Know Person Resident Outside India & NRI under FEMA

Know Person Resident Outside India (PROI) and Non-Resident Indian (NRI) under FEMA

Pursuant to the amendments to Foreign Exchange Management Act, 1999 (‘FEMA’) through Finance Act, 2015, recently, the Ministry of Finance notified the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“the Nondebt Instruments Rules”) vide Notification No. 3732(E) dated 17th October, 2019 and Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019.

The RBI issued the Foreign Exchange Management (Debt Instrument) Regulations, 2019 (“the Debt Instruments Regulations”). Consequent to issue of NDI Rules by Finance Ministry, RBI has issued Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 vide Notification No. G.S.R 795(E) dated 17^th October, 2019. The Regulation gives a clear picture about mode of payment, remittance of sale proceeds, reporting requirements etc. with respect to issue or transfer of securities.

Whilst the Non-debt Instruments Rules superseded the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (“the TISPRO Regulations”) as well as the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 (“the ATIP Regulations”), whereas the Debt Instruments Regulations only superseded the TISPRO Regulations.

Chapter II of the Nondebt Instruments Rules provides general conditions applicable to all investors. As per Rule 3 of Nondebt Instruments Rules save as otherwise provided in the Act or rules or regulations made thereunder, no Person resident Outside India (‘PROI’) shall make any investment in India.

Chapter III of the Nondebt Instruments Rules deals with the Investment by PROI. In this regard, it will become important to know the definition of PROI. In accordance with the provisions of FEMA, 1999, as contained in Section 2 (w), “‘person resident outside India’ (PROI) means a person who is not resident in India”.

According to the above definition a person who is not resident in India shall be considered as PROI. Therefore, it is essential to understand the two terms herein one- ‘person’ and another ‘non-resident in India i.e. person resident in India’.

Person: – In accordance with the provisions of FEMA, 1999, as contained in Section 2 (u), ‘person includes:

(i) An Individual

(ii) A Hindu Undivided Family (HUF),

(iii) A Company,

(iv) A firm,

(v) An Association of Persons or a Body of Individuals, whether incorporated or note,

(vi) Every artificial juridical person, not falling within any of the preceding sub-clause, and

(vii) Any agency, office or branch owned or controlled by such person.

Person Resident in India: – In accordance with the provisions of FEMA, 1999, as contained in Section 2 (v), ‘person resident in India’ (PRI) means:

1. A person residing in India for more than 182 days during the course of the preceding financial year but does not include–

a. person who has gone out of India or who stays outside India, in either case-

(i) For or on taking up employment outside India, or

(ii) For carrying on outside India a business or vocation outside India, or

(iii) For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

b. A person who has come to or stays in India, in either case, otherwise than:

(i) For or on taking up employment in India, or

(ii) For carrying on in India a business or vocation in India, or

(iii) For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

2. Any person or body corporate registered or incorporated in India.

3. An office, branch or agency in India owned or controlled by a person resident outside India.

4. An office, branch or agency outside India owned or controlled by a person resident in India.

Analysis-

A. A person is Resident in India if he has been in India for a period of more than 182 days during the preceding financial year. However, there are a few exceptions wherein the above definition does not apply:

1. If you have gone out of India (or stay outside India) for taking up employment

2. If you have gone abroad (or stay abroad) for carrying out a business.

3. If you have gone abroad (or stay abroad) for any purpose that indicates your intention to stay abroad for an uncertain period.

In such exceptional cases, person can be considered Resident Outside India even if he has been in India for a period of more than 182 days.

B. Furthermore, person is a Resident Outside India if he is in India for 182 days or less during the preceding financial year. However, there are a few exceptions. The above definition does not apply:

1. If you come to (or stay in) India for taking up employment.

2. If you come to (or stay in) India to carry on a business or vocation

3. If you come to (or stay in) India for any purpose that indicates your intention to stay in India for an uncertain period.

In such cases, person will be considered Resident in India even if he has stayed in India for less than 182 days during the preceding financial year.

Whether NRI same as PROI?

As per Rule 2 (aj) of Nondebt Instruments Rules, “NRI” or Non-Resident Indian” means an individual resident outside India who is a citizen of India. Therefore, to be qualify as NRO, a person should be

i) An Individual;

ii) Resident outside India and

iii) Citizen of India.

In view of the above, we can say PROI covered an NRI.

Let us take- If you (individual) are settled abroad and have come to India for a purpose other than employment or business and have no intention to stay in India permanently, you will continue to be considered Resident Outside India (NRI) irrespective of your duration of stay in India.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.