In part I of this series (at https://rdlawchambers.com/research-articles/), we discussed that there are various reasons why people from India decide to migrate to different countries like the USA, UK, Canada, Australia, Germany and Gulf Countries, including higher education, better job opportunities, better quality of life, better rates of taxation etc.
However, when HNIs emigrate to a foreign country through investment residency or citizenship or when skilled professionals migrate to a foreign country through appropriate migration scheme, they become non-residents in India and their rights and obligations change under the Income Tax Act.
While we elaborately discussed about rights and obligations under the income tax act in part I, now we seek to discuss in detail about an rights and restrictions of an Indian resident in terms of holding of assets in India, holding of bank accounts and remittance of funds etc upon emigrating and becoming non-resident in India.
Non residents rights And Restrictions in terms of The Holding of Assets in India, Holding of Bank Accounts, Remittance of Funds etc.
Issues to be governed by FEMA and definition of resident and Non-resident under FEMA
The above issues will be governed by the provisions of the Foreign Exchange Management Act (“FEMA”) and various circulars issued by the Reserve Bank of India under the said act.
It will be at the threshold required to be clarified that the definition of a non-resident under the Income Tax Act and FEMA slightly differ.
Section 2(v) of the FEMA defines a person resident in India as a person living in India for more than 182 days during the course of the preceding financial year but excludes the persons who have gone out of India and who have stayed outside India for, or on taking up employment outside India, or for carrying on outside India a business or vocation, or under any other circumstances which will indicate his intention to stay outside India for an uncertain period.
Section 2 (w) defines, “person resident outside India’ as a person who is not resident India, in terms of section 2 (v) of FEMA.
Rights and Restrictions of Non-residents regarding holding of Accounts in India
Upon leaving India for the purpose of migration, or upon being a non-resident within the meaning of FEMA, one will be required to inform his bankers about change in his residential status to a non-resident under FEMA and should undertake a procedure to have his regular bank account designated and classified as an NRO account.
The issue regarding holding of the accounts by the non-resident persons (under FEMA) is determined in terms of provisions of Master Circular on Non-Resident Ordinary Rupee (NRO) Account of RBI dt. 1st July 2011.
FAQs on “accounts in India by non-residents” on the RBI website will also be relevant. These FAQs provide information about the types of accounts Non-resident could hold with an Indian bank including Non Resident(External) Rupee Account Scheme (NRE) , Non-resident Ordinary Rupee Account Scheme (NRO) and Foreign Currency (Non-Resident) Account (Banks) Scheme ( FCNR(B) Account ). Faqs also provide information about who can open such accounts, currency which could lie in such accounts, permissible credits, repatriablity and other aspects.
The amount in the NRE account and FCNR (B) account are repatriable and the amount in the NRO account is not repatriable except for current income.
The balances in an NRO account of a non -resident is however repatriable up to the limits of USD 1 million per financial year along with other eligible assets as against limit of USD 250000 for person resident in India.
Restrictions on making Investments and on doing certain Businesses
These issues will be governed by the RBI Master Circular on foreign investment in India dated 1st July 2011.
Prohibited businesses
The NRIs are not allowed to be in the business of real estate, NIDHI, Chit fund, lottery, bidding, gambling, manufacturing of cigars or trading in TDRs in terms of this master circular read with the provisions of FEMA.
Transferring Securities
A person resident outside of India is allowed to transfer any security to a person resident in India by way of gift and also there is general permission in the master circular available for transfer of shares/convertible debentures, by way of sale by a private arrangement by person not resident in India to the resident of India subject to price and reporting guidelines given in in Annexure 3 to this master circular.
Gifts
However, there is no general permission to accept the gift in the form of a transfer of shares/debentures by a resident to a non-resident.
Purchase of shares or convertible debentures of Indian Company by Non-residents
Non-residents can purchase shares convertible debentures of an Indian company from a person resident in India in sectors other than the financial services sector, infrastructure, companies, the securities market, etc.
While the non-resident Indians are allowed to invest in the shares of listed companies in recognized stock exchanges, the non-resident Indians are not allowed to invest in any company that is engaged or which proposes to engage in the business of chit fund, NIDHI company, agricultural or plantation activities, real estate business or construction of farmhouses, trading in transferable development rights(TDRs).
Holding of Immovable Property by a Non-resident acquired when he was resident of India
The non-resident Indian will continue to hold or transfer any immovable property or securities situated in India, which were acquired by him at the time when he was resident in India or inherited by him
Agricultural Land Holding
The NRIs are prohibited from purchasing agricultural land in India. In case of inheritance of agricultural land, the same must comply with FEMA and NRIs must report the inheritance to the Reserve Bank of India within a specified period.
You can access our research and analysis on other important topics such as taxability of different types of income in India, contesting a tax litigation, tax notice and strategies and on various topics pertaining to commercial litigation, contracts, oil and gas, intellectual property rights and arbitration in India at https://rdlawchambers.com/research-articles/
*The content of this article is intended to provide general information. No reader or user should act or refrain from acting based on the information written above without first seeking legal advice from a qualified law practitioner.