The Do's and Dont's for Non Resident Indians : Under FEMA Regulations

CS Muhammed Sahal
Director, Company Secretary

05-Oct-2020

Many Indians move abroad to foreign nations for various purposes such as education,employment and settlement . When a person moves abroad , his/her residential status may change from resident to non - resident under FEMA depending upon the number of days he /she resides outside india as well as intention of such person to stay outside India for uncertain period.when the residential status changes ,along with the provisions of Income Tax Act ,1961 ,he /she also has to adhere to the provisions of FEMA .

The following are the most frequently asked questions ,wherin the residential status of the person changes from resident to non resident  :

1. How do I determine my residential status ?

A person will qualify as "resident but  not  ordinarily resident (RNOR) in India .If he/she is present in India for 120 days or more ,but less than 182 days during the relevant financial year .

2. Is my Income earned abroad taxable ?

An NRI'S income taxes in india will depend upon his residential status for the year .If your status is "resident" ,your global income is taxable in India if your status is "NRI ",your income which is earned or accrued in India is taxable .Income from a house property situated in india ,capital gains on transfer of asset situated in India ,income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India .These incomes are taxable for an NRI .Income which is earned outside india is not taxable in india .Interest earned on an NRE account and FCNR account is tax free .Interest on NRO account is taxable for an NRI .

3. What is Capital Account and Current Account Transaction ?

Current Account Transactions are freely permitted unless specifically restricted .

Capital Account Transactions are prohibited unless generally or specifically permitted .

4. What are the major Capital Account and Current Account Transaction?

(a) Capital Account Transaction ;

• A transaction which alters assets or liabilities 
• Outside India of persons resident in IndIa (including contingent liabilities)
• In India,  of persons resident outside India ; and includes transactions specified in section 6(3)
• Foreign security by resident ;Any security by non resident
• Transfer or issue of any security or foreign security by any branch ,office or agency in India of a  non-resident .Borrowing/ Lending in  Foreign Exchange    
• Borrowing / Lending in rupees between residents and non-residents ; Deposits between residents and Non Residents : holding of currency or currency notes .Acquisition /transfer of immovable property in india /outside India (except those on lease for less than five years );
• Giving of Guarantee /Surety by resident /non residents.

 (b) Current Account Transaction

• A transaction other than capital account transaction which include ;
• Payments due in connection with foreign trade ,other current businesses ,services,short term banking and credit facilities in the ordinary course of business .
• Payments due as Interest on loans and as net income from investments .
• Remittances for living expenses of parents ,spouse and children residing abroad ;and
• Expenses on foreign travel ,education and medical care of parents ,spouse and children .

5. Do I need to inform any authority about the change in the residential status and the  risks of not  informing ?

No , you don't have to inform any authority .However  some immediate changes need to be made in the status of your bank accounts and update the PAN card if required .

6. As an NRI do I need to follow any regulations under FEMA for investments in immovable property in India .If so what are they ?

• Can acquire property for holding /self use .
• Can sell the property and repatriate sale proceeds abroad ,most of the times .
• Can rent the property and repatriate funds abroad net of taxes .
• Cannot do real estate trading ,or trade in Transferable Development Rights 
• Immovable Property by NRI'S .
• An indian citizen (NRIs) - can transfer immovable property without any approval except as under ;

       (i)Non -agricultural property can be sold or gifted ;only to indian residents (even if they are foreign citizens)

       (ii)They can sell or gift non-agricultural property to an indian resident or NRI, without any approval . 

7. Can I continue to hold bank accounts and other investments in India /abroad as  the case may be ?

• Ordinary Non -Resident Accounts - These have to be converted to resident accounts by banks on return of the account holders to india and consequently becoming resident in India .   
• Non Resident (External )Rupee Accounts - These can be converted to resident rupee accounts or RFC (Resident Foreign Currency) accounts on becoming resident in india .
• FCNR (Bank) Account - These deposits can be converted to resident rupee account or RFC account on maturity at the option of the account holder on his becoming resident in india .

Conclusion 

In short ,there are various additional procedures to be complied when a person becomes an NRI ,and the investments made using the income generated .Its highly advisable to consult the concerned experts for appropriate legal opinions .                 

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