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 17th 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Whilst the Non-debt Instruments Rules superseded the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (“the TISPRO Regulations”) as well as the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Immovable Property in India) Regulations, 2018 (“the ATIP Regulations”), whereas the Debt Instruments Regulations only superseded the TISPRO Regulations.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.

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3 Comments

  1. Raj Kumar Garg says:

    Dear sir,
    After spending 28 year abroad, I returned to India on 12th Jun 2020. My status for income tax purpose is RNOR. I would like to check if the interest on the NRE account will be taxable for the previous year 2020-21

    Regarrds

  2. Nitin Jain says:

    Sir i have one doubt regarding the forex trading in overseas through forex broker outside india…

    To be very specific in NADEX ( north american derivative exchange ) they consider themselve as commodity exchange as per there website definition.

    I am interested in binary option trading in NADEX which is regulated by CFTC in usa.

    Well my doubt is – as being a seaferer in foreign going ship i am considerd as PROI for financial year and hence i also have NRE account too.

    So can i be able to do trading in NADEX using my money in NRE account?

    I know that it is illegal for resident of india to be trading in abroad forex

    But i am PROI and i earn in USD which is in my Nre accout as indian rupees (but 100 percent repatriatable )

    Also as per FEMA act 1999.

    Person resident in india can hold, own, tranfer and invest in foreign currency, foreign securities and immovable properties outside india if he has earn the said amount when he was PROI

    I am asking this becoz i want to leave merchant navy and so later my NRI account will be consider as Regular account but my money that i earn before can be used to continue in forex trading in USA nadex.

  3. Nitin Jain says:

    Sir i have one doubt regarding the firex trading in overseas forex broker…

    To be very specific in NADEX ( north american derivative exchange ) they consdier themselve as commodity exchange as per there website.

    I am interested in binary option trading in NADEX which is regulated by CFTC in usa.

    Well my doubbt is as beinga seaferer in froeign going ship i am considerd as PROI for finaancial year and hence i have NRE account too.

    So can i be able to do trading in NADEX using my money in NRE account

    I know the that it is illegal for resident of india to trading in abroad forex

    But i am PROI and i earn in USD which is un my Nre accout ( 100 percent repatriatable )

    Also as per fema act 1999.

    Person resident in india can hold own tranfer andinvest in foriiegn currency, foreign securities an outside in immvable properties if he has earn the said amount when he was PROI

    I am asking this becoz i want to leave merchant navy and so ater my NRI account will be consider as Regular account but my miney that i earn before can be used toco tinue in forex trading in USA nadex.

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