With increased global opportunities in education as well as work front, more and more people are deciding to settle outside India. This not only ensures, better quality of life, increased income and opportunity, but also stability and personal growth. Moving outside India to settle permanently has become very common and fascinating. While many are leaving India with no intention of coming back, many are leaving India with an intention of coming back with elevated financial status and fortune created from work carried out outside India. In such a scenario, one needs to understand treatment of assets held in India, holding of foreign assets while coming back to India and converting such foreign assets into Indian currency, under Foreign Exchange Management Act, 1999 (‘FEMA’) in India at the time of leaving India, staying outside India, and at the time of coming back into India (if intended to). As FEMA law is designed to address each of such probability/(ies), lets understand FEMA law in detail around emigrating Indians.
Emigrating Indian individuals are referred to as Non-Resident Indian (‘NRI’). However, under FEMA, there is no specific definition for NRIs. Under notification no. 5(R)/2016-RB of the foreign exchange (Deposit) Regulations, 2016 (‘FEMA Deposit Regulations’), the term NRI has been defined under section 2(vi), to mean a person resident outside India who is a citizen of India.
Earlier, the term NRI included Person of Indian Origin (‘PIO’). Now, PIO has been separately defined under section 2(x) of the FEMA Deposit Regulation, to mean as ‘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:
- Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
- Who belonged to a territory that became part of India after the 15th day of August, 1947; or
- 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
- 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) above.
Further, it has been explained that the term PIO includes an Overseas Citizen of India (‘OCI’) cardholder, who is registered as an OCI cardholder under Section 7(A) of the Citizenship Act, 1955. Regulation 2 (ak) of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 covers similar definition for OCI cardholders.
Thus, concept of NRI specifically excludes PIO / OCIs.
Resident Indians leaving India to become NRI:
As understood in article ‘FEMA Residential Status in India’, when an individual leaves India for permanently settling outside India, such an individual becomes non-resident immediately upon leaving India as intention of such an individual is to settle outside India. Also, such an individual would have applied for / obtained permanent residency of respective country.
In such a scenario, assets held in India which were acquired, held or owned by such an individual when he/she was resident in India or inherited from a person who was resident in India,
- Can be continued to be held/ owned by such an individual in India in its existing form;
- Can be transferred to another individual or person, subject to FEMA law;
- Can be invested in any assets in India;
- Money obtained in the form of income or sale proceeds from transfer of such an asset can be invested in Indian currency by such an individual in his / her NRI capacity
NRIs leaving India are required to re-designate their existing resident bank account into NRO account. Any investments in securities through demat account existing on the date of becoming NRI will be characterized as non-repatriable investment.
Any investment made by such NRI while he/she was resident under LRS scheme / ODI scheme, can be continued to be held. ODI investment would cease to be ODI and intimation in this regard needs to be communicated to RBI.
Further, any income earned outside India, need not be repatriated to India. Such an individual can make investments out of these earnings. Further, such an individual can retain foreign assets / security even after returning to India. Further, NRI can remit upto USD 1 million out of sale proceeds / balances in their account maintained with an authorised dealer in India.
Further, NRIs cannot invest in agricultural land/ plantations directly or indirectly. Any agricultural land held while he / she were resident, can be retained by such NRI. Further, NRIs cannot receive loan in INR from non-relative residents.
NRIs returning to India:
As understood in article ‘FEMA Residential Status in India’, when a non-resident returns to India for permanently settling in India, such an individual becomes Resident immediately upon arriving India as intention of such an individual is to settle in India. However, such an individual would be under onus to prove their intention to return to India permanently. Also, when such an Individual stays in India for more than 182 days in preceding financial year, such an individual would be considered as resident in India, without need of proving their intention. Until this time, there would be certain restriction on such an individual in India, such as buying of immovable property.
In such a scenario, assets held outside India which were acquired, held or owned by such an individual when he/she was resident outside India or inherited from a person who was resident outside India,
- Can be continued to be held/ owned by such an individual outside India in its existing form;
- Can be transferred to another individual or person in foreign currency, subject to FEMA law;
- Can be invested in any assets outside India;
- Money obtained in the form of income or sale proceeds from transfer of such an asset held outside India can be invested in foreign currency by such an individual outside India without obtaining RBI approval.
Any foreign currency bank account opened and maintained by such an individual outside India while being resident in respective country can be continued to be held by such an individual in its existing form. Any income earned through employment or business or vocation outside India, investment made outside India, gift or inheritance received while such person was outside India can be continued to be held outside India.
NRE and NRO account held in India by such a returning NRI is required to be re-designated to resident account immediately upon return in India. There is also option available to such NRI to transfer fund available in NRE account to the credit of RFC account. Any deposit held in FCNR account can be continued till maturity and upon maturity same shall be converted into rupee deposit account or RFC account.
These are brief provisions around NRIs and their holding of assets and entering into any transactions in India and outside India.
For more detailed discussion on the above subject, please do not hesitate to connect at contact@devadhaantu.in
