An Indian citizen leaves India for the purpose of employment, business, education, stay with parents/ children, with the intention of staying abroad for an uncertain period. In such cases, he becomes a NRI the moment he leaves India, even if he has not stayed abroad for 182 days or more during the financial year as per FEMA ( Foreign Exchange Management Act)
Students going abroad for studies are treated as Non- Resident Indians (NRIs) and are eligible for all the facilities available to NRIs under FEMA.
As non-residents, they will be eligible to receive remittances from India
NRIs can invest in mutual funds in India – as long as they adhere to the Foreign Exchange Management Act (FEMA).
A mutual fund in your home country can give you a diversified portfolio with the desired mix of debt and equity securities. Even if you are risk-averse and want a fixed income investment avenue, the Indian debt market comes with higher interest rates.
India may soon have one investment avenue for non-resident Indians (NRIs). A Securities and Exchange Board of India panel is set to suggest that the NRI and portfolio investment scheme (PIS) routes be merged with that of foreign portfolio investors (FPIs). The move is aimed at having a uniform regime for all foreign portfolio investors, said three people close to the development.
“The merger will help SEBI regulate NRI investments in India as the regime is currently unregulated. There i There is no reporting and monitoring for NRIs, but this proposal will now bring them under SEBI,” said one of the persons. “For investors, it will be less disruptive as they just have to migrate to FPI. Also, all the current limitations on NRI investments under the FPI regulation will go away.”
NRIs are currently allowed to invest in Indian markets directly and indirectly through multiple routes. NRIs and persons of Indian origin (PIOs) are allowed to invest directly in Indian companies under PIS. They can also purchase mutual fund units, invest in private equity funds and use the offshore FPI route. Besides, NRIs and PIOs are allowed to invest in debentures of Indian companies and government securities.
NRI investments are governed under Foreign Exchange Management Act besides having to abide by Sebi regulations and the foreign direct investment policy. “The nature of regulation in foreign portfolio investment has been accumulating over time, without a cohesive core,” said Sandeep Parekh, founder, Finsec Law Advisors.
“NRIs, OCIs (overseas citizens of India) and PIOs are concepts meant to extend the rights of people who have deep ties to India because of their origin. When the same concept is directly adopted in investment laws and used to impose restrictions on such a broad class of people, this in turn becomes a restriction on such people.
FATCA is applicable for all NRI’s and will have a significant impact on NRIs' tax compliance. FATCA requires all foreign financial institutions (FFIs) to enter into an agreement with the US government and disclose foreign account information of US accountholders. This includes all banks and financial institutions in India. In order to effectively force FFIs into compliance, institutions who fail to supply this information to the US government will be subject to a punitive 30% withholding tax on all payments cleared through the United States banking system (most FFIs clear payments through the US banking system).
While FATCA has generated consternation abroad, nearly 30 countries have already entered into information sharing agreements with the US government including Canada, Singapore and many European nations. India has been in discussions to enter into an intergovernmental agreement with the US, where it is expected that Indian financial institutions will be required to disclose account information of US accountholders (including US NRIs' NRO, NRE and NRI accounts). The US Department of Treasury indicates that India has reached an intergovernmental agreement with the US in substance beginning from April 11, 2014. As a result, it is anticipated that a USA-India FATCA agreement will be signed soon.
An Indian residing abroad is popularly referred to as a non-resident Indian (NRI). Under India's tax laws, the reference is to the term 'tax resident' or 'non-resident'. The country of origin does not determine the taxability. For instance, a UK citizen who is working in Mumbai in the subsidiary of a UK parent company could be a tax resident of India. An Indian who has migrated to Australia on March 20 may in common parlance be an NRI, but for tax purposes for the financial year 2016-17, he is likely to be tax resident of India.
The number of days stay in India, as provided for in the Income Tax (I-T) Act, determines the tax residential status of an individual in India. This status, in turn, determines which income can be taxed in India and what cannot be taxed. Thus, it is important to know which category you fall into. An individual is considered to be a tax resident of India (also referred to as Indian tax resident) for a financial year (say FY 2016-17) if (i) he has been in India for 182 days or more during that FY, or (ii) he has been in India for 60 days or more during that particular FY and has lived in India for at least 365 days or more during the four years immediately preceding.
The Reserve Bank today tightened reporting norms for the Liberalised Remittance Scheme (LRS) under which an individual can transfer up to USD 2,50,000 abroad in a year.
The LRS transactions are currently permitted by banks based on the declaration made by the remitter.
The monitoring of adherence to the limit is confined to obtaining such a declaration without independent verification, in the absence of a reliable source of information.
"In order to improve monitoring ng and also to ensure compliance with the LRS limits, it has been decided to put in place a daily reporting system by AD banks of transactions undertaken by individuals under LRS, which will be accessible to all the other ADs," the RBI said in a notification.
Now banks will be required to upload daily transaction-wise information undertaken by them under LRS.
Under the LRS, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both.
Individuals can avail of foreign exchange facility for the purposes within the limit of USD 2,50,000 only.
The scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
NRI return to India permanently after residing abroad for a continuous period of one year or more. In order to calculate this continuous period, any short trips to India for personal visits would be ignored.
TAX IMPLICATION
For income received or deemed to be received or accrues or arises in India during the previous year, both ROR and NOR/ NRI are fully taxable.
For income which accrues or arises outside India and received outside India in the previous year from any other source, for ROR is fully taxable, while NOR/ NRI is not taxable.
For income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year, both ROR and NOR/ NRI are not taxable.