The definition of Resident in India has been discussed at length at the following two places.
A- Income Tax Act
B- Foreign Exchange management Act, 1999
Background: -
Under Foreign Exchange Regulations Act, (FERA) {now substituted by Foreign Exchange Management Act. 1999 (FEMA)} the intention of person while going abroad or returning to India was a decisive factor in deciding the residential status of a person. The definition under FERA was not in harmony with the definition given in the Income Tax Act, which was creating confusion about the status of resident. FEMA has taken care of this confusion and it has described resident person in the similar lines to those of the Income Tax Act.
Income Tax considers the stay of a person in India in the current financial year, whereas, FEMA considers the stay of a person in the previous financial year.
Definition as per Income Tax Act: -
As per Income Tax Act, the residential status of a person is decided on the basis of his stay in India. A person is resident in India if
a) He stays in India for 182 days or more during the previous year
b) Stays in India for 60 days or more during the previous year and 365 days or more
Exception
c) A citizen who leaves India in any year for employment is not treated as resident in that year
d) An Indian citizen or a person of Indian origin, who is abroad comes on a visit to India, in the
Additional Conditions
e) A person should be Resident in India at least 9 out of previous 10 preceding years and
f) Should be in India for 730 days or more during 7 years preceding previous year.
Definition as per FEMA 1999: -
According to Section 2v of Foreign Exchange Management Act, 1999, following categories of persons are treated as Residents in India.
(i) a person residing in India for more than 0ne hundred eighty two (182) days during the
(A) Who have gone out of India or who stays outside India, either
(a) For taking up employment outside India, or
(b) For carrying on outside India a business or vacation outside India or
(c) For any other purpose, in such circumstances as would indicate his intention to stay outside
(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;
Person other than Individual
(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 - Non Resident Indians
As per Section 2w of FEMA 1999, a person resident outside India is a person who is not resident in India. Non- resident Indians generally fall under one of the following broad categories:
1. Indian citizens who stay abroad for employment or for carrying on a business or vocation or
2. Indian citizens working abroad on assignment with Foreign Government, Government
3. Government officials (both central and state) and other officials of public sector undertakings
Note: Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all facilities available to NRIs under FEMA. (RBI/2006-07/22 Master Circular No. /04/2006-07 July1, 2006).
Persons of Indian Origin (PIO): -
A Person of Indian Origin (PIO) as a person, being a citizen of any country
(a) Who at any time held an Indian Passport or
(b) A person who himself or either of his parents or any of his grand parents were citizens of
(c) Spouse of an Indian citizen or
(d) Spouse of a person covered under (a) or (b) above.
However, the citizens of Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan are not considered as person of Indian origin (PIO) even if they satisfy the above conditions under FEMA for different purposes under different regulations.
Overseas Corporate Body (OCB):
“ A company, partnership firm, society or any other corporate body owned directly or indirectly to the extent of at least 60% by non-resident Indian and includes overseas Trust in which not less than 60% beneficial interest is held by non-resident Indians directly or indirectly but irrevocably” is considered as Overseas Corporate Body.
Change of Status from Non Resident to Resident:
Persons, who were resident outside India, cease to be Non Residents on their return to India for permanent stay. Therefore, immediately on their return to India, they should declare to the bank about the change in their status.
Maintenance of Account: -
Non Resident Indians and Persons of Indian origin (both together indicates NRI’s) can maintain account in Rupees as well as in permitted foreign currencies.
Permitted Foreign Currency: -
These include Pound Sterling, US Dollar, Deutche Mark, Japanese Yen, and EURO.
Non –Resident Accounts:
Non-Resident bank accounts are those accounts, which are maintained by Indian Nationals and Persons of Indian origin residing abroad, foreign nationals and foreign companies in India. The opening, maintenance and operation of Non-Resident Accounts are subject to compliance with Exchange Control Regulations in force from time to time.
Types of Non Resident Account:
These accounts can be classified in to following three categories.
1. Non-Resident (Ordinary) Rupee Account
2. Non Resident (external) Rupee Accounts
3. Foreign Currency (Non Resident) Accounts (FCNR)-B
4. Resident foreign currency account: (RFC)
1.Non-Resident (Ordinary) Rupee Account:
These account are known as Non-Resident (Ordinary) Rupee {NR (O)} Account. Banks can open these accounts in the name of non-resident individuals /entities without approval of Reserve Bank of India for the purpose of putting through bonafide transactions in rupees. NR (O) A/C in the name of individuals with Pakistani/ Bangladeshi nationality cannot be opened without prior permission of Reserve Bank of India. NR (O) accounts can be opened /maintained in the form of current, savings, recurring or fixed deposits.
A non-resident can open NR (O) accounts in three ways: –
1) By redesigning his existing savings bank account into a NR (O) account after his becoming a
2) By opening a NRO account by remitting foreign exchange from abroad in an approved
3) Transfer of funds from NRE A/c of same person.
NR (O) accounts can be opened and held jointly with residents who are close relatives. As announced in the Annual Policy Statement for the year 2007-08 Para 146(ii) (ii)], NR (O) account can be operated by a resident in whose favour the non-resident account holder has given a Power of Attorney.
Restrictions on, the holder of power of attorney:
1.He is not permitted to repatriate funds held in the account outside India.
2.He cannot make payment by way of gift to a resident on behalf of the non-resident account
3. He cannot transfer funds from the account to another NRO account.
What the holder of power of attorney can do?
1. The holder can make all local payments in rupees including payments for eligible
2. He can remit current income in India of the non-resident individual account holder, net of
Permissible Credits:
The credits that are permitted in the account are: -
1. Proceeds of remittances received from outside India, through normal banking channels or in
2. Any foreign currency, which is, freely convertible tendered by the account holder during his
3. Transfers from rupee accounts of non- resident banks.
4. Legitimate dues in India of the account holder. This includes current income like rent,
Permissible Debits:
1. All local payments in rupees including payments for investments in India subject to
2. Remittance outside India of current income like rent, dividend, pension, interest, etc. in India
3. Remittance up to USD One million, per financial year (April-March), for all bonafide purposes,
Note: -
The existing regulations permit Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO) to remit up to USD one million per calendar year for any bonafide purpose out of the balances in their Non-Resident Ordinary (NRO) accounts. The balance in the NRO accounts may also include the sale proceeds of immoveable property acquired by the non-resident out of her/his resources in India, or sale proceeds of property received by way of inheritance or gift. The remittance of sale proceeds of the immoveable property is at present subject to a lock-in period of 10 years.
RBI/2007-08/19 Master Circular on Non-Resident Ordinary Rupee (NRO) Account Master Circular No. 03 /2007- 08 July 2, 2007
2. Repatriable Accounts:
Non-resident (External) Rupee account (NRE):
In order to encourage remittances from Non-Resident Indians, NR (E) accounts were introduced with effect from 21st February 1970 under the Non-resident (External) Accounts Rules, 1970.
NR (Ext) accounts are opened in the name of NRIs/OCBs (Overseas Corporate Body) with remittances received from abroad in an approved manner in a freely convertible currency.
The account can be opened as Saving, Current or Term deposit accounts in Indian rupees.
The accounts opened under these rules enjoy the following benefits:
1.The rates of interest on term deposit kept under NR (E) are generally higher than the rates of
2. The interest on deposits and any other income accruing on the balances in the account are
3.The entire credit balance (inclusive of interest earned thereon) can be repatriated outside
4.Purchase of units of Unit Trust of India (UTI), Central & State Government securities and
5.Special chequebooks for operations on these accounts are supplied to facilitate prompt
6.Accounts under the scheme can be opened by Non-Residents of Indian nationality or origin . Opening of Account:
Non- Resident (External) Rupee accounts can be opened on receipt of funds through following banking channel.
1 MT/TT/DD in foreign currency favoring accountholder
2 Transfer of balance from an existing NRE A/c/FCNR A/c of the accountholder
4.Joint accounts in the name of two or more NRIs can be opened. No joint account can be opened
(1) The name of the resident accountholder is deleted and account continues as NRE A/c. or
(2) The account is redesignated as a resident/NRO/RFC account at the option of the
6. Residents having appropriate power of attorney can operate Non Resident (Ext.) Accounts for
7. The resident power of attorney holder cannot repatriate funds held in accounts outside India
he rates of interest payable on NR (Ext.) accounts are subject to change from time to time as per directions issued from Reserve Bank of India.
Permitted credits:. Interest accruing on the deposit account
·Interest on government securities, dividend on units of UTI, approved mutual funds, provided the securities /units were purchased to the debit of NRE/FCNR account of the customer.
.Maturity proceeds of government securities, including NSC,sale proceeds of units of UTI, or any approved mutual fund, provided the securities/units were originally purchased by debiting NRE/FCNR account.
·Refund of share/debenture subscription to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from another NRE/FCNR account of the accountholder or by remittance from abroad through normal banking channels.
.Any other transaction covered by general or special permission of RBI subject to compliance of conditions, if any.
Transfer from one NRE account to other account
Permitted debits:
. Local disbursements/payments
. Remittance abroad (Exchange risk is borne by the account holder)
.Transfer to NRE/FCNR accounts of the same accountholder.
Non –Resident (Foreign Currency) Account (FCNR- B):
Non-resident Indians and overseas corporate bodies can open and maintain these accounts with an authorized dealer. An authorized dealer is normally a bank specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities.
The account is maintained in designated currencies in the form of term deposits of the following three maturities.
1. One year and above but less than two years
2. Two years and above but less than three years
3. Three years only
The interest is payable in designated foreign currency and the deposit amount and interest is fully repatriable. Such accounts are free from risks on account of exchange rate fluctuations. The opening, maintenance and operations of these accounts are subject to compliance of Exchange Control Regulations in force from time to time.
Permissible Debits / Credits:
All debits/ credits permissible in respect of NRE accounts are applicable in respect of this account also.
Resident foreign currency account: (RFC)
Persons of Indian nationality or origin, who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than one year, are permitted to open foreign currency accounts with banks in India for holding funds brought by them to India. The balances standing to the credit of NRE and FCNR accounts at the time of return can be credited to RFC accounts. Foreign exchange brought to India in the form of foreign currency notes/bank notes/travellers cheques should have been declared to Customs at the time of arrival on the Currency Declaration Form (CDF) if it exceeded U.S. $ 10,000 or its equivalent. In the case of foreign currency/bank notes, such a declaration on form CDF is compulsory if the amount exceeds U.S. $ 2,500 or its equivalent.
Persons who have returned to India before 18th April 1992 can also open RFC account if
(a) They are holding foreign currency assets abroad with Reserve Bank's permission or
(b) They are in receipt of pension or other monetary benefits from their erstwhile employers abroad .
The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India. The account is maintained in the form of Current Account and does not attract any interest. There is no ceiling on the balances in the account.
Latesst Amendments:
1.RBI vide circular number RBI/2011-12/173 A.P. (DIR Series) Circular No. 12 September 15, 2011 has liberalised the savings bank account maintained by residents in India. Individuals resident in India are permitted to include non-resident close relative(s) (relatives as defined in Section 6 of the Companies Act, 1956) 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.
2.RBI vide circular number RBI/2011-12/174 A.P. (DIR Series) Circular No. 13 September 15, 2011 has authorised Non-Resident Indians (NRIs), to open Non-Resident (External) Rupee Account Scheme/Foreign Currency (Non-Resident) Account (Banks) Scheme (B) accounts with their resident close relative(s) on ‘former or survivor’ basis. The resident close relative would be eligible to operate the account as Power of Attorney holder in accordance with existing instructions during the life time of the Non-Resident Indian/ Persons Indian Origin account holder.
3.Vide circular number RBI/2011-12/175 A.P. (DIR Series) Circular No. 14 September 15, 2011 RBI has authorised a person resident in India to give to a person resident outside India, by way of gift, any security/shares/debentures of up to USD 50,000 in value per financial year without approval of the Reserve Bank of India.
4.RBI/2011-12/176 A.P. (DIR Series) Circular No. 15 September 15, 2011 has advised that resident individuals may be permitted to include resident close relative(s) as defined in the Companies Act, 1956 as a joint holder(s) in their / Exporter Earners’ Foreign Currency (EEFC)/ Residents’ Foreign Currency (RFC) bank accounts 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.
5.RBI vide circular number A.P. (DIR Series) Circular No. 17 September 16, 2011 has permitted a resident individual to make a rupee gift to a NRI/PIO who is a close relative of the resident individual [close relative as defined in Section 6 of the Companies Act, 1956] by way of crossed cheque /electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO a/c.
The gift amount would be within the overall limit of USD 200,000 per financial year as permitted under the Liberalised Remittance Scheme (LRS) for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances under the LRS during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.
6.RBI vide circular number RBI/2011-12/183 A.P. (DIR Series) Circular No. 19 September 16, 2011 has permitted a resident to repay the loan of a 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.
7. Vide circular number RBI/2011-12/184 A.P. (DIR Series) Circular No. 20 September 16, 2011 RBI has been decided that where the medical expenses in respect of NRI close relative (relative as defined in Section 6 of the Companies Act, 1956) are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may be covered under the term “services related thereto” under Regulation 2(i) of Notification No. FEMA 16 /2000- RB dated May 3, 2000.
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