Who is a NRI as per FEMA?
NRI is legally defined under the Income Tax Act, 1961 and the Foreign Exchange Management Act, 1999 (FEMA) for applicability of
respective laws. NRI is defined under FEMA as a person resident outside India who is either a citizen of India or is a Person of Indian
Origin (PIO).
How many days are required for NRI status?
An Indian citizen becomes an NRI if he fulfils the conditions mentioned below. 1. He stays outside India for more than 182 days during
the preceding financial year, between April 1 to March 31.
What is FEMA law?
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to consolidate and amend the law relating
to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India".
Can a NRI have a savings account in India?
Yes. According to the FEMA regulation, it is illegal for NRIs to hold resident savings account in India. You will need to convert your
resident savings account into an NRO account. If you continue to use your resident account, you might incur huge penalties.
What is the difference between NRI and NRE account?
Primarily there are two reasons for opening such account: NRI wants to repatriate overseas earned money back to India and/or NRI
wants to keep India based earnings in India. NRI has the option of opening a Non Resident Rupee (NRE) account and/or a Non
Resident Ordinary Rupee (NRO) account.
Can Indian resident open a joint account with an NRI?
RBI has allowed residents of India to include non-resident close relative in their resident bank accounts on 'former or survivor' basis.
... It also permitted NRIs to open NRE/FCNR account with their resident close relative. In this case, the resident relative can operate
the account as a power of attorney holder.
Who are persons of Indian origin?
Persons of Indian Origin Card (PIO Card) was a form of identification issued to a Person of Indian Origin who held a passport in a
country other than Afghanistan, Bangladesh, Bhutan, China, Nepal, Pakistan and Sri Lanka.
NRI INVESTMNET
NRIs can invest in all categories of Mutual Funds like Equity Funds, Debt Funds, Balanced Funds, Liquid Funds, etc. Unlike direct equities, MFs do not need a PIS account for the purchase. Though investing in MFs looks simple and easier compared to direct stocks, it is important for you to understand the risk profile and investment strategy of a fund before investing. By SEBI regulations, all MFs grade the schemes, according to their risk profiles as Low, Moderately Low, Moderate, Moderately High, and High. Mutual Fund Schemes are classified as Open-Ended, Close-Ended and Interval schemes, at the top most level Depending on the investment philosophy and nature, the MF schemes are further classified into Equity Funds, Debt Funds and Hybrid Funds at the highest level. Depending on the investment strategy, they are classified as Sector Funds, Contra Funds, Index Funds, etc. You can invest across any of these MF schemes from an NRE or an NRO account, but the repatriation rules will vary depending on whether investments were made from NRE or NRO account. The tax on the capital gains on MF schemes varies according to the type of the schemes and the holding period of the MF units.
There are some limitations for NRIs residing in the US and Canada to invest in Indian MFs due to the strict FATCA Rules which mandate all the fund houses to report to the US government, a comprehensive detail of all transactions of US citizens including NRIs on a regular basis. Even though some of the fund houses have started accepting investments from US/Canada NRIs with some additional conditions.
KYC FOR NRIs
• Submission of passport copy is mandatory. Relevant pages of passport having name, photo, date of birth and address should be submitted.
• PIO
• Overseas address is mandatory. Either the permanent or correspondence address must be an overseas address.
• Tax Residency Proof/Number, Social Security No.
HOW TO REDEEM?
Redemption proceeds are either paid through directly credited to the investor's bank account. All earnings will be payable in rupees.
As mentioned earlier, investments made through inward remittances or from NRE/FCNR accounts are fully repatriable. Hence, earnings made by redeeming the units or through dividends are fully repatriable.
However, in case of investments made through NRO accounts, only the capital appreciation is repatriable, not the principal amount.
TAX LIABILITIES
While tax liabilities of an NRI investing in India are the same as that of a resident investor, tax is deducted at source in case of the former.
"The key difference between investment rules for NRIs and those for resident Indians in case of both MFs and stocks is tax deduction at source (TDS),"
But are NRIs subject to double taxation-once in India and again in the country of their residence? It depends on the country of residence. If the Indian government has a avoidance of double taxation treaty (ADTT) with that country, the NRI will be spared from paying tax twice.
Numbers of countries have an ADTT with India.
"To give an example, India has an ADTT with the US. If an NRI based in the US makes short-term capital gains from equity investments in India, he pays 15% tax. However, the rate for such gains is 30% in the US. The investor will need to pay tax only for the difference in rate. This means he gets a deduction on the tax paid in India from his tax payable in the US.
TAX LIABILITIES OF NRIs (TAX DEDUCTED AT SOURCE)
| NRI earnings from investments in India is taxed at the rate given below: |
|
EQUITY FUNDS/STOCKS |
DEBT FUNDS |
| Short-term Capital Gains Tax |
15% + 15 % SC+4 % CESS=17.94% |
As per tax slab + 15 % SC + 4 % CESS |
| Long-term Capital Gains Tax |
10% without indexation+ 15 % SC+4% CESS=11.96% |
10% without indexation + 15 % SC + 4 % CESS , 20% with indexation + 15 % SC + 4 % CESS =11.96 % |
| Dividend Distribution Tax |
10% + 15 % SC + 4 % CESS = 11.96 % AT MF SOURCE |
25% + 12 % SC + 4 % CESS = 29.12% AT MF SOURCE |
| Total NRI investment should not go beyond 10% of the paid-up capital of a company. |
