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NRI FAQ

Taxation

Q1. Whether dividend income earned by a non resident individual or foreign company from an Indian Company is taxable?

The dividend income earned by a non – resident individual or foreign company from an Indian Company is exempt from tax in India as the company distributing the dividend is liable to pay dividend distribution tax in India. 

Q2. If an individual of Indian origin staying abroad has to remit some money to his parents in India, will such repatriation of money to India affect the taxability of the parents?

Repatriation of money to parents of an individual will not be liable to be taxed in India in the hands of the parents. This is because gifts made to relatives are not taxable as per the Income‐tax Act.

Q3. How is the taxable income determined in case of non-residents?

 

In the case of a nonresident individual and a foreign company, the income which is received or is deemed to be received in India or income which accrues or arises or is deemed to accrue or arise in India, shall be liable to be taxed in India.

Q4. What is the eligibility criteria for an individual and a company to be treated as a non‐resident for the purpose of Indian Income Tax?

An individual shall be considered to be a resident in India in any particular year if he stays in India:

(1) For a period or periods amounting in all to 182 days or more; or

(2) For 60 days or more during the relevant year and also for 365 days or more during 4 years preceding the relevant previous year.

The stay of 182 days or 60 days need not be a continuous stay.

 

Accordingly, if any of the above condition is satisfied an individual shall be a resident for tax purposes in India. If none of the two conditions as mentioned above are satisfied, then the individual

shall be considered as a non‐resident for the relevant year for tax purposes.

 

Further, in case of a citizen of India, who being outside India, comes on a visit to India in any previous year, or has left India for taking up employment/ business/ profession outside India or has

left India as a member of the crew of the Indian ship, in point 2, as stated above, the words 60 shall

be read as 182 days.

 

A company is said to be a resident in India in any previous year, if it is an Indian company or during

that year for which the residential status is being determined, the control and management of its affairs is situated wholly in India. In case the control and management of its affairs is located outside India, then the residential status of such company shall be that of a foreign company.

Q5. Is interest earned on NRE and NRO Deposit accounts taxable?

The interest earned on deposits in an NRE account is exempt from tax in the hands of the NRI while the interest earned on deposit in the NRO account is taxable in India.

Q6. If a non resident is willing to invest in the Equity Shares or debentures of an Indian Company by utilizing its foreign currency as a medium of purchase, then are there any specific provisions relating to the taxability of such shares?

In case of a non‐resident, capital gains arising from the sale of shares, or debentures of, an Indian company shall be computed by converting the cost of purchase, and the sale consideration received as a result of sale of such shares and debentures, into the same foreign currency as was initially utilized in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency.

Foreign Exchange Management Act

Q1. What is the difference between Non-Resident Ordinary Rupee Account (NRO) and Non-Resident (External) Rupee Account (NRE Account)?

 

Opening of A/c:

NRO A/c can be opened by any person resident outside India however, NRE A/c can be opened only by NRIs.

Repatriation of Funds:

The funds held in NRE A/c are freely repatriable, however in case of NRO A/c, upto USD 1 Million per year can be repatriated and current income is freely repatriable.

Permissible Credits :

NRO A/c: Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.

 

NRE A/c: Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers' cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc. A fund transfer from a NRO to NRE account is also permissible. 

Permissible Debits.

NRO A/c : All local payments including permissible investments, remittance abroad of current income in India, net of taxes, remittances of medical expenses, educational expenses and proceeds of sale of property upto USD 1 million.

NRE A/c: All local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.

 

Q2. Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

 

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of crossed cheque/electronic transfer within the overall limit prescribed under Liberalised Remittance Scheme for the resident individual and the gifted amount should be credited to the beneficiary’s NRO account.

Q3. Whether a NRI/PIO can invest in Immovable Property in India?

 

Yes, under the general permission of RBI, a NRI/PIO can purchase the residential and commercial property except agricultural land / plantation property / farm house in India.

Q4. Can an individual resident Indian borrow money from his close relatives outside India?

 

Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

the minimum maturity period of the loan is one year;

the loan is free of interest; and

the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Q5. Can a foreign investor invest in shares issued by an unlisted company in India?

Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government of India, investment can be made in shares issued by an unlisted Indian company.

Q6. Can a foreigner set up a partnership/ proprietorship concern in India?

No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.

A person resident outside India other than NRIs/PIOs may after getting prior approval of RBI, set up partnership/proprietorship concerns.

 

 

Q7. Can a NRI/PIO acquire immovable property in India by way of gift? Can a foreign national acquire immovable property in India by way of gift?

(a) Yes, NRIs and PIOs can freely acquire immovable property by way of gift either from

i) a person resident in India; or 
ii) an NRI; or
iii) a PIO.

However, the property can only be commercial or residential in nature. Agricultural land / plantation property / farm house in India cannot be acquired by way of gift.

(b) A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India by way of gift.

Q8. How many residential / commercial properties can NRI / PIO purchase under the general permission?

There are no restrictions on the number of residential / commercial properties that can be purchased

Corporate Law

Q1. Can a Non‐Resident become a shareholder or a director in an Indian Company?

Yes, a Non‐Resident can become a shareholder or a director in an Indian Company.