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NRI Taxation
 
An Indian Citizen who stays abroad for employment/ carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident.

Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year.

Certain FAQs about NRI Taxation:

1. What is the distinction between NRE and NRO accounts?
Both accounts are opened by NRIs with Indian banks. Funds remitted from abroad or local funds, which can otherwise be remitted abroad to the account holder, can be credited to NRE Accounts. Local funds, which do not qualify for remittance outside India, are required to be credited to NRO accounts.

2. What are Foreign Exchange Assets and Specified Assets?
As per Section 115C of Indian Income Tax Act, 1961 Foreign Exchange Asset means any Specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible Foreign exchange.
Specified Asset means any of the following assets:
  • Shares in an Indian company;
  • Debentures issued by an Indian company which is not private company as defined in Companies Act, 1956;
  • Deposits with an Indian company which is not private company as defined in Companies Act, 1956;
  • Any security of the Central Government as defined in clause (2) of section 2 of the Public Debt Act, 1944;
  • Such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.

3. Whether Right Shares and Bonus Shares form part of Foreign Exchange Assets?
RBI is silent on the issue of bonus shares and right entitlements. In the case of bonus shares, one can safely take the view that if the bonus shares are allotted as a result of shares for which payment is made by the way of inward remittance in foreign currency or by debit to NRE / FCNR account they would be treated as foreign Exchange Assets.
Though nothing specific has been mentioned regarding the right entitlement, one can apply the analogy of bonus shares to right entitlements also. If payment for the original shares has been made by the way of inward remittance in foreign currency or by debit to NRE/ FCNR Account they would be treated as foreign exchange assets.

4. What is meant by investment through direct subscription route?
As per the regulations NRIs are allowed to invest up to a certain percentage of the total paid up capital of the company by directly subscribing to the equity/convertible debentures of the company either though a public offering made by the company or through private placements on one to one basis.

5 . What is the Portfolio Investment Scheme?
Portfolio Investment Scheme (PINS) is a scheme of the Reserve Bank of India (RBI) defined in Schedule 3 of Foreign Exchange Management Act 2000 under which the 'Non Resident Indians (NRIs)' and 'Person of Indian Origin (PIOs)' can purchase and sell shares and convertible debentures of Indian Companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch .These investments require prior approval of RBI Designated branch of authorized banks have been now empowered to issue such permissions to NRIs.

6. What steps does an NRI need to take to begin his or her investment in the Indian stock Market?
  • An NRI should open a new bank account with designated bank branch which is approved by RBI (Reserve Bank of India) for this purpose.
  • He should apply for a general approval for investment in Indian Stock Market through his designated bank branch.
  • He should open a Demat Account with a Depository Participant to hold his shares.
  • He needs to register with a broker to execute his buy/sell orders on the stock exchange(s).

7. Which are the broad schemes under which an NRI can make investments in the Indian companies?
Broadly, NRIs are allowed to invest under the Portfolio Investment Scheme (buying through the secondary market) and through the Direct Subscription route (Investments though IPOs/offer for sale /Private Placements).

8. Can NRIs invest in shares/debentures of Indian Cos., and other securities on a non-repatriation basis?
Yes, NRIs can invest without any limit on non-repatriation basis in shares and convertible debentures of Indian Cos., issued either by public issue or private placement or right issues. NRI can also purchase Govt. Securities (other than bearer securities), treasury bills, units of domestic mutual funds etc on non-repatriation basis.

9. Can NRIs invest in Govt. Securities etc. on repatriation basis?
Yes. NRIs can invest on repatriation basis in:
Govt. securities(other than bearer securities), treasury bills or units of domestic Mutual Funds
  • Bonds issued by PSUs
  • Shares in Public Sector Enterprise disinvestments by Govt. of India
  • Fund for such investment are to be received through foreign inward remittance or to debit of NRE/FCNR accounts.
The above securities can be sold through stockbrokers on a recognized stock exchange or tender units of mutual funds to the issuer for repurchase or for payment of maturity proceeds or tender Govt. securities/Treasury Bills to RBI for payment of maturity proceeds. The sale proceeds can be repatriated net of Indian Tax.

10. Can NRI/PIO invest in any immovable property in India?
An NRI does not require any permission to acquire any immovable property in India or transfer any property in India to a Resident citizen of India.
PIO's who are citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, require prior permission of RBI for acquiring or transferring any immovable property in India.
PIO has some restrictions. He does not require any permission to
  • Purchase a property out of forex.
  • Acquire a property by way of gift from a ROI.
  • Acquire a property by way of inheritance from a Resident or a person Resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or FEMA.
  • Sell any immovable property in India to a Resident.
  • Gift or sell agricultural property to a Resident who is a citizen of India.
  • Gift or sell a residential or commercial property in India to a Resident or person
  • Resident outside India.

For any further queries please Contact our experts on NRI taxation.