An Indian residing abroad is generally known as Non-Resident Indian (NRI).
Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of Indian origin.
NRI includes the Person of Indian Origin (PIO). PIO is a person, who at any time held Indian Passport, or who, either of his parents or grandparents were a citizen of India, or a spouse of the persons mentioned as here.
Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan,
i. who at any time held Indian Passport, or
ii. who or either of whose parents or any of the grandparents was a citizen of India under Constitution of India or under Indian Citizenship Act, 1955, or
iii. who is spouse of an Indian citizen or spouse of person referred to in 1 and 2 above
Person resident outside India means a person who is not resident in India.
As per FEMA, a person resident in India means a person residing in India for more than one hundred and eighty-two days (182 days) during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period.
In other words, to be treated as ‘a person resident in India’, under FEMA a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose/intention of stay.
FEMA excludes person moving out of India for employment or business from category of Resident. Similarly it also excludes a person coming as tourist / visitor from the category of Resident.
Dealings in Foreign exchange-
Section 3 of FEMA, subject to otherwise provided in the Act, restricts a person to-
i. Withdraw or transfer any foreign exchange or foreign security to any person other than the authorised person;
ii. Make any payment in foreign exchange or receive any remittance from any person resident outside India;
iii. Receive otherwise (than) through an authorised person, any payment by order or on behalf of any person resident outside Indian;
iv. Make any agreement to enter into any financial transaction in India as consideration purchase or creation or transfer of a right to acquire, any asset outside India by any person.
Which means, transactions in foreign exchange can be done only in the manner as provided under the Act.
Current Account transactions
A general permission has been given under FEMA to deal in current account transactions. As such, subject to as provided in the Act, any person may sell or draw foreign exchange to or from an authorised person in relation to a currency in current account transaction.
Current account transactions usually relate to income and expenditure.
The following are considered to be a current account transaction-
i. Payment due in connection with foreign trade, other current business, service and short term banking and credit facilities in the ordinary course of business.
ii. Payment due as interest on loans and as net income from investments.
iii. Remittance for living expenses of parents, spouse and children residing abroad, and
iv. Expenses in connection with foreign travel, education and medical care of parents, spouse and children.
Some of the prohibited current account transactions (in foreign currency) are-
i. Remittance out of lottery winnings
ii. Remittance of income from racing/ riding etc or any other hobby.
iii. Payment of commission on exports made towards equity investment in JV/WOS abroad of Indian companies.
iv. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme.
v. Travel to Nepal.
vi. A transaction with a person resident in Nepal/ Bhutan unless permitted by RBI.
Capital Account transactions
Any transaction which alters the assets or liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.
The Central Government in consultation with RBI, may prescribe the class of capital account transactions, the limit and conditions for capital account transactions.
Some of the permissible Capital account transactions for persons Resident in India-
Acquire, hold, own, possess or transfer – Foreign exchange, foreign security, and immovable property outside India.
The following come under the capital account transactions-
i. Inbound Investment, ie Foreign Direct Investment (FDI) – Investment by person resident outside India in the securities of Indian companies/ LLPs.
ii. Outbound Investments (ODI)- Setting up/ investment in Joint Venture/ Wholly Own Subsidiary Companies by resident Indian persons.
iii. Foreign Loans ie, External Commercial Borrowings (ECB)- taking loan by the Indian Companies from abroad.
Disclaimer: This article has been prepared in good faith on the basis of information available on the date of publication without any independent verification. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.
(Author – Sonika Bharati, FCS, LL.B. is a Company Secretary in Practice from Delhi and can be contacted at [email protected])