Who is a Non-Resident Indian (NRI)
A non-resident Indian (NRI) is an Indian citizen or a foreign citizen of Indian origin who stays abroad for employment/carrying on business or vocation or under circumstances indicating an intention for an uncertain duration of stay abroad is a NON-RESIDENT INDIAN (NRI).
Who is a Person of Indian Origin (PIO)
Person of Indian Origin means a citizen of any country (other than Bangladesh or Pakistan), if the person:
(a) He/She at any time has held an Indian passport; or
(b) He/She or either of his/her parents or grand parents were citizens of India; or
(c) He/She is a spouse of an Indian citizen, or of a person referred to in (a) or (b) above.
Who is a Foreign Institutional Investor (FII).
FII is an institution established or incorporated outside India, which proposes to make investments in Indian securities and is registered with SEBI.
Can an NRI maintain a bank account in India.
Yes. NRIs can maintain accounts in rupees as well as in foreign currency. Accounts in foreign currencies can be maintained with authorised dealers only.
What are the different types of rupee accounts that can be maintained by NRIs.
The three types of rupee accounts permitted that can be maintained by NRIs are as follows:
i. NRE : Non-Resident (External) Rupee Account
ii. NRO : Non-Resident (Ordinary) Rupee Account
iii. FCNR – B : Foreign Currency (Non –Resident) Accounts (Banks)
What are NRE, NRO and FCNR accounts.
Non-Resident (External) Rupee (NRE) account is a rupee account from which funds are freely repatriable. It can be opened with either funds remitted from abroad or local Funds which can be remitted abroad.
Non-Resident Ordinary Rupee (NRO) account is a rupee account and can be opened with funds either remitted from abroad or generated in India. These funds are non-repatriable. However, funds in NRO accounts can be remitted abroad subject to/as per various directives in force at the time of repatriation. More details can be found on the Reserve Bank of India (RBI) website www.rbi.org.in
Foreign Currency Non-Resident Rupee (FCNR). This account is similar to the NRE account except that the funds are held in foreign currencies and can be maintained in U.S. Dollar, Pound Sterling, Deutsche Mark (upto December 2001), Euro and Japanese Yen. FCNR accounts can be maintained only in the form of 'term deposits', i.e. a deposit kept for fixed periods ranging from 6 months to 3 years.
How do NRE and NRO accounts differ.
Balances held in NRE accounts can be repatriated abroad freely, whereas funds in NRO account cannot be remitted abroad but have to be used only for local payments in rupees. Consequently, funds remitted from local funds or abroad which can otherwise be remitted abroad to the accountholder can only be credited to NRE accounts
Can an NRI, and FIIs invest in mutual funds in India.
Yes. The following summary outlines the various provisions related to investments by Non-Resident Indians ('NRIs'), Persons of Indian Origin ('PIOs') and Foreign Institutional Investors ('FIIs') in the Schemes of the Mutual Fund and is based on the relevant provisions of the Income-tax Act, 1961 ('the Act'), regulations issued under the Foreign Exchange Management Act, 1999 and the Wealth-tax Act, 1957 (collectively called 'the relevant provisions').
The following information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult with his or her own tax advisors / authorised dealers with respect to the specific tax and other implications arising out of his or her participation in the funds.
Purchase Applications. NRIs and other overseas investors can invest in mutual funds on a Repatriable/Non-Repatriable basis as per the provisions of Schedule 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 ('the Regulations') as explained below.
Repatriable Basis - NRIs, PIOs. When NRIs and PIOs apply to purchase units on a repatriable basis, payments may be made inward remittances, or by cheques drawn on the NRE/FCNR account of the investor [Clause 3(2) of the Regulations] payable at the city where the application form is accepted by the mutual funds point of acceptance centres.
Non-Repatriable Basis - NRIs, PIOs. When NRIs/PIOs apply for units on a non-repatriable basis, payments may be made by inward remittances, or by cheques/demand drafts drawn on the NRE/FCNR/NRO account of the investor [Clause 3(3) of the Regulations], payable at the city where the application form is accepted by the mutual funds point of acceptance centres.
FII Investors. FIIs may pay for their purchases with funds held in a Foreign Currency account or Non-Resident Rupee account maintained in a designated branch of an authorised dealer [Clause 3(1) of the Regulations]. Payments may be made by cheques payable at a city where the application is accepted by the mutual funds point of acceptance centres.
Applications from FIIs should be accompanied by appropriate documentation supporting alongwith the status of the investor Similarly, in case of an application under a Power of Attorney or by an FII, the original Power of Attorney or the relevant resolution/authority to make the application (or a duly notarised certified true copy thereof), along with a certified copy of the Memorandum and Articles of Association and/or bye laws and Certificate of Registration should be submitted. The NRIs/PIOs/FIIs may also be required to furnish other documents needed to process their investments.
Whether NRI, PIO and FII require any approval from the RBI to invest in mutual funds.
No special approval is required. NRIs/FIIs/PIOs have been granted a general permission by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000] for investing in/redeeming units of the schemes subject to conditions set out in the aforesaid regulations
Whether NRIs can invest in foreign currency.
An NRI cannot make the investment in foreign currency. He needs to give us a Rupee cheque from his NRE, NRO, NRSR bank account in India. He may also send a Rupee cheque from abroad payable in a bank in India. However, for an NRI to invest, it is mandatory that he maintains a bank account in India.
What is the mode of payment for Repatriation and Non-Repatriation Basis.
A NRI Investors can make a purchase as per details below:
Repatriable Basis. Payments for the purchase of the units may be made by Indian Rupee drafts purchased abroad, or by cheques drawn on the NRE/FCNR Account of the investor, payable at the city where the application form is accepted by any Indiabulls Investor Service Centres.
Non-Repatriable Basis. Payments for the purchase of the units may be made by Indian Rupee drafts purchased abroad, or by cheques/demand drafts drawn on the NRE/FCNR/NRO/NRSR/NRNR account of the investor, payable at the city where the application form is accepted by any Indiabulls Investor Service Centres.
FII Investors. FIIs may pay for their subscription amounts by Indian Rupee drafts purchased abroad, or from funds held in a Foreign Currency account or Non-resident Rupee account maintained in a designated branch of an authorised dealer. The Indian Rupee drafts/cheques should be made payable at a city where the application is accepted by any Indiabulls Investor Service Centres.
Will the fund accept an NRI application with an overseas bank account detail.
No. Fund will not accept an NRI applications with the overseas bank account details.
How will the redemption proceeds be paid.
Redemption proceeds will be paid by cheque. The cheque will be payable to the first unit holder and will include the bank account number. Alternatively the redemption proceeds will be credited directly to the investor’s bank account, if the facility is provided by the fund house.
Redemption proceeds / repurchase price and / or dividend or income earned (if any) will be payable in Indian Rupees only. The fund will not be liable for any loss due to exchange fluctuations, while converting the Rupee amount into US Dollar or any other currency.
How can the redemption proceeds be repatriated.
The investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India.
In the case of an FII, the designated branch of the authorised dealer may allow remittance of net sale/maturity proceeds (after payment of taxes) or credit the amount to the Foreign Currency account or Non-Resident Rupee account of the FII, maintained in accordance with the approval granted to it by the RBI [Clause 5(i) of the Regulations].
In any other case, where the investment is made out of inward remittance or from funds held in the NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to the NRE/FCNR/NRO/NRSR account of the non-resident investor maintained with an authorised dealer in India [Clause 5(ii) of the Regulations].
Will you transfer money to an investor's overseas account.
No. Investors need to contact their authorised dealers for this service.
What is the tax liability on redemptions.
Under Section 2(42A) of the Income Tax Act, units of the fund held as a capital asset for a period of more than 12 months immediately preceding the date of transfer, will be treated as a long-term capital asset for the computation of capital gains, thus qualifying for the long-term capital gains tax rate. In all other cases, it would be treated as a short-term capital asset and would be taxed at the short-term capital gains tax rate.
What is the tax liability for income received from your mutual funds.
As per Section 10(35) of the Income Tax Act, 1961, income received from mutual fund units specified under Section 10(23D) is exempt from income tax in India and the mutual funds are subject to deduction of distribution tax in debt oriented schemes. Hence all dividends are tax-free in the hands of non-resident investors and no TDS is applicable on the same.
Is the indexation benefit available to NRIs.
Yes, if units are held for more than 12 months i.e. on long-term capital gains.
Are fund units liable to the wealth tax.
No. Units issued to overseas investors will not be treated as assets as defined under section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to wealth tax.
Can a fund dividend in an NRO account be repatriated.
Yes. Income generated from investments (dividend, in this case) done on a non-repatriable basis qualify for full repatriation.
Can an NRI fax a request followed by the original documents.
No. Units cannot be redeemed or allotted on the basis of fax applications. A request that lacks a valid signature cannot be processed due to legal restrictions.
Can a Power of Attorney (POA) invest on behalf of the NRI investor.
Yes. Unlike banks where a POA holder cannot open an account on behalf of the NRI, in a mutual fund the POA has the authority to invest on behalf of the investor and sign documents for initial and additional purchases as well as redemptions.
While applying for purchase of units the POA holder needs to submit the original POA or a copy duly notarised should be submitted. The Power of attorney should contain the signature of both the first holder and the POA holder. Only when the POA is registered does the POA holder have the right to transact on behalf of the NRI investor. His signature will be verified for processing any transaction/request.