FEMA Study Circle. Foreign Exchange Management Act Capital & Current Account Transactions & Deposits under Notification -5

Transcription

1 FEMA Study Circle Foreign Exchange Management Act Capital & Current Account Transactions & Deposits under Notification -5 Natwar G. Thakrar Tuesday, March 21,

2 Agenda Section 1 : Capital & Current Account Transactions Section 2: NRO/NRE/ FCNR (B) & Other Deposits in India by NRI/PIOs/ Non-Residents Section- 3 : Export & Import of Currency, Possession, Retention & Surrender of Foreign Exchange Section 4: Residential Status under FEMA 2

3 SECTION-1 CAPITAL & CURRENT ACCOUNT TRANSACTIONS 3

4 Capital & Current Account Transactions Section 2(e) Capital Account Transaction Section 2(j) Current Account Transaction A transaction which alters the assets or liabilities Outside India of persons resident in India, (including Contingent Liabilities); In India of persons resident outside India; and Includes transactions specified in Section 6(3).* o Foreign security by resident; o Any Security by non-resident; o Transfer or issue of any security or foreign security by any branch, office or agency in India of a non-resident; o Borrowing / Lending in Foreign Exchange; o Borrowing / Lending in rupees between residents and non-residents; o Deposits between residents and non residents; o Holding of currency or currency notes; o Acquisition / transfer of immoveable property in India / outside India (except those on lease for less than five years); o Giving of guarantee / surety by resident / nonresidents. * Section 6(3) is omitted by Finance Act, 2015 A transaction other than a capital account transaction which include: Payments due in connection with foreign trade, other current business, services, shortterm banking and credit facilities in the ordinary course of business; Payments due as interest on loans and as net income from investments; Remittances for living expenses of parents, spouse and children residing abroad; and Expenses on foreign travel, education and medical care of parents, spouse and children. 4 4

5 Foreign Exchange Transactions Current Account Capital Account Exports Trade Imports Invisibles Tour Travel Remittance Gift Profit/Div/int FDI Foreign Source (FII) Portfolio Indian Source (GDR/ADR) Loan (Govt/ Pvt(ECB) Fcy A/C RI & NRI Current Account Transactions are freely permitted unless specifically restricted. Capital Account Transactions are prohibited unless generally or specifically permitted 5

6 Capital Account Transactions S. 6 of FEMA empowers RBI to specify class or classes of permissible capital account transactions and to frame regulations to set up limits for the drawal of foreign exchange in consultation with GOI. Finance Act 2015 has made certain amendments in S.6 S. 6(2) modified- RBI to regulate only debt instruments. GOI to notify other capital account transactions in consultation with RBI S. 6(3) Omitted. However, no corresponding amendment in definition in S.2(j) New sub-section (7) inserted as follows- For the purposes of this section, the term debt instruments shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank. No changes visible at the operational level at the moment on account of the amendments 6

7 Classes of Capital Account Transactions by Residents Notification No.1- Schedule I [Regulation 3(1)(A)]: Investment by a person resident in India in foreign securities Foreign currency loans raised in India and abroad by a person resident in India Transfer of immovable property outside India by a person resident in India Guarantees issued by a person resident in India in favour of a person resident outside India Export, import and holding of currency/currency notes Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India Maintenance of foreign currency accounts in India and outside India by a person resident in India Taking out of insurance policy by a person resident in India from an insurance company outside India. Loans and overdrafts by a person resident in India to a person resident outside India. Remittance outside India of capital assets of a person resident in India. Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad by a person resident in India. 7

8 Classes of Capital Account Transactions by Non- Residents Notification No. 1- Schedule II [Regulation 3(1)(B)]: Investment in India by a person resident outside India, that is to say, Issue of security by a body corporate or an entity in India and investment therein by a person resident outside India; & Investment by way of contribution by a person resident outside India to the capital of a firm or a proprietorship concern or an association of persons in India. Acquisition and transfer of immovable property in India by a person resident outside India. Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India. Import and export of currency/currency notes into/from India by a person resident outside India. Deposits between a person resident in India and a person resident outside India. Foreign currency accounts in India of a person resident outside India. Remittance outside India of capital assets in India of a person resident outside India. 8

9 Capital Account Transactions General Exceptions: (4) A person resident in India may 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 who was resident outside India (5) A person resident outside India can hold, own, transfer or invest in immovable property situated in India if such property was acquired, held or owned by such person when he was a resident in India or inherited from a person who was a resident in India 9

10 Capital Account Transactions General Exceptions: RBI has vide its A.P. (DIR Series) Circular No. 90 dated January 9, 2014 clarified that the following transactions shall be covered under section 6(4) of FEMA, 1999: Foreign currency accounts opened and maintained by such a person when he was resident outside India; Income earned through employment or business or vocation outside India taken up or commenced, or from investments made, or from gift or inheritance received while such a person was resident outside India; Foreign exchange including any income arising there from, and conversion or replacement or accrual to the same, held outside India acquired by way of inheritance from a person resident outside India; A person resident in India may freely utilize all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of RBI. 10

11 Current Account Transaction Rules S. 5 authorises any person to freely undertake Current Account Transactions. However, GOI is authorised to impose reasonable restrictions in public interest. AD banks to be guided by the Foreign Exchange Management (Current Account Transactions) Rules, 2000 notified vide Notification No. G.S.R.381 (E) dt. May 3, 2000, as amended. Transactions expressly prohibited Schedule I read with Rule 3 Transactions which require prior approval of Government of India Schedule II read with Rule 4 Transactions which require prior approval of RBI Schedule III read with Rule 5 Relaxations from Rule 4 and 5 for many items paid from Resident Foreign Currency (RFC) Account and Exchange Earners Foreign Currency (EEFC) Accounts. WTO Agreement in terms of Article VIII -...no member shall, without the approval of the Fund (IMF), impose restrictions on the making of payments and transfers for current international transaction. 11

12 Current Account Transaction Rules Transactions Expressly Prohibited (Schedule I read with Rule 3) Prior approval of Government of India (Schedule II read with Rule 4) 1.Remittance out of lottery winnings; 2.Remittance of income from racing / riding or any other hobby; 3.Remittance for purchase of lottery tickets, banned/prescribed products; 4.Payment of commission on exports made towards equity investment in Joint Venture / Wholly Owned Subsidiary abroad of Indian companies; 5.Remittance of dividend by any company where dividend balancing is applicable; 6.Payment of commission on exports under Rupee state credit route, except commission up to 10 percent of invoice value of exports of tea and tobacco; 7.Payment related to Call Back Services of telephones; 8.Remittance of interest income on funds held in Non Resident Special Rupee ( Account ) Scheme. 1.Cultural Tours 2.Advertisement in foreign print media exceeding USD 10,000 except for promotion of tourism, foreign investments and international bidding 3.Remittance of freight of vessel chartered by a Public Sector Unit 4.Payment for import by a Government Department on C.I.F. basis 5.Multi- modal transport operators making remittance to their agents abroad 6.Remittance of hiring charges of transponders by TV channels, Internet service providers 7.Remittance of container detention charges exceeding the rate prescribed 8.Remittance of prize money / sponsorship of sports activity abroad exceeding USD 1,00,000 by person other than International / National / State Level sports bodies 9.Remittance for membership of P & I Club 12

13 Current Account Transactions Schedule III read with Rule 5 ( As amended by AP Dir Circular 106 dated June 1, 2015) 1.A resident individual can remit up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both fori. Private visits to any country (except Nepal and Bhutan). ii. Gift or donation. iii. Going abroad for employment. iv. Emigration. v. Maintenance of close relatives abroad. vi. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up. vii. viii. ix. Transactions Permissible without RBI approval for Resident Individuals (Para I of Schedule III read with Rule 5) Expenses in connection with medical treatment abroad. Studies abroad. Any other current account transaction 2.For item nos. (iv) emigration, (vii) expenses in connection with medical treatment abroad and (viii) studies abroad in Para 1 of Schedule III, individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS, if it is so required by a country of emigration, medical institute offering treatment or the university respectively. 3.A person who is resident but not permanently resident in India and (a) is a citizen of a foreign State other than Pakistan; or (b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions). 13

14 Current Account Transactions Schedule III read with Rule 5 ( As amended by AP Dir Circular 106 dated June 1, 2015) Transactions Permissible without RBI approval for Persons other than Individuals (Para II of Schedule III read with Rule 5) 1.The following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India. i. Donations exceeding one per cent of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, fori. creation of Chairs in reputed educational institutes, ii. contribution to funds (not being an investment fund) promoted by educational institutes; and iii. contribution to a technical institution or body or association in the field of activity of the donor Company. ii. iii. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more. Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India. iv. Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses. 14

15 Li eralized Re itta e S he e LRS LRS available to all Resident individuals (RI) including minors up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both. The permissible capital account transactions by an individual under LRS are: i. opening of foreign currency account abroad with a bank; ii. purchase of property abroad; iii. making investments abroad; i. Acquisition and holding of shares of listed / unlisted companies abroad ii. Debt Instruments iii. Acquisition of ESOPs, ESOPs linked ADR/GDR iv. Acquisition of qualification shares v. Investment in Mutual Funds, VCFs, unrated debt securities and promissory notes iv. setting up Wholly owned subsidiaries and Joint Ventures abroad; v. extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, All the facilities (including private/business visits) for release of exchange/remittances for current account transactions available to resident individuals under Para 1 of Schedule III as amended from time to time, shall now be subsumed under the overall limit of USD 250,000. Acquisition of immovable property outside India by resident individual is permitted under LRS. Income and sum remitted need not be brought back into India and can be reinvested overseas

16 SECTION-3 NRO/NRE/ FCNR (B) & Other Deposits in India by NRI/PIOs/ Non-Residents 16

17 Bank Accounts/ deposits by NRIs/PIOs S. 6 (3) of FEMA empowers RBI to regulate Deposits/ Accounts by Non-residents in India. RBI has issued detailed regulations in terms of Foreign Exchange Management (Deposit) Regulations, 2016 issued vide Notification No. FEMA 5(R)/2016-RB dated April 1, Important Changes in Notification 5(R) as compared to Notification 5 Changes in PIO definition to include great grand children, their spouses & OCI Cardholders Transfer from NRO to NRO account formally mentioned PROI having business interest in India allowed to open, hold and maintain Special Non-Resident Rupee Account (SNRR Account). Conditions specified under Schedule 4. 17

18 Person of Indian Origin (PIO) Erstwhile definition PIO means a citizen of any country other than Bangladesh or Pakistan, if a) he at any time held Indian passport; or b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or c) the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b). New Definition PIO is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions: a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c) Explanation: PIO will include an Overseas Citizen of India cardholder within the meaning of Section 7(A) of the Citizenship Act,

19 Type of Bank Accounts/ deposits by NRIs/PIOs Non-Resident (External) Rupee (NRE) Accounts Schedule-1 Foreign Currency (Non-Resident) Account (Banks) Scheme FCNR(B) Account Schedule-2 Non-Resident (Ordinary) Rupee Accounts NRO Schedule-3 Special Non-Resident Rupee Account SNRR Account Schedule-4 Escrow Accounts Schedule-5 Deposits by NRI/POIs on Non Repatriation Basis Schedule-6 Deposits by NRI/POIs on Repatriation Basis Schedule-7 Other Accounts / Deposits AD / branch Foreign Shipping / Airline Company UJV of foreign entity(ies) with Indian entity(ies) 19

20 Salient Features of Bank Accounts by NRI/PIOs Query NRE Account FCNR (B) Account NRO Account Who can open an account? Type of Account Joint account (1) (2) (3) (4) NRIs and PIOs NRIs and PIOs Any Non- resident for putting through bonafide transactions in rupees. Individuals / entities of Pakistan and Bangladesh shall requires priorapproval of the Reserve Bank of India Savings, Current, Recurring, Fixed Term Deposit only Savings, Current, Deposit Recurring, Fixed Deposit Yes, may be held jointly with NRI/PIOs or resident close relative as defined under Companies Act, 2013 on former or survivor basis Currency Indian Rupees Any permitted currency i.e. a foreign currency which is freely convertible Period for fixed deposits From 1 to 3 years. Banks allowed to accept deposits above three years from their Asset-Liability point of view From 1 to 5 Years Indian Rupees As applicable to resident accounts. 20

21 Salient Features of Bank Accounts by NRI/POIs Query NRE Account FCNR (B) Account NRO Account (1) (2) (3) (4) Permissible Credits Inward remittance from outside India, interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds of investments (if such investments were made from this account or through inward remittance). Current income like rent, dividend, pension, interest etc. will be construed as a permissible credit to the NRE account. Maturity or sale proceeds of any permissible investment in India which was originally made from NRE/FCNR(B) a/c or out of inward remittances from o/s India thru banking channels Sale of immovable property in India Refund of share / debenture subscriptions to new issues of Indian companies If subscribed through FCNR/NRE/ Inward remittances Refund of application/ earnest money/ purchase consideration on account of non-allotment of flat/ plot/ cancellation of bookings together with interest, if any (net of income tax payable thereon), provided the original payment was made out of NRE/ FCNR(B) / inward remittances Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts are permissible credits to NRO account. Rupee gift/ loan made by a resident to a NRI/ PIO relative within the limits prescribed under the Liberalised Remittance Scheme 21

22 Salient Features of Bank Accounts by NRI/PIOs Query NRE Account FCNR (B) Account NRO Account (1) (2) (3) (4) Permissible Debits Local disbursements, remittance outside India, transfer to other NRE/ FCNR(B) accounts and investments in India. Local payments, transfers to other NRO accounts or remittance of current income abroad & remittances under abroad/ transfer to NRE Account under USD 1 million Scheme Repatriablity Repatriable Non-Repatriable 22

23 Salient Features of Bank Accounts by NRI/PIOs Query NRE Account FCNR (B) NRO Account Account (1) (2) (3) (4) Taxability Exempt Taxable Loans India in Permissible. Loans cannot be repatriated outside India and can be used in India only for the specified purposes. In case of loans to a third party, there should be no direct or indirect foreign exchange consideration for the non-resident depositor. Loans against the deposits can be granted in India to the account holder or third party subject to usual norms and margin requirement. The loan amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate. The term loan shall include all types of fund based/ non-fund based facilities. 23

24 Salient Features of Bank Accounts by NRI/PIOs Query NRE Account FCNR (B) Account NRO Account (1) (2) (3) (4) Loans outside India Yes, for bona fide purpose against the security of Not permitted funds held in the NRE/ FCNR (B) accounts in India, subject to usual margin requirements. Rate of Interest As per guidelines issued by the Department of Banking Regulations Operations by PowerYes, for permissible local payments or remittance to Yes, for permissible of Attorney in favourthe account holder himself through normal banking local payments in of a resident channels. rupees, remittance of current income to the account holder outside India Change in residentialto be designated as resident FCNR (B) deposits may To be designated as status from Nonresident accounts or / transferred tobe allowed to continue resident accounts to resident the RFC accounts till maturity and thereafter may be converted to RFC account 24

25 Case Study 1- Change in Residential Status Mr. Patel takes up employment in USA He currently operates the following Bank Accounts / Deposits jointly held with close relatives: Nature of Deposit Type of Holding Amount Fixed Deposit First Name Rs. 10,00,000 Current Account First Name Rs. 20,00,000 Resident Foreign Currency Account RFC(D) First Name US $ 50,000 Savings Account Second Name Rs. 35,00,000 Kindly advise Mr. Patel about action required by him upon change in his residential status 25

26 Case Study 1- Change in Residential Status Mr. Patel can take following actions Nature of Deposit Type of Holding Action Remarks Fixed Deposit First Name Designate as NRO Joint names on former or survivor basis permissible Current Account First Name Designate as NRO Joint names on former or survivor basis permissible Resident Foreign Currency Account RFC(D) First Name Can be credited to NRE/FCNR(B) Joint names on former or survivor basis permissible Savings Account Second Name As second holder, Joint names on either or survivor basis permissible Refer Master Direction 19 /

27 Case Study 2- Change in Residential Status Mr. Patel Returns from employment in USA permanently. He currently operates the following Bank Accounts / Deposits jointly held with close relatives: Nature of Deposit Amount FCNR (B) US $. 10,00,000 NRE Fixed Deposit Rs. 20,00,000 NRE Savings Account US $ 50,000 NRO Savings Account Rs. 35,00,000 Kindly advise Mr. Patel about action required by him upon change in his residential status 27

28 Case Study 2- Change in Residential Status Mr. Patel can take following actions Nature of Deposit Amount Action FCNR (B) US $. 10,00,000 Can continue up to maturity. Thereafter, it can be converted into RFC Account NRE Fixed Deposit Rs. 20,00,000 Convert into Ordinary Account/ RFC Account immediately NRE Savings Account US $ 50,000 Close immediately. Option to convert proceeds into RFC NRO Savings Account Rs. 35,00,000 Convert to Resident Account 28

29 SNRR Account Any person resident outside India, having a business interest in India, can open a Special Non- Resident Rupee Account (SNRR account) with an AD for bona fide transactions in rupees The features of the SNRR account are: The SNRR account will carry the nomenclature of the specific business and not earn any interest. The debits/ credits and the balances in the account should be incidental and commensurate with the business operations. ADs to ensure that all the operations are in accordance with the provisions of the Act, rules and regulations. The shall be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and in no case should exceed seven years. The operations in the account should not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner. The balances in the SNRR account can be repatriated outside India. Transfers from any NRO account to the SNRR account are not permitted. All transactions in the SNRR account will be subject to payment of applicable taxes in India. SNRR account may be designated as resident rupee account on the account holder becoming a resident. Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior approval of Reserve Bank. The SNRR can be held only as a non-interest earning account, while an NRO account can earn interest. While the balances in a NRO account are non-repatriable (except for current income and to the extent permissible for NRIs/ PIOs under FEMA 13(R)), SNRR is a repatriable account

30 Miscellaneous Escrow Account Regulation 5/ Schedule 5 Resident or non-resident corporate/ acquirers may open Escrow account in INR with an authorized dealer in India as an Escrow agent subject to the terms and conditions specified in Schedule 285 of the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. Acceptance of deposit by a company in India from NRIs/PIOs on repatriation basis Regulation 6(1)/ Schedule 6 Currently, a company incorporated in India including NBFC registered with the Reserve Bank cannot accept deposits on repatriation basis. It can, however, renew the deposits it had accepted in accordance with Schedule 6 of Foreign Exchange Management (Deposit) Regulations), 2016, as amended from time to time. Acceptance of deposits by Indian proprietorship concern/ firm or a company from NRIs or PIOs on non-repatriation basis Schedule -7 An Indian proprietorship concern/ firm or a company (including Non-Banking Finance Company) registered with Reserve Bank can accept deposits from NRIs or PIOs on nonrepatriation basis subject to the terms and conditions specified in Schedule 7 Out of debit to NRO Account only. Inward remittances/ transfer from CNR(B)/NRE Account prohibited Tenure < 3 years, Rate of Interest: Ceiling Rate under Acceptance of Deposits Rules, 2014 Relending/ Agriculture/Plantation activities prohibited 30 30

31 Miscellaneous Acceptance of deposits by Indian companies from a person resident outside India for nomination as Director Deposits with an Indian company by persons resident outside India, in accordance with section 160 of the Companies Act, 2013, is a current account transaction and does not require RBI approval. Refunds of such deposits, arising in the event of selection of the person as director or getting more than twenty five percent votes, shall be treated similarly AD / Branch: Deposit made by an AD with its branch, head office or correspondent outside India, Deposit made by a branch or correspondent outside India of an AD, and held in its books in India. Foreign shipping / airline company: For freight or passage fare collections in India or by inward remittances through banking channels from its office outside India Meeting the local expenses in India of such airline or shipping company Unincorporated Joint Ventures of foreign entity(ies) with Indian entity(ies): Unincorporated joint ventures (UJV) of foreign companies/entities, with Indian entities, executing a contract in India for the purpose of undertaking transactions in the ordinary course of its business. Non-interest bearing foreign currency account. The debits and credits in these accounts should be incidental to the business requirement of the UJV. The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV

32 SECTION-3 EXPORT & IMPORT OF CURRENCY POSSESSION, RETENTION & SURRENDER OF FOREIGN EXCHANGE 32

33 Export and Import of Currency Category Item Limit Any Person resident in India Any Person resident in India Any Person (whether resident in India or a non-resident other then authrosied person) Export & Import of Indian Currency (Other than Nepal and Bhutan) Export & Import of Indian Currency to or from Nepal and Bhutan a) Sending into India Foreign currency (other than notes, bank notes and travelers cheques.) b) Bring into India Foreign currency in the form of notes, bank notes and travelers cheques. a) Up to Rs. 25,000 for countries other than Nepal & Bhutan b) Commemorative coins- not exceeding 2 such coins a) No limit for export of notes (other than notes above denominations of Rs. 100) b) Limit Up to Rs. 25,000 for export of notes above denominations of Rs. 100 c) No limit to bring into India notes of denominations up to Rs. 100 a) No Limit b) No Limit provided Currency Declaration Form (CDF) is filed if total forex exceeds US $ 10,000 or its equivalent or aggregate value of currency notes exceeds US $ 5000 or its equivalent

34 Possession and Retention of Foreign Exchange Category Item Limit Authorised Dealer Any foreign currency or coins Up to the limit within scope of his authority Any Person resident in India Person Resident in India but not permanently resident i. Foreign coins ii. Foreign currency notes, bank notes and travelers cheques Foreign currency notes, bank notes and travelers cheques. No limit Up to US $ 2000 or its equivalent in the aggregate subject to fulfillment of certain conditions mentioned below b No Limit provided such currency was acquired, held or owned by him while he was non-resident and legitimately brought to India

35 Surrender of Foreign Exchange Topic Items Time Limit for surrender Specific Receipts in foreign exchange a) Remuneration for services, (whether in or outside India) b) Settlement of any lawful obligation, c) Income on assets held outside India (e.g. Interest, Dividend, Gains). d) Inheritance, Settlement or gift Within seven days of its receipt. Residual category All other cases Within 90 days of its receipt Unspent Forex acquired for by persons other than Individuals a) Forex Acquired for a particular purpose but which has partly/fully remained unspent b) Forex acquired for travel in the form of currency notes and coins c) Travelers cheques a) Within 60 days of purchase b) Within 90 days of purchase c) Within180 days of purchase Unspent Forex acquired by Individuals for travel Any Form- Currency notes, coins or travelers cheques Within 180 days from the date of receipt / purchase / acquisition/ return to India. 35

36 SECTION-4 RESIDENTIAL STATUS UNDER FEMA 36

37 Person Resident in India Prime condition Exclusion from 182 days criterion Whether conditions to be fulfilled in addition to 182 days criterion? Defined under Section 2(v) of FEMA : A person (being an individual) residing in India for more than 182 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; [RBI Clarification on Residential Status of Students Abroad- Refer AP 45 dated ] (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; Stay of 182 days in India is essential during the preceding financial year before examination of other conditions under S. 2(v)(B) for acquisition of property by Foreign Nationals - GOI advisory dated February RBI Notification No. 5- Deposits Does a person become resident in India immediately upon taking up employment in India??? 37

38 Individual leaving India: Conditions for residence Exclusion from 182 days criterion Mr. X leaves India on 1st September 2016 for taking up employment outside India for the first time. What will be his residential status? Can he acquire agricultural land in India before 30 th June, 2017? Mr. X will be considered a non-resident, w.e.f. 1st September, 2016 irrespective of the fact that he was residing in India for more than 182 days in the preceding financial year in view of Exception (A) (a) of the definition. Therefore, Mr. X will not be eligible to purchase agricultural land in India. 38

39 Individual coming to India: Conditions for residence Additional conditions under S. 2(v)B(c) not fulfilled Mr. Y, staying in Dubai for past several years came to India on 1st May 2016 for medical treatment. He has not visited India during F.Y He is planning to return to Dubai after medical treatment. Doctors have advised him to stay in India up to 31st October What will be his residential status under FEMA for the financial years & ? Notwithstanding his likely stay exceeding 182 days in India during the current year, Mr. Y was not present in India for 183 days or more during the preceding financial year Hence he continues to be a non-resident during the financial year His situation is also covered by Exception B of the definition. His situation for financial year is covered by Exception B(c) of the definition sin e Mr. Y s stay in India will e for a spe ifi purpose and not for uncertain period. Hence, he will continue to be a nonresident during the financial year as well. 39

40 Individual coming to India: Conditions for residence Mr. M, a foreign citizen of non-indian origin comes to India for the first time and takes up employment in India on 1st September What will be his residential status for the financial year ?. Can he acquire Immovable property in India during Financial year ? Mr. M has not at all stayed in India during the preceding financial year As per RBI view under Notification No. 5- he has to re-designate his accounts in India as resident accounts upon his taking up employment in India. However, as per GOI advisory on interpretation of the definitions under S. 2(v) for immovable properties, since Mr. Mark was not in India for a period of 182 days during the preceding financial year , he is not entitled to acquire immovable property during Financial Year He is entitled to purchase the property during Financial Year Master Direction Para NRE accounts should be designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts, at the option of the account holder, immediately upon the return of the account holder to India for taking up employment or on change in the residential status. 40

41 Thank You Chartered Accountants 803, Atrium- II, Next to Courtyard Marriot Hotel, Opp. Sangam Talkies & Divine Child High School, Andheri Kurla Road, Mumbai Tel: / Mobile: