There are different definition of NRI as per RBI (Reserve Bank of India) and Income Tax Department:
As per RBI: A ‘Non-resident Indian’ (NRI) is a person resident outside India who is a citizen of India.
As per Income Tax: As per the current tax law, an Indian citizen who stays abroad for employment or is carrying on business for an uncertain duration is a non-resident. If any NRI in any financial year stays in India for 182 days or more, he becomes a resident citizen. Also, the law stipulates that a person will be deemed as resident if he has also visited in India for 365 days or more in the preceding four financial years.
Thus, we can simplify that an NRI is an Indian citizen or a foreign citizen of Indian origin who stays abroad for carrying on business or goes for an employment or on vocation with an intention for an uncertain duration of stay abroad is an NRI (Non-Resident Indian).
Here the main emphasis is on “Intention of Indefinite period of stay”. Thus, Those who stay abroad for education, on business trip, medical treatment or such other purposes and do not indicate an intention to stay there for an indefinite period, will not be considered as NRI.
Persons posted in U.N. organizations and officials deputed abroad by Central or State Governments or PSUs (Public Sector Undertakings) on temporary assignments are also treated as non-resident.
As per RBI, A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country (other than Bangladesh or Pakistan or such other country as may be specified by the Central Government), satisfying the following conditions:
Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); ( She/he, anytime, has held an Indian Passport) or
Who belonged to a territory that became part of India after the 15th day of August, 1947; or
Who is a child or a grandchild or a great-grandchild of a citizen of India or of a person referred to in clause (a) or (b) of Citizenship Act, 1955; or
Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c) of Citizenship Act, 1955.
A PIO also will include an ‘Overseas Citizen of India(OCI)’ cardholder. Such an OCI Cardholder should also be a person resident outside India.
“The above definition will also be applicable for the purpose of opening and maintaining bank accounts or investing in shares, bonds or mutual funds in India.”
FII is an entity incorporated outside India and duly registered with SEBI (Securities & Exchange Board of India) with an intention to make investments in Indian securities such as Equity, bonds etc.
Any NRI or PIO (other than Individual or entities of Pakistan and Bangladesh who require prior approval of the RBI) can open the following three types of accounts in India:
1. NRE Account: Non-Resident (External) Rupee Account Scheme
2. NRO Account: Non-Resident Ordinary Rupee Account Scheme
3. FCNR (B) Account: Foreign Currency (Non-Resident) Account (Bank) Scheme
Who can open: This account can be opened by NRIs and PIOs (individuals/entities of Pakistan and Bangladesh shall require prior approval of the RBI). It can be opened as a Savings account, Current Account, Recurring Deposit and Fixed deposit.
Repatriable: The NRE account balance is fully repatriable which means that it can be transferred to any bank account maintained in abroad bank or the home country of an NRI.
Currency: As the name suggests, NRE account is to be denominated in INR (Indian Rupees).
Mode of Operation in NRE account: NRE account may be held jointly in the names of two or more NRIs/ PIOs. NRIs/ PIOs can also hold this account jointly with a resident relative on ‘former or survivor’ basis. The resident relative can operate the account as a Power of Attorney holder during the lifetime of the NRI/ PIO account holder.
Credit Permitted in NRE account: Credit permitted in NRE account is only those credits which have not lost repatriable character. The following credits are permitted in NRE account:
1. Inward remittance from outside India
2. Interest accruing on the account
3. Interest on investment
4. Transfer from other NRE/ FCNR(B) accounts
5. Maturity proceeds of investments (if such investments were made from this account or through inward remittance).
6. Current income like rent, dividend, pension, interest etc. will be construed as a permissible credit to the NRE account.
Debit Permitted in NRE account: The NRE account can be debited for local disbursements, transfer to other NRE/ FCNR(B) accounts, investments in India and remittance outside India.
Taxability: The Income earned in an NRE account is fully exempted from Income tax in India.
Operations of NRE account by POA (Power of Attorney) in favour of a resident: Such operations are restricted to withdrawals for permissible local payments. The account holder can make payment to himself also through normal banking channels.
Loans against NRE account Balance: NRI or any third party as authorized by NRI can avail loan against such NRE deposits.
Change in residential status from Non-resident to resident: On the change of status of NRI to Resident, the NRE account should be designated as local account. Also, the NRI has an option to transfer the account balance to RFC account.
Who can open: NRO account may be opened by any person resident outside India for doing any bonafide transactions in rupees. Individuals or entities of Pakistan and Bangladesh shall have to require prior approval of the RBI. It can be opened as a Savings account, Current Account, Recurring Deposit and Fixed deposit.
Repatriable: An NRO account is, generally, not repatriable except for all current income. NRIs/ PIOs are permitted to remit up to USD 1 million out of their NRO account balance per financial year (April-March) along with their other eligible assets.
Currency: As the name suggests, NRO account is denominated in INR (Indian Rupees).
Mode of Operation in NRO account: NRO account may be held jointly in the names of two or more NRIs/ PIOs. NRIs/ PIOs can also hold this account jointly with a resident on ‘former or survivor’ basis.
Credit Permitted in NRO account: The following credits are permitted in an NRO account:
1. Inward remittances from outside India
2. Legitimate dues in India
3. Transfers from other NRO accounts are permissible credits to NRO account.
4. Rupee gift/ loan made by a resident to a NRI/ PIO relative within the limits prescribed under the LRS (Liberalized Remittance Scheme) may be credited to the NRO account.
Debit Permitted in NRO account: Any debit in a NRO account is permitted as under:
1. The NRO account can be debited for the purpose of local payments, transfers to other NRO accounts or remittance of current income abroad.
2. The balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to conditions as specified in FEMA guidelines.
3. Amount from NRO account can be transferred to NRE account within above USD 1 Million limit.
Taxability: The Income earned in an NRO account is fully taxable in India.
Operations of NRO account by POA (Power of Attorney) in favour of a resident: This is restricted to withdrawals for permissible local payments in rupees, remittance of current income to the account holder outside India or remittance to the account holder himself through normal banking channels. Such remittances will have to comply the rules related to repatriability.
Loans against NRO account Balance: NRI or any third party as authorized by NRI can avail loan against such NRO deposits only in India and no loan can be granted outside Indian against such deposits.
Change in residential status from Non-resident to resident:
Once an NRI holding an NRO account returns to India for any purpose indicating his intention to stay for an uncertain period, the NRO account is designated as resident account .
In a similar manner, when a resident Indian becomes an NRI, her existing resident account should be designated as NRO account.
An NRE account balance can be repatriated abroad without any limit but in NRO account, repatriation is not freely allowed. The NRO account balance can be used only for local payments in rupees. Any funds due to the NRI, which are not allowed to repatriate under FEMA, are required to be credited to NRO accounts.
Who can open and Term of deposit: This account can be opened by NRIs and PIOs (individuals/entities of Pakistan and Bangladesh shall require prior approval of the RBI). It can be opened as a Fixed deposit only for a term of one to five years.
Repatriable: The FCNR (B) account balance is fully repatriable which means that it can be transferred to any bank account maintained in abroad bank or the home country of an NRI.
Currency: FCNR (B) accounts can be opened by NRIs/PIOs in any permitted currency i.e. a foreign currency which is freely convertible. However, FCNR (B) accounts are generally opened in four major liquid currencies of the world : US Dollar (USD), British Pound (GBP), Euro (EUR) and Japanese Yen (JPY). NRIs with convertible currencies other than the above mentioned currencies may still open accounts by converting the currency into USD or GBP. On maturity of such deposits, the maturity amount will be converted to the original currency at the prevailing rate at the option of the account holder.
Mode of Operation in NRE account: FCNR (B) account may be held jointly in the names of two or more NRIs/ PIOs. NRIs/ PIOs can also hold this account jointly with a resident relative on ‘former or survivor’ basis. The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder.
Credit Permitted in FCNR (B) account: An FCNR (B) deposit account can be opened with only those credits which have not lost repatriable character. An FCNR (B) term deposit account can be opened through the following proceeds:
1. Inward remittance from outside India
2. Interest accruing on the account
3. Interest on investment
4. Transfer from other NRE/ FCNR(B) accounts
5. Maturity proceeds of investments (if such investments were made from this account or through inward remittance)
Debit Permitted in FCNR (B) account: The proceeds from an FCNR (B) deposit account can be used for local disbursements, transfer to other NRE/ FCNR(B) accounts, investments in India and remittance outside India.
Taxability: The Income earned in an FCNR (B) account is fully exempted from Income tax in India.
Operations of FCNR (B) account by POA (Power of Attorney) in favour of a resident: Such operations are restricted to withdrawals for permissible local payments. The account holder can make payment to himself also through normal banking channels.
Loans against FCNR (B) account Balance: NRI or any third party as authorized by NRI can avail loan against such FCNR (B) deposits.
Change in residential status from Non-resident to resident: FCNR (B) deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by the account holder. On the maturity of FCNR(B) deposits, the maturity proceeds may be credited to resident rupee deposit accounts after conversion into INR. The maturity amount can also be credited to RFC account (if the depositor is eligible to open RFC account), at the option of the account holder.
A PIO card (Person of Indian Origin Card) is issued by the Ministry of External Affairs, Government of India through its Consular, Passport and Visa (CPV) Division.
Benefits of a PIO card:-
(i) PIO cardholders do not need a visa to visit India for a period of 15 years from the date of issue of the PIO card.
(ii) They are exempted from registration at FRRO or FRO if their stay does not exceed 180 days, In case if the stay exceeds 180 days, they shall have to register with FRRO/ FRO within the next 30 days.
(iii) They enjoy parity with NRIs in economic, financial, and educational benefits like:-
a) Acquisition, holding, transfer, and disposal of immovable properties in India, except agricultural/ plantation properties
b) Admission of children to educational institutions in India under general category quota for NRIs, including medical and engineering college, IITs, IIMs, etc
c) Availing Various housing schemes of LIC of India, State Government, and Central Government agencies
d) All future benefits that would be exempted to NRIs would also be available to the PIO cardholders.
However, PIOs do not enjoy employment rights in Government of India services nor can they hold any constitutional office in the Government of India. They need prior permission for undertaking mountaineering, missionary activities, research work and to visit restricted areas in India.
Overseas Citizen of India (OCI) is a foreign citizen of Indian origin who are issued OCI Card by the Ministry of External Affairs, Government of India through its Consular, Passport and Visa (CPV) Division. OCI cardholders have the following benefits-
(i) They are allowed for multiple entries and multi-purpose life long visa to visit India;
(ii) They are exempted from reporting to Police authorities for any length of stay in India; and
(iii)They have parity with NRIs in financial, economic, and educational fields except in the acquisition of agricultural or plantation properties.
NRIs and PIOs can invest in Indian Mutual Funds as per permitted by Reserve Bank of India vide Schedule-5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. An NRI/PIO is permitted to invest in or redeem units of the mutual funds subject to conditions set out in the aforesaid regulations. However, they also have to comply with all regulatory requirements including the KYC before the investment. Countries, such as USA and Canada, have certain restrictions for NRIs/PIOs residing in those countries and without full disclosure NRIs/PIOs can not invest in Indian Mutual Funds.
Investment in Mutual funds by NRIs/PIOs can be on repatriation basis as well as non-repatriation basis.
Repatriable Basis:
To invest on a repatriable basis, an NRI/PIO must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds houses to offer various mutual fund schemes to NRIs/PIOs on repatriation basis, subject to the following conditions:
The schemes of mutual funds should be in compliance with the terms and conditions as stipulated by SEBI(Securities and Exchange Board of India).
The amount to be invested by NRI/PIO in mutual fund schemes should be received by inward remittance through normal banking channels, or by debit to an NRE / FCNR account of the NRI/PIO.
An NRI/PIO can remit the amount received by way of dividend / interest, redemption and maturity proceeds of mutual fund units through normal banking channels or can credit the same to NRE / FCNR account of the NRI/PIO, as desired by him subject to payment of applicable tax.
Non-Repatriable Basis
The Reserve Bank of India (RBI) has also granted a general permission to Mutual Fund houses to offer mutual fund schemes on non-repatriation basis. However, these are subject to the condition that funds for investment should be provided by debit to NRO account of the NRI/PIO.
An NRI/PIO is not permitted to make an investment in Indian Mutual Fund units in foreign currencies. Any investment in Mutual Fund units should be through the debit to NRE/NRO bank account in India.
No. NRIs/PIOs are not permitted to make the investment in Indian Mutual Fund units through their foreign bank accounts. Any investment in Mutual Fund units should be through the debit to NRE/NRO bank account in India only.
Yes. In a mutual fund investment, a POA holder has the authority to invest and redeem on behalf of the NRI/PIO. The Power of attorney should contain the signature of both the first holder and the POA holder. Also, the POA should be registered one then only the POA holder has the right to transaction on behalf of the NRI/PIO. The original POA or a copy duly notarized should be submitted.
The tax implications for NRIs/PIOs are the same as for the resident except the TDS provision, which is only applicable to NRIs/PIOs. An NRI/PIO is taxed on her Short/Long term capital gains in the same manner as a resident individual.
Capital Gains on Equity Mutual Fund: A holding period of less than 12 months is considered short term and more than 12 month is considered a long term.
The gain on short term holding is called Short term capital gain (STCG) and taxed at a flat 15%.
The gain on long term holding is called Long Term Capital Gain (LTCG) and is taxed at 10% exceeding Rs. 1 lakh exemption.
Capital Gains on Debt Mutual Fund: A holding period of less than 36 months is considered short term and more than 36 months is considered a long term.
The gain on short term holding is called Short term capital gain (STCG). The short term capital gain on Debt mutual fund units are added to other taxable income of NRI/PIO and taxed as per the applicable tax slab.
The gain on long term holding is called Long Term Capital Gain (LTCG). LTCG on debt mutual fund will be taxed at 20% after the indexation benefit.
Applicability of TDS provision for NRIs/PIOs: NRIs/PIOs are subject to TDS on their capital gain. This TDS is at the highest tax rate without any threshold value.
Thus, TDS on Short term capital gain is 15% in case of equity mutual funds and 30% in case of Debt mutual fund.
The TDS on Long term capital gain is 10% in case of equity mutual funds and 20% after indexation in case of Debt mutual fund.