Nri deposit

FEMA Bank Deposits

Regulations

CA N.C. Hegde

14 December 2013

© 2013 Deloitte Haskins & Sells

Person resident in India

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Section 2(u) of FEMA Act

Person includes:

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) every artificial juridical person, not falling within any of the preceding sub-

clauses, and

(vii) any agency, office or branch owned or controlled by such person

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Section 2(v) of FEMA Act

Person resident in India means:

(i) a person residing in India for more than one hundred and eighty-two days

during the course of the preceding financial year but does not include-

(A) a person who has gone out of India or who stays outside India, in either case-

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay

outside India for an uncertain period;

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(B) a person who has come to or stays in India, in either case, otherwise than-

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in

India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India

(iii) an office, branch or agency in India owned or controlled by a person resident

outside India

(iv) an office, branch or agency outside India owned or controlled by a person

resident in India

“Person resident outside India" means a person who is not resident in India

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Illustrations

A person comes to India for taking a job on 1 December 2013. He has never been

to India before. What is the residential status under FEMA for FY 2013-14?


A person who is an Indian resident, takes up a job in the USA 1 November 2013.

What is the residential status under FEMA for FY 2013-14?

Person resident outside India

A person has come to India on 1 June 2013 for medical treatment and stays for

150 days. What is the residential status under FEMA for FY 2013-14?

Person resident outside India

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Non Resident Indian (NRI) &

Person of Indian Origin (PIO)

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NRI & POI

NRI

• Indian Citizen or PIO

• Person resident outside India

• Holds an Indian Passport

PIO

• Person who has held Indian passport

previously

• Who is presently holding another country’s

citizenship/ nationality

i.e. he/she is holding foreign passport

• Whose ancestor was an Indian national

and

• Who is spouse of NRI or PIO

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Returning NRI & PIO

• Returning NRIs/PIOs may continue to hold, own, transfer or invest in foreign

currency, foreign security or any immovable property situated outside India, if

such currency, security or property was acquired, held or owned when resident

outside India

• The income and sale proceeds of assets held abroad need not be repatriated.

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Resident Foreign Currency Account

• Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a

Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B)

accounts.

• Proceeds of assets held outside India at the time of return can be credited to RFC

account.

• The funds in RFC accounts are free from all restrictions regarding utilization of foreign

currency balances including any restriction on investment in any form 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.

• RFC accounts are permitted to be held jointly with the resident close relative(s) as defined

in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or

survivor basis’. However, such resident Indian close relative, now being made eligible to

become joint account holder shall not be eligible to operate the account during the life time

of the resident account holder.

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Types of Bank Accounts

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Types of Bank Accounts

NRI & PIO can open, hold and maintain:

• Non-Resident Ordinary Rupee Account (NRO Account)

• Non-Resident (External) Rupee Account (NRE Account0

• Foreign Currency Non-Resident (Bank) Account (FCNR Account)

Without permission of RBI

Through Authorized Dealer in India

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Individual/entities of Bangladesh & Pakistan – Prior approval

of RBI



Types of bank accounts

NRO NRE FCNR

Form Savings, current,

recurring, fixed

deposit

Savings, current,

recurring, fixed

deposit

Term deposits of 1

to 5 years

Currency Indian Rupee Indian Rupee

Freely convertible

currency

Who can open NRI or PIO jointly

with Resident

NRI or PIO himself

(not through POA

holder)

NRI or PIO himself

(not through POA

holder)

Repatriation of

principal

Limit per year of 1

million

Freely repatriable

without limit

Freely repatriable

without limit

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NRO Account NRE Account FCNR Account

Permissible debits Local payments,

remittance of

interest, rent,

pension etc.

outside India

Transfer to other

NRE Account,

investment in

shares, mutual

funds of Indian

Companies

Same as NRE

Account

Permissible credits Legitimate

earnings such as

interest, dividend

Sale proceeds of

FDI investments,

dividends etc

Same as NRE

Account

Taxability of

interest earned

Taxable Not taxable Not Taxable

Interest rate As decided by

bank

Within ceiling rate

of LIBOR/SWAP

rates plus 125

basis points

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NRO Account NRE Account FCNR Account

Loans Loans to non-

residents account

holders and third

parties may be

granted in Rupees

against security of

deposits

Loans upto Rs.

100 lakhs to

depositors and

third parties may

be granted against

security of NRE

funds

Loans upto Rs.

100 lakhs to

depositors and

third parties may

be granted against

security of FCNR

funds

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Change in residential status – R to NR

• Shares

• Existing bank accounts / New bank accounts

• Loans / Overdrafts availed when he was a Resident

• Can they be continued?

• Payment of interest & repayment of loans

• Immovable property

• Insurance policies

• Directorship / Trustee / Karta

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Change in residential status – NR to R

• Foreign bank account

• Foreign shares

• Foreign property

• Foreign currency

• Income earned on assets held abroad by NRIs who have returned to India

permanently?

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Person resident in India going abroad

Gone abroad for studies or on visit to a foreign country:

• may open, hold and maintain a Foreign Currency Account with a bank outside

India

• provided, the balance in the account is repatriated to India on return to India

Gone abroad for trade fair / exhibition:

• may open, hold and maintain a Foreign Currency Account with a bank outside

India

• provided, the balance in the account is repatriated to India within one month

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Short visits to India before completion of studies – not

considered as return to India



Foreign Tourists

Can foreign tourists open a bank account in India during their short visit?

Yes. Foreign tourists during their short visit to India can open a Non-Resident

(Ordinary) Rupee (NRO) account (Current / Savings) with any Authorized Dealer

bank dealing in foreign exchange. Such account can be opened up to a

maximum period of 6 months.

What credits can be made to such accounts?

Funds remitted from outside India through banking channel or those obtained by

sale of foreign exchange brought by the tourists to India can be credited to the

NRO account.

Can the NRO account be used for making local payments?

Yes. Tourists can freely make local payments through the NRO account. All

payments to residents exceeding INR 50,000 can be made only by means of

cheques / pay orders / demand drafts.

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Foreign Tourists

Can foreign tourists repatriate the balance held in their NRO account at the time of

departure from India?

Authorized Dealer banks have been allowed to convert the balance in the

account for payment to the account holder at the time of departure from India

into foreign currency, provided the account has been maintained for a period not

exceeding six months and the account has not been credited with any local

funds, other than interest accrued thereon.

What can be done to repatriate the proceeds of an account that has been

maintained for more than six months?

In such cases, applications for repatriation of balance may be made on plain

paper to the Foreign Exchange Department of the Regional Office concerned of

the Reserve Bank through the Authorized Dealer bank maintaining the account.

Can foreign nationals resident in India open resident account?

Yes. Foreign nationals resident in India can open and maintain a resident Rupee

account in India in terms of Notification No.5/2000-RB dated May 3, 2000 viz.,

Foreign Exchange Management (Deposit) Regulations, 2000, as amended from

time to time. 20



Loans to / from relatives

Can an individual resident Indian borrow money from his close relatives outside India?

Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its

equivalent from his close relatives staying outside India, subject to the conditions that:

• the minimum maturity period of the loan is one year;

• the loan is free of interest; and

• the amount of loan is received by inward remittance in free foreign exchange through

normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Can an individual resident lend money to his close relative NRI / PIO?

Yes, an individual resident can lend money by way of crossed cheque /electronic transfer

within the overall limit of USD 200,000 per financial year under the Liberalized Remittance

Scheme, to meet the borrower’s personal or business requirements in India, subject to

conditions. The loan should be interest free and have a maturity of minimum one year and

cannot be remitted outside India.

Can an individual resident repay loans of close relative NRIs to banks in India?

Yes, where an authorized dealer in India has granted loan to a non-resident Indian such loans

may also be repaid by resident close relative (relative as defined in Section 6 of the

Companies Act, 1956), of the Non-Resident Indian by crediting the borrower's loan account

through the bank account of such relative.

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Loans from banks

• Banks can grant Loans in India to NRIs. Loans can be against:

‒ Shares

‒ Immovable property

• For meeting Personal / Business purposes

• Not in restricted sectors – Agriculture / real estate business / trading in TDR

• Loan credited to NRE/FCNR/NRNR A/c cannot be remitted abroad

• Repayment - NRO/ NRE/FCNR/ Inward Remittance or by a close relative resident in India

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Gifts to / from relatives

Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of

crossed cheque/electronic transfer within the overall limit of USD 75,000 per financial year for

the resident individual and the gifted amount should be credited to the beneficiary’s NRO

account.

Can a person resident in India transfer shares by way of gift to a person resident

outside India?

An application would have to be made to RBI, providing details of transferor and transferee,

reasons for making the gift, etc. The gift should not exceed 5 per cent of the paid up capital of

the Indian company/ each series of debentures/ each mutual fund scheme. The applicable

sectoral cap/ foreign direct investment limit in the Indian company should not breached.

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Liberalised Remittance Scheme (LRS)

• All resident individuals, including minors, are allowed to freely remit up to USD 75,000 per

financial year (April – March) for any permissible current or capital account transaction or

a combination of both.

• LRS facility is in addition to those already available for private travel, business travel,

studies, medical treatment, etc., as described in Schedule III

• Remittances for gift and donation cannot be made separately and are subsumed under

the limit available under this LRS. Accordingly, resident individuals can remit towards gifts

and donations up to USD 75,000 per financial year under the Scheme.

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Questions

Can a resident individual holding a savings bank account include

nonresident close relative as a joint account holder?

Yes, individuals resident in India are permitted to include non-resident close

relative(s) as a joint holder(s) in their resident bank accounts on ‘former or

survivor’ basis. However, such non- resident Indian close relatives shall not be

eligible to operate the account during the life time of the resident account holder.

Can Exchange Earners Foreign Currency (EEFC) accounts be held jointly

with a -resident Indian?

Yes, EEFC account of a resident individual can be held jointly with a resident

close relative on a ‘former or survivor’ basis. However, such resident Indian

close relative will not be eligible to operate the account during the life time of the

resident account holder.

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Authorised Dealer

Person authorised to deal in foreign currency

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Category Entities Major Activities

Authorised Dealer –

Category I

• Commercial Banks

• State Co-op Banks

• Urban Co-op Banks

All current and capital

account transactions

according to RBI directions

issued from time-to-time.


Category II

• Upgraded FFMCs

• Co-op. Banks

• Regional Rural

Banks (RRBs)

• Others

Specified non-trade related

current account

transactions as also all the

activities permitted to Full

Fledged Money Changers.



Authorised Dealer

Person authorised to deal in foreign currency

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Category Entities Major Activities


Category III

• Select Financial and

other Institutions

Transactions incidental to

the foreign exchange

activities undertaken by

these institutions.

FFMC • Dept. of Posts

• Urban Co-op. Banks

• Other FFMCs

Purchase of foreign

exchange and sale for

private and business visits

abroad.



Thank You

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