have entered into such an arrangement with the drawee bank.

Can NRIs remit funds through Exchange Houses for investment in Government securities, National Savings Certificates and Units of Unit Trust of India?

Yes.

Can NRIs remit funds through Exchange Houses for investment in shares/debentures of Indian companies?

Yes, subject to general/specific permission of Reserve Bank for such investment.

Can NRIs send drafts issued by Exchange Houses for acquisition of residential flats in India?

Yes. NRIs can send drafts issued by Exchange Houses in favor of Co-operative Housing Societies/estate developers for acquisition of residential flats in India in individual names.

Can NRIs remit premia on policies issued by the Life Insurance Corporation of India by means of drafts issued by Exchange Houses in favor of the Corporation?

Yes.

Can NRIs remit tuition/boarding/examination fees of their children studying in India by means of drafts issued by Exchange Houses in favor of schools, colleges, universities, technical and educational institutions in India?

Yes.

Is there any other approved method through which NRIs can send remittances to India ?

Yes. Personal remittances for private purposes can be sent through certain agencies approved by Reserve Bank.

Can such remittances be allowed to be credited to bank accounts of NRIs or utilized for making investment in India?

No.

Can NRIs take out of India precious stones or jewellery purchased by them during their visit to India?

Yes. NRIs can take out of India precious stones and jewellery (both gold and non-gold) purchased by them in India, without any limit, provided the purchase is made against payment in any convertible foreign currency.

Can NRIs take out of India household articles purchased out of funds in NRO accounts during their temporary visit to India?

Yes. RBI permits on application such requests received from NRIs upto the value of Rs.20,000 for articles other than those made of gold or silver or those banned for exports.

Can NRIs settle their hotel bills in India in Indian rupees?

Yes.

Can assets held in India by NRIs prior to their becoming non-resident be repatriated outside India?

No.

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