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Services for NRI

Definition of an NRI

An Indian Citizen who stays abroad for employment/ carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident) Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.

For Investment in immovable properties

A foreign citizen (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal), is deemed to be of Indian origin if:

  • he held an Indian passport at any time, OR
  • he or his father or paternal grand-father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

Q) Do non-resident Indian citizens require permission of Reserve Bank to acquire residential/commercial properly in India?
A) No.

Q) Do foreign citizens of Indian origin require permission of Reserve Bank to purchase immovable property in India for their residential use?
A) Yes. However, Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain separate permission of Reserve Bank.

Q) In what manner the purchase consideration for the residential immovable property should be paid by foreign citizens of Indian origin under the general permission?
A) The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NTE/FCNR accounts maintained with banks in India.

Q) What are the formalities required to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission.?
A) They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

Q) Can such property be sold without the permission of Reserve Bank?
A) Yes. Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.

Q) Can sale proceeds of such property if and when sold be remitted out of India?
A) In respect of residential properties purchased on or after 26th May,1993, Reserve Bank considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May, 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property.

Q) Are any conditions required to be fulfilled if repatriation of sale proceeds is desired?
A) Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.

Q) What is the procedure for seeking such repatriation?
A) Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank at Mumbai within 90 days of the sale of the property.

Q) Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?
A) Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, provided gift tax has been paid.

Q) Can foreign citizens of Indian origin acquire commercial properties in India?
A) Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers’ NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.

Q) Can they dispose of such properties?
A) Yes.

Q) Can sale proceeds of such property be remitted out of India?
A) Yes. Repatriation of original investment in respect of properties purchased by foreign citizens of Indian origin on or after 26th May 1993 will be allowed to be remitted up to the consideration amount originally remitted from abroad provided the property is sold after a period of three years from the date of the final purchase deed or from the date of payment of final installment of consideration amount, whichever is later. Applications for the purpose are required to be made to the Central Office of Reserve Bank within 90 days of the sale of property in form IPI 8.

Q) Can the properties (residential/commercial) be given on rent if not required for immediate use?
A) Yes. Reserve Bank has granted general permission for letting out of any immovable property in India. The rental income or proceeds of any investment of such income has to be credited to NRO account.

Q) Can NRIs obtain loans for acquisition of a house/flat for residential purpose from financial institutions providing housing finance?
A) Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd. etc. to grant housing loans to non-resident Indian nationals for acquisition of houses/flats for self-occupation subject to certain conditions.

Q) Can authorized dealer grant loans to NRIs for acquisition of a flat/house for residential purposes?
A) Authorized dealers have been granted permission to grant loans up to non-resident Indian nationals for acquisition of house/flat for self-occupation on their return to India subject to certain conditions. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or out of funds held in the investments’ NRE/FCNR accounts.

Q) Can Indian companies grant loans to their NRI staff?
A) Reserve Bank permits Indian firms/companies to grant housing loans to their employees deputed abroad and holding Indian passport subject to certain conditions.Source: Reserve Bank of India

Q) What are the options available for obtaining guarantors while applying for a HDFC/LIC loan?
A) One will need a guarantor for a loan mainly for collateral security. The guarantor will have to demonstrate appropriate net worth to cover for the loan. Usually one can have a guarantor in any city where the loan issuer has a branch. Talk to loan issuers they will work something out for NRIs and foreign banks.

Q) While purchasing real estate most developers demand a Power of Attorney in their favor, is there a way to avoid it?
A) One can choose not to grant the Power of Attorney (POA) to the developers. However, this will mandate the mailing of all documents to your foreign residence and associated time delays. A good compromise is to grant the POA to the builder only for specific necessary items.

Regulations/Directions issued by Reserve Bank of India

Q: Where can one find regulations/directions issued by Reserve Bank for acquisition and transfer of immovable property in India by a person resident outside India?
A: Regulations regarding acquisition and transfer of immovable property in India by a person resident outside India have been notified vide RBI Notification No. FEMA 21/2000-RB dated May 3, 2000 as amended vide Notification No. FEMA 64/2002-RB dated June 29, 2002 and Notification No. FEMA 65/2002-RB dated June 29, 2002 and relevant directions issued in the form of A.P. (DIR Series) Circulars. These are available on RBI website: www.fema.rbi.org.in

Acquisition of immovable property in India by way of purchase by a person resident outside India

Q: Under the extant foreign exchange regulations to whom is general permission available for purchase immovable property in India?
A: General Permission is available to purchase only a residential/commercial property in India to a person resident outside India who is a citizen of India (NRI) and who is a Person of Indian Origin (PIO).

Q: Who is a Person of Indian Origin (PIO)?
A: For the purpose of acquisition and transfer of immovable property in India, a PIO means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who (i) at any time, held Indian passport; or (ii) who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

Q: Is NRI/PIO who has purchased residential/commercial property under general permission required to file any documents with Reserve Bank of India?
A: NRI/PIO who has purchased residential/commercial property under general permission is not required to file any documents with the Reserve Bank

Q: Is there any restriction on number of residential/commercial property that NRI/PIO can purchase under the general permission available?
A: There is no restriction on number of residential/commercial property that NRI/PIO can purchase under the general permission available.

Q: Can a name of a foreign national of non-Indian origin be added as a second holder to a residential/commercial property purchased by NRI/PIO?
A: No.

Q: Can a foreign national of non-Indian origin resident outside India acquire any immovable property in India by way of purchase?
A: No. Under section 2 (ze) of the Foreign Exchange Management Act, 1999 ‘transfer’ includes among others, ‘purchase’. Therefore, a foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of purchase.

Q: Can a foreign national of non-Indian origin acquire residential property on a lease in India?
A: Yes. A Foreign National of non-Indian origin including a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan may acquire only residential accommodation on lease, not exceeding five years for which he/she does not require prior permission of Reserve Bank of India.

Q: Can a person resident outside India (i.e. a NRI or a PIO or a foreign national of non-Indian origin) acquire agricultural land/plantation property/farm house in India by way of purchase?
A: No. A person resident outside India cannot acquire by way of purchase agricultural land/plantation property/farm house in India.

Acquisition of immovable property in India by way of gift by a person resident outside India

Q: Can NRI/PIO acquire residential/commercial property by way of gift under the general permission available?
A: Yes. Under general permission available NRI/PIO may acquire residential/commercial property by way of gift from a person resident in India or a NRI or a PIO

Q: Can a foreign national of non-Indian origin resident outside India acquire residential/commercial in India by way of gift?
A: No. Under section 2 (ze) of the Foreign Exchange Management Act, 1999 ‘transfer’ includes among others, ‘gift’. Therefore, a foreign national of non-Indian origin resident outside India cannot acquire residential/commercial property in India by way of gift.

Q: Can a person resident outside India (i.e. a NRI or a PIO or a foreign national of non-Indian origin) acquire agricultural land/plantation property/farm house in India by way of gift?
A: No. A person resident outside India cannot acquire agricultural land/plantation property/farm house in India by way of gift.

Acquisition of immovable property in India by way of inheritance by a person resident outside India

Q: Can a person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) hold any immovable property in India acquired by way of inheritance from a person resident in India?
A: Yes. A person resident outside India can hold immovable property acquired by way of inheritance from a person resident in India as per the provisions of Section 6(5) of the Foreign Exchange Management Act, 1999.

Q: Can a person resident outside India (i.e. NRI or PIO or foreign national of non-Indian origin) hold any immovable property in India acquired by way of inheritance from a person resident outside India?
A: With the specific approval of Reserve Bank a person resident outside India may hold any immovable property in India acquired by way of inheritance from a person resident outside India, provided the bequeath or had acquired such property in accordance with the provisions of foreign exchange law in force at the time of acquisition or under FEMA regulations.

Transfer of immovable property in India by way of sale by a person resident outside

Q: Under general permission available to whom can NRI transfer by way of sale his residential/commercial property?
A: NRI can transfer by way of sale residential/commercial property in India to a person resident in India or to a NRI or a PIO.

Q: Under general permission available to whom can a PIO transfer his residential/commercial property by way of sale?
A: PIO can transfer by way of sale residential/commercial property in India only to a person resident in India.

Q: Can a PIO transfer by way of sale his residential/commercial property to a NRI or a PIO?
A: No. He would need to seek Reserve Bank prior approval for transfer by way of sale residential/commercial property in India to a NRI or a PIO.

Q: Can a foreign national of non-Indian origin whether resident in India or outside India transfer by way of sale residential/property in India acquired with the specific permission of Reserve Bank to a person resident in India or outside India?
A: No. A foreign national of non-Indian origin whether resident in India or outside India would need to seek prior approval of Reserve Bank for transfer by way of sale residential/property in India acquired with the specific permission of Reserve Bank to a person resident in India or outside India.

Q: Under general permission available to whom can NRI/PIO transfer by way of sale his agricultural land/plantation property/farm house in India?
A: Under the general permission available NRI/PIO may transfer by way of sale his agricultural land/plantation property/farm house in India to a person resident in India who is a citizen of India.

Q: Can a foreign national of non-Indian origin resident outside India transfer by way of sale agricultural land/plantation property/farm house acquired by him in India?
A: A foreign national of non-Indian origin resident outside India would need to seek prior approval of Reserve Bank for transfer, by way of sale, agricultural land/plantation property/farm house acquired in India.

NRE ACCOUNT

Persons of Indian nationality or origin resident abroad may open, with authorised banks in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees. These accounts can be maintained in the form of savings, current or term deposit accounts. Opening of NRE Accounts jointly in the names of two or more non residents is permitted provided all the account holders are persons of Indian nationality or origin. For opening these accounts, the funds are required to be remitted to India through

  • proceeds of foreign exchange remittances from abroad through banking channels in an approved manner;
  • proceeds of foreign currency notes and traveler cheques brought into India by the non-resident while on a temporary visit to India.
  • transfer from an existing Non-Resident (External) FCNR account of the same person.

The account holder has to furnish an undertaking on the account opening form that he would promptly send an intimation to his bank if and when he returns to India for permanent residence.

Proceeds of remittance arranged by the account holder through banking channels from any country can be credited to this account. Similarly, income from the account holder’s investment from the funds in the account can be credited to it, except in cases where the investments are permitted on non-repatriable basis. Remittances from the account to the country of residence of the account holder or any other country are freely allowed.

Authorised dealers may allow operations on NRE Accounts by persons resident in India in terms of Powers of Attorney (Annexure 14.5) or other appropriate authority granted in their favour of non-resident account holders, provided the powers are restricted to withdrawals for local payments.

Types of Account

All types of accounts ie. current, savings and term deposit etc. can be opened under Non-Resident (External) Accounts Scheme. A Non-resident can open joint account with other non-resident provided all the account holders are persons of Indian nationality or origin. Opening of a joint account by a non-resident person with a person resident in India is not permitted under NR (E) Scheme.

Non-resident account can grant power of attorney or such other authority to residents in India for operating their NR (E) Accounts in India. Such authority, is however, restricted to withdrawals for local payments only. The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.

Account can also be opened by an eligible non-resident Indian during his temporary visit to India, against tender of foreign currency traveler cheques/currency notes, provided the bank is satisfied that the prospective account holder has not ceased to be a non-resident. The amount so tendered would be endorsed on the Currency Declaration Form CDF where applicable, before crediting the rupee equivalent to the account.

Operation of NRE Accounts

There are certain restrictions on operation of NR (E) accounts and Form A2 / Form A4 is to be completed for few transactions. These forms may be completed either by the resident party to the transaction or by the bank after obtaining necessary information from the resident party account holder. The undernoted transactions of debits/credits are permitted in NR(E) accounts:

Credits in the account

Transaction where Form A4 is NOT to be completed.

  • Transfer from FCNR accounts of the same accounts holder.
  • Interest accruing on balances in Non-resident (External) or FCNR accounts of the account holder.

Transactions where Form A4 is to be completed.

  • Proceeds of foreign exchange remittances, drafts, personal cheques etc. in the name of the account holder.
  • Proceeds of foreign currency travellers cheques, drafts and personal cheques drawn by account holder on a foreign currency account maintained abroad by him deposited by account holder during his temporary visit to India, provided authorised dealer is satisfied that the account holder is still normally resident abroad, the travellers cheques/drafts are standing in the name of account holder and have not been endorsed in his favour and in the case of travellers cheques, they are discharged by the account holder in the presence of the bank officials.
  • Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that the account holder is still normally resident outside India.

Debits in the account

Transactions where Form A4 is NOT to be completed.

  • All local payments except for the purpose of investment.
  • Transfer to any other NR (E) of FCNR account of the same person.
  • Transfer to NR (E) accounts of persons other than the account holder for bona file personal purpose.

Transactions where Form A4 is required to be completed.

  • Payments for permissible investments by the account holder.
  • Payments towards purchase price of immovable property by account holder. However, if the account holder is not an Indian national, declaration to Reserve Bank of India for acquisition of property under section 31 of Foreign Exchange Regulation Act, 1973 is to be obtained.
  • Any other transaction if covered under general or special permission granted by Reserve Bank.

Transaction required to be reported on Form A2

  • Remittance abroad.
  • Sale of foreign currency traveller cheques etc. to account holder himself or his dependants provided that they hold a ticket showing journey date which should not be later than thirty days from the date of sale.

All other transactions of credit/debit to these accounts not covered under the above provisions required prior approval of Reserve Bank. Form A4 is to be completed in duplicate in such cases and forwarded to Reserve Bank through the bank with whom the account is maintained. The transactions will be put through the account only after a copy of Form A4 duly approved by Reserve Bank is received back.

Change of Status from Non-resident to

Immediately upon return of the account holder to India and on his becoming resident in India, NR (E) account will be redisignated as resident rupees account or converted to RFC account as per the option of the account holder.

However, if the account holder is only on a short visit to India, the account will continue to be treated as NR (E) account even during his stay in India.

In respect of funds held in fixed deposits in NR(E) Accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full even after conversions into resident account.

Advantages of NRE Account

Non-residents can enjoy the following advantages by maintaining NRE Accounts:

  • Term deposits for one year and above made by non-residents carry interest at rates higher than those available to residents in India.
  • The interest on deposits and any other income accruing on the balance in the accounts are free of Indian Income-tax.
  • The balances in the accounts are free of Wealth-tax.
  • Gifts to close relatives in India from out of balances in the accounts are free of Gift-tax, when gifted before 1st October, 1998, thereafter there is no gift tax in India.
  • The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without reference to the Reserve Bank.
  • Local disbursement from the accounts can be made freely.
  • Purchases of Units of Unit Trust of India (UTI), Central and State Government Securities and National Plan/Savings Certificates can be made freely from the balances in these accounts.
  • Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or certificates originally purchased out of the funds in the account can be freely credited to these accounts by banks, without reference to the Reserve Bank.
  • Account holders are supplied special series of cheques forms for operations on these accounts.
  • Account holders can avail of loans/overdrafts from banks against security of fixed deposits in their NRE accounts.

Disadvantages of NR(E) Accounts

NR (E) accounts are opened in Indian rupees and all foreign exchange remittances received for credit of those accounts are first converted to Indian rupees at the buying rates by the banks. Any withdrawal in foreign currency will be permitted by the bank by converting Indian rupees in the account to foreign currency at the selling rate. This conversion loss is to be borne by the account holder.

Exchange rates are subject to fluctuation on day to day basis and Indian rupee has depreciated against all major foreign currencies in recent past. Balances held in Indian rupees in NR (E) accounts are thus exposed to exchange fluctuation risk

NRO

When an Indian national or person of Indian origin residing in India leaves India for a foreign country (other than Nepal and Bhutan) for taking up employment, business or vocation outside India, or for any other purpose, indicating his intention to say outside India permanently or for an indefinite period, he becomes a person resident outside India. His bank account, if any, in India is designated as an Ordinary Non-resident Account (NRO Account). Such accounts can also be opened with funds remitted from abroad. As funds in this type of account are non repatriable, they cannot be remitted abroad to the account holders or transferred to their NRE Accounts without the Reserve Bank’s prior permission. Interest earned on these deposits is not exempt from Indian Income-tax.

Types of Account

The accounts may be maintained in the form of savings or current or term deposit accounts. The accounts can also be opened jointly by non-residents with their close relatives resident in India and operations thereon by the resident account holders can be made freely. If an account is used only for the personal or business needs of the resident account holder, it may be opened jointly even with a person who is not a close relative but this needs prior permission of the Reserve Bank. Interest earned on balances in NRO Accounts is not exempt from Indian Income-tax instead Income-tax (at present @ 20%) is deducted at source i.e. at the time of payment of interest by the bank. Balance held in NRO Account can neither be repatriated nor any remittance in foreign currency is allowed without prior approval of Reserve Bank.

Operation of the Account

There are not many restrictions on the operation of this account and a number of credit and debit transactions can be made after filling up Form A4. The following credit transactions can be made :

  • Proceeds of remittances received in any permitted form through normal banking channels.
  • Proceeds of foreign currency notes/traveller cheques tendered by the account holder during his temporary visit to India.
  • Remittance by way of transfer from rupees accounts of non-resident banks.
  • Legitimate dues in rupees of the account holder in India.
  • Certain credits to the accounts such as proceeds of foreign inward remittances, dividend and interest earned on shares/securities acquired with the Reserve Bank’s permission (wherever necessary ) and held in India by the account holder, sale proceeds/maturity proceeds of shares/securities, surrender value of life insurance policies of the account holder and proceeds of cheques for small amounts upto specified limits can be made by banks without the Reserve Bank’ permission.

Following debit transactions can also be made after filling Form A4

  • All local payments in rupees.
  • Debits for investment and credits representing sale proceeds of investments may also be permitted by banks.

Withdrawals from these accounts can be freely made for local disbursements as well as for investments in Units of UTI, Government securities and National Plan/Savings Certificates, without prior approval of the Reserve Bank.

Change of Status from Resident to Non-resident Account vice versa All resident accounts of a person with banks in India will automatically be treated ordinary non-resident accounts on his becoming non-resident

Similarly NRO account may be redesignated as resident accounts on the account of holder becoming resident in India. It may be noted that residential status of a person will be determined as per the definition under Foreign Exchange Regulation Act, 1973.

Deposits under FCNR scheme were accepted by banks for maturities from 6 months to 3 years. Acceptance of deposits for shorter maturities was discontinued, in a phased manner and with effect from 15th February, 1994, deposits under FCNR scheme can be accepted only for a maturity period of 3 years. However, to enable to NRI depositors to continue with foreign currency deposits of shorter maturities, a new scheme known as Foreign Currency (Non-resident) Accounts (Banks) Scheme (FCNR (Banks) was introduced, with effect from 15th May, 1993. There is basically no difference for the depositor between these two schemes except the period of deposits.

For the banks accepting deposits under this scheme, there are a few changes. Exchange risk cover from Reserve Bank will not be available and will have to be borne by the banks themselves. There will be no obligation under the ‘Statutory Liquidity Ratio’ or priority sector lending. There is also no obligation for Cash Reserve Ratio. Resources mobilised under the scheme can be invested by the banks without any interest rate stipulation. However, non-resident depositors are not affected by these provisions.