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NRI’s – FAQ’s
Who is a Non Resident Indian?
Section 2 of the Foreign Exchange Management Act, 1999 (FEMA) deals with various definitions. It defines a person resident in India and a person resident outside India. However, it does not define the term non-resident nor it does define the term Non Resident Indian (NRI).
However, Notification No. 5/2000-RB (dealing with various kinds of Bank Accounts) defines the term Non Resident Indian (NRI) to mean a person resident outside India who is either a citizen of India or is a person of Indian origin. In short, the definition of the term NRI is contextual and can have slightly different connotations for FEMA/Income Tax/Acquisition of Immovable Property etc.
Who is a Person of Indian Origin (PIO)?
1. For the purposes of availing of the facilities of opening and maintenance of
bank accounts and investments in shares/securities in India;
Person of Indian Origin means any person:
a) who at any time, held an Indian passport; or
b) he/she or either of his/her parents or his/her grandparents was a citizen of India by virtue
of the Constitution of India or the Citizenship Act, 1955(57 of 1955) or
c) the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b) above.
2. For investment in immovable properties;
Person of Indian Origin means an individual (not being a citizen of Pakistan or Bangladesh or
Afghanistan or Bhutan or Sri Lanka or Nepal or China or Iran):
a) who at any time, held an Indian passport or
b) who or either of whose father or whose grandfather was a citizen of India by virtue of the
Constitution of India or the Citizenship Act, 1955(57 of 1955)
3. For the purpose of PIO card scheme;
A foreign citizen if he/she at any time held an Indian Passport; or he/she or either of his/her parents
or grand parents or great grand parents was born in and permanently resident in India as defined in the
Government of India Act,1935 or his/her spouse (for details, see Chapter 5 on PIOs).
NRIs/PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign
exchange brought in from abroad or out of funds legitimately due to them in India.
Such accounts can be opened with banks specially authorised by the Reserve Bank in this behalf
There are three types of Non-Resident accounts:
1) Non- Resident (External) Rupee Accounts (NRE Accounts)
NRIs and PIOs are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts
can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by
remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of
the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted.
Power of attorney can be granted to residents for operation of accounts for limited purposes.
The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable.
Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI.
Funds held in NRE accounts may be freely transferred to Foreign Currency Non Resident (FCNR) accounts
of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts
of the same account holder.
2) Ordinary Non-Resident Account (NRO Accounts )
These are Rupee dominated non-repatriable accounts and can be in the form of savings, current, recurring
or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National
/PIO resident in India leaves for taking up employment etc. outside the country, other than Nepal or
Bhutan, his bank account in India gets designated as NRO account.
The deposits can be used to make all legitimate payments in rupees. Interest income from NRO accounts
is taxable. Interest income, net of taxes is repatriable. Authorised dealers may allow remittances upto US
$ 1 million, per calendar year, out of balances held in NRO account for any bonafide purpose.
FOREIGN CURRENCY ACCOUNTS
3) Foreign Currency Non Resident (Bank) Accounts (FCNR (B) Accounts)
NRIs/PIOs are permitted to open such accounts in US dollars, Sterling Pounds, Japanese Yen, Euro,
Canadian Dollars and Australian Dollars. The accounts may be opened in the form of term deposit
for any of the three maturity periods viz; (a) one year and above but less then two years (b) two years
and above but less then three years and (c) three years only. Now RBI has allowed banks to accept
FCNR (B) deposits upto maximum maturity period of five years.
Interest income is tax free in the hands of the NRI until he maintains a non-resident status or a
resident but not ordinarily resident status under the Indian tax laws.
FCNR (B) accounts can also be utilised for local disbursement including payment for exports from
India, repatriation of funds abroad and for making investments in India, as per foreign investment
Is Investment by Non-Resident Indians (NRIs) permitted?
The Government attaches importance to investments by NRIs. Government has provided a liberalised
policy framework for approval of NRI investments through both the Automatic and the Government route.
NRIs are permitted to invest up to 100% equity in the Real Estate and Civil Aviation Sectors. Automatic
Approval is given by the RBI to all NRI proposals with their investment up to 100% for all items/activities
except a few exceptions mentioned in Press Note 2 (2000 series) read with sector specific guidelines.
Government approval is given for all proposals not qualifying for Automatic Approval.
If any permission from RBI is required to acquire or transfer agricultural land / plantation
property/ farm house by a person resident outside India or a foreign national, to whom should the
application be made? Is there any prescribed form for the application?
All requests for acquisition or transfer of agricultural land /plantation property/farm house by any
person resident outside India or a foreign national may be made to the Chief General Manager, Reserve Bank
of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai-400
001 (India). No application form has been prescribed.
Is there any restriction on number of residential properties that may be purchased by an NRI?
Is there any restriction on period of holding for such properties?
There are no restrictions on number of residential properties that may be bought by an NRI. However,
repatriation is allowed only in respect of two such properties and that, too, after three years from date of
acquisition of such property or from date of payment of final instalment, whichever is later.
Can NRI repatriate the full consideration upon the sale of his property?
India is a fully convertible on current account and partial on capital account. Remittance of sale
proceed is limited to the cost of property only and the amount of gain on sale of property, can not be