Presentation on NRI investment at Dahisar Study Circle on 2 Oct 2011.

1. Institute of Chartered Accountants of India
Dahisar Study Circle
Presentation by :
CA. Sudha G. Bhushan
To be or not
to be…..
Presentation on Non
resident Indians

2. By : CA. Sudha G. Bhushan
Definition
 Regulators
 Relevant definition
 Deposits
 Investment

3. Reserve Bank of India
Regulators
Regulators
Securities and
Exchange Board of
India
Authority for Advance
Ruling
Secretariat for Industrial
Assistance
Foreign Investment
Implementation
authority

4. Person resident in
India
Section 2(v) of FEMA

5. Person resident outside India
 “personresident outside India” means a
person who is not resident in India; [As per
FEMA Sec 2(w)]

6. A person (Individual) resident in
India
A person (being an individual) 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;

7. (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,
(b) for carrying on in India a business or
vocation in India,
(c) for any other purpose, in such
circumstances as would indicate his intention
to stay in India for an uncertain period;

8. Two Conditions must-Resident
He should be residing in India for at least 183
days during the preceding financial year
He should have come to India or is staying in
India either for
 taking up employment or
 carrying on business or vocation in India or
 for any other purpose, that would indicate his
intention to stay in India for an uncertain period.

9. An Example
 Mr.Paul came to India on 1 Sep 07 for
taking up an employment in India.
Financial Year 2006-07
Financial Year 2007-08

10.  For the Financial Year 2006-2007, he was
not in India. As such, for the financial year
2007-2008 he is not resident of India.
 For the Financial Year 2007-2008, he was in
India for more than 182 days. As such, he is
resident of India for the financial year 2008-
2009.

11. An Example
 Mr.Eberhardt came to India on 1 Sep 07
as a tourist and since then he is in India till
today.

12.  For the Financial Year 2006-2007, he was
not in India. As such, for the financial year
2007-2008 he is not resident of India.
 For the Financial Year 2007-2008, he was in
India for more than 182 days. However, he
is not in India for any of the purposes listed
in the second condition. As such, he is not a
resident of India for the financial year 2008-
2009 too.

13. An Example
 Mr. Ashok, born and brought up in India,
goes to the USA for taking up an
employment on 15-5-2007. Determine his
residential status under the Act for the F.Y.
2007-2008.

14. An Example
 Mr.Bharat, born and brought up in India,
goes to USA on 10-4-2007 to look after his
mother, who is suffering from a chronic
disease , with the intention to stay in the
USA till his mother recovers. Determine his
residential status under the Act for the
financial year 2007-2008 and 2008-2009.

15. Mr. Ashok shall be treated a Resident of India till 14-
5-2007.
With effect from 15-5-2007, he shall be treated a
Non-Resident as he is covered by one of the
exceptions listed in sub-clause (A) to section 2(v).

16. An Example
 Mr. Bharat is going to USA (on 10.04.07) neither for
employment nor for business nor for any purposes
which indicate his intention to stay there for an
uncertain period. Thus, his physical presence in
India during the preceding F. Y.; i.e., 2006-2007
shall have to be considered and as he was in India
for 365 days during the F. Y. 2006-2007 he would
be treated Resident of India for the financial year
2007-2008.
 If he continues to stay in USA, say, till 31-3-2009, his
stay in India during the preceding financial year;
i.e., 2007-2008 would be less than 183 days and
hence he would be treated Non-Resident for the
financial year 2008-2009 as the first condition of
the physical stay in India is not fulfilled.

17. Not Permanently Resident
Means a person resident in India for the
employment of a specified duration
(irrespective of length thereof) or for a
specific job or assignment, the duration of
which does not exceed three years.

18. Not Permanently Resident
(NPR)- Facilities enjoyed
 Remittance for maintenance of close
relatives abroad, exceeding net salary (after
deduction of taxes, contribution to provident fund
and other deductions).
 Can acquire or sale any foreign security without any
procedures or formalities or permission out of his
foreign currency resources outside India
 He can possess without limit, foreign currency in the
form of currency notes, bank notes and traveller’s
cheques, if such foreign currency was acquired, held
or owned by him when he was resident outside India
and has been brought into India in accordance with
the regulations made under the Act.

19. Restrictions on dealing in Foreign
Exchange
 Section 3 of FEMA provides for a blanket
restriction on dealing in foreign exchange
by any person unless it is permitted
 Under the provisions of the Act
 Under the provisions of the Rules made
under the Act
 Under the provisions of the Regulations
framed under the Act
 By General or special permission of RBI

20. Restrictions on dealing in Foreign
Exchange
Clause (a) prohibits any person
 To deal in foreign exchange or foreign
security
 To transfer any foreign exchange security to
any person other than an authorised person.
Clause (b) prohibits every person for making
any payment to or to the credit of a person
resident outside India in any manner.

21. Illustrations: Restrictions on dealing in
Foreign Exchange
(1) Can Mr. Pandya, a resident of Canada,
instruct his brother staying in Mumbai to make a
payment of Rs. 5,000 to Mr. Joshi, his close friend.
Ans: No. Such payment is not permitted under
clause (b) of section 3 of the Act
(2) Mr. Rakesh, a resident of UK asks his Chartered
Accountant in India to form a Pvt. Ltd. Co. and
proposes to reimburse all the expenses after the
formation of the company. Whether, the Indian
Chartered Accountant, can spend for the above
purpose on behalf of Mr. Rakesh ?
Ans: No, as such payment is not permitted under
clause (b) of section 3 of the Act.

22. Restrictions on dealing in Foreign
Exchange
Clause (c) prohibits every person for
receiving any payment from or on behalf
of a person resident outside India except
by way of an inward remittance, from a
place outside India through an authorised
person.
Clause (d) prohibits a person to enter into
any financial transaction in India as
consideration for acquisition, creation or
transfer of a right to acquire any asset
outside India by any person. The clause
would affect a transaction in the nature of
“Hawala Transaction”.

23. Restrictions on Indian Resident
 Section 4 provides for a blanket
prohibition on a person resident in India to
acquire, hold, own, possess or transfer any
foreign exchange, foreign security or any
immovable property situated outside
India except as permitted under the Act,
Rules or Regulations made thereunder
 Exceptions to section 4…..

24. Exceptions to section 4…..
 Section 6(4) of the Act permits a person resident in
India 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
by such person when he was resident outside India
or inherited from a person resident outside India.
Illustration
Mr. Patel, who was resident of USA for many years,
now permanently returns to India . He continues to
hold some immovable property, foreign security
and other foreign exchange assets in USA. Can he
hold such assets outside India?

25. Bank Accounts
The FEM ( Deposit) Regulations,
2000
www.taxper tpro.com

26. By : CA. Sudha G. Bhushan
Foreign Currency
Account
Rupee Account

27. By : CA. Sudha G. Bhushan
Rupee Account
 Non resident (External) Rupee Accounts
(NRE Accounts)
 Ordinary Non resident Rupee Account
(NRO Accounts)

28. Difference between NRO
NRE Accounts
 Interest rate on NRO account is much
higher than NRE account.
 NRE accounts are tax free whereas NRO
accounts are not.
 Upto a Million Dollars is repatriable in NRO
Account.

29. General
Permissions

30. NRIs/PIOs to transfer by way of gift shares
Resident individuals, held by them in Indian companies and
partnership/proprietorship to transfer by way of gift immovable
can avail interest bearing rupee loans from property held by them in India subject to
NRIs/PIOs out of funds remitted by them compliance with other applicable
from abroad or out of funds held in their rules/regulations including the provisions of
bank accounts in India, on non repatriation Foreign Contribution Regulations Act, 1976
basis. by the charitable trust/organisation
concerned.
Domestic public/private sector mutual funds
can issue Units to NRIs/PIOs on both
repatriation as well as non-repatriation basis

31. NRIs/PIOs to place deposits with
Indian firms, on non-repatriation NRIs/PIOs for sale of shares
basis and with Indian companies acquired under direct
including Non-banking financial investment Schemes on stock
companies on non-repatriation exchanges in India.
basis out of domestic sources.
NRIs/PIOs for sale of shares NRIs /PIOs for transfer of shares,
acquired under direct by way of sale under private
investment Schemes on stock arrangement to
exchanges in India. another NRI or to a resident

32. Investment
Opportunities

33. Investment in Immovable Property
Investment in Proprietary and Partnership
Firm
Portfolio Investment (PIS)
Foreign Direct Investment (FDI)
Lending in Rupees
Lending in Foreign Currencies (ECB)

34. Investment in Immovable Property (IP) in
India
 NRI who is either a citizen of India or a Person of Indian
Origin can purchase or sell IP in India under automatic
route.
 A citizen of Pakistan or Bangladesh or Sri Lanka or
Afghanistan or China or Iran or Nepal or Bhutan cannot
acquire IP in India other than lease not exceeding 5 years.
 Citizen of foreign countries who are not PIO cannot
acquire any IP in India without RBI Permission.
 Permitted Immovable Property can be residential or
commercial other than an agricultural property, plantation,
or a farm house.
CA Sudha G. Bhushan

35. Repatriation of sale proceeds
 Sale of IP other than agricultural land/farm house
/plantation property in India -repatriation of the sale
proceeds permitted subject to conditions as under:
 The IP was acquired as per Exchange Laws
 The amount to be repatriated does not exceed the
original amount invested (i.e. capital gain if any
cannot be repatriated).
 In case of residential houses, the repatriation is
restricted to two such houses.
 US$ 1 million scheme-for IP held in India
CA. Sudha G. Bhushan

36. Investment in Firm or Proprietary Concern
 Permitted to NRIs/PIOs
 PIOs who are not citizen of Bangladesh,
Pakistan or Sri Lanka
 Firm should not undertake- Print Media,
Agricultural/ Plantation & dealing in land and
immovable property
 Capital invested cannot be repatriated
 Income can however be repatriated

37. Foreign Direct
Investment
FEMA 20/2000

38. Sectors/activities where FDI is prohibited.
Approval from Govt.- Approval Route
Automatic Route of RBI

39. Direct
Investment
Portfolio
Investment

40. Non repatriation
Basis
Repatriation
Basis
India

41. Foreign Direct Investment
 Investment inCapital - equity, preference,
convertible preference, Convertible debentures.
 Automatic Route
 Government Approval Route
 Investment on repatriation basis- sale proceeds net
of taxes eligible for repatriation out of India
CA Sudha G. Bhushan

42. FE(Transfer or issue of security by a
person resident outside
India)regulations, 2000
 Schedule III  Schedule IV
Purchase/sale of
shares and /or Purchase and sale of
convertible debentures Shares/convertible
by a NRI on a stock
exchange in India on debentures by a NRI
repatriation and/or on non repatriation
non repatriation basis
under portfolio basis
investment Scheme

43. Portfolio Investment by NRIs
 Limit of 5% by single NRI, 10% by all NRIs (can be
increased to 24%) to be maintained
 Payment to come from NRE/FCNR or NRO (in case
of non repatriable investment)
 Delivery based purchase and sale permitted
 OCBs are not permitted after 29/11/2001 to invest in
PIS
CA Sudha G. Bhushan

44. Schedule IV
Chit Fund or a Nidhi
company or real estate business
Agricultural/plantation shall not include
activities or real estate development of
business or township, construction
construction of farm of residential/
houses or dealing in commercial premises,
Transfer of roads, bridges, etc.
Development Rights.
by way of inward
The amount invested
remittance through
in shares or convertible
normal banking
debentures under this
channels or out of
Scheme and the
funds held in
capital appreciation
NRE/FCNR /NRO
thereon shall not be
account maintained
allowed to be
with an authorised
repatriated abroad.
dealer

45.  Business of chit fund, or
 ii) Nidhi company, or
 iii) Agricultural or plantation activities, or
 iv) Real estate business* or construction of farm
houses, or
 v) Trading in Transferable Development Rights (TDRs).
* Real estate business" does not include construction of
housing / commercial premises, educational institutions,
recreational facilities, city and regional level
infrastructure,townships

46. Investment in Shares/CD’s on
non-repatriation basis by NRIs
 Scheme applies to investment other than PI
 NRIs may acquire without any limit, shares under
public issue, private placement or right issue
 The Condition of Central Govt., approval if investor
has previous JV or technical collaboration or trade
mark agreement in the same or allied field has been
done away with
 Not permitted- investment in companies engaged in
chit fund/nidhi, agricultural/plantation or real estate
business or construction of farm house or dealing in
TDRs CA Sudha G. Bhushan

47. Investment in securities other than
shares or CDs by Non Resident
 Investment on  Investment on Non
repatriation basis in Repatriation basis by
 Dated Govt., NRIs in – units of money
securities/treasury bills, market funds in India or
National Plan/Saving
 NCD and Units of Certificates.
Domestic MF
 Bonds issued by Public
sector undertaking

48. Lending in Indian Rupees by NRI
 Non Corporate entity can borrow from NRI or
PIO on non-repatriation basis subject to
following conditions:
 The period of loan should not exceed 3 years
 the rate of interest on the loan shall not
exceed 2% over the Bank rate prevailing on
the date of availment of loan;
CA Sudha G. Bhushan

49. Lending in Foreign Currency by NRI
 An individual resident in India may borrow a sum
not exceeding US $ 250,000/- form his close
relatives outside India, subject to the conditions that
 the minimum maturity period of the loan is one
year
 the loan is free of interest; and
 'Close relative' means relative as defined in
Section 6 of the Companies Act, 1956
 At the end of the term loan amount can be
repatriated.
CA Sudha G. Bhushan

50. THANKS…..
CA. Sudha G. Bhushan
Taxpert Professionals Private Limited
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