NRI BANKING
Project On INNOVATIVE BANKING SERVICES PROVIDED TO NRI
BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V 2010-2011
Submitted By JINAL.M.MEHTA ROLL NO- 34
S.K. SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE VIDYAVIHAR 1
NRI BANKING
CHAPTER NO
01
TOPIC NAME
NO • ACKNOWLEDGEMENT
05
• EXECUTIVE SUMMARY
06
• RESEARCH METHODOLOGY
07
• OBJECTIVES OF THE STUDY
08
• SCOPE OF STUDY
08
INTRODUCTION ON NRI BANKING:-
09
• Who is an Nri?
10
• Pio card scheme
11
• What is an OCB?
13 14
• Key benefits
15
• Types of accounts
19
• Opening of NRI A/c
02
PAGE
DEFINATION:• Definition of NRI – under Foreign Excange
24
Management Act,1999 • Defination of PIO
03
27
DEPOSITORY’S SCHME FOR NRI’S:2
NRI BANKING
04
• NRE A/c
30
• Types of Accounts
30
• FCNR A/c
34
• NRO A/c
36
• Tax Benefits for NRI’s
41
SERVICES OFFERED BANK TO NRI’S:-
BY
VARIOUS
• Banking Services
43
• Services offered by ICICI Bank
44
• Facility available as per RBI/FEMA
45
guidelines 05
RBI ISSUES GUIDELINES FOR MONEY TRANSFER SCHEME:48
• Money transfer • International SWIFT transfer • Demand (or bankers) draft
49 49 50
• UAE Exchange • Wester union Money Transfer
50 50
• Sendwise • Moneygram send money online today • ICICI & HDFC bank NRI money transfer
06
3
51 52
NRI BANKING
NRI INVESTMENTS:-
07
•
Investment opportunities in India for NRI
•
RBI forms
52 55
NRI INVESTMENT IN IMMOVABLE PROPERTY IN INDIA:•
Rules for acquisition 7 transfer by foreign
56
citizen NRI’s
08
•
Mode of payment
58
•
Repatriation of sale proceeds
59
PAN CARD FOR NRIs:• Applying for pan card, necessity for pan
60
card,charges of pan card • Demat a/c
62
• CASE STUDY ON NRI
66
• CONCLUSION
70
• ANEXXURE
71
• FINDINGS AND SUGGESTION
72
• BIBLIOGRAPHY
74
4
NRI BANKING
ACKNOWLEDGEMENT First and Foremost I thank the ALMIGHTY for the Inspiration and strength to complete this project report successfully. I would firstly like to thank Prof.Parvathy Venkatesh who has provided me the kind opportunity to do this project and to finish it in a successful manner. My heartily thanks to Mrs. Mahek Mansuri the coordinator of my group and other faculties, who have right from the beginning encouraged me to do the project well. I consider it my proud privilege and immense pleasure working under the guidance of Ms Marelia Mam, who gave me a constant guidance valuable suggestions and inspiring encouragement to make my study a success. My sincere thanks toms Ms Marelia Mam, who has done me the corrections and formatting of project report and helped me by providing details and quotations of my topic, this helped me make my project very precise and accurate to a great extent On a personal note, I wish to thank my family members and friends for their constant support in helping me accomplish my mission 5
NRI BANKING
EXECUTIVE SUMMARY :NRI Banking is becoming popular among the Non-resident customers. As India is showing progress more & more NRI investing in the country. Banks should try to give their top class service to the NRI’s as they are looking for convenience, speed, high yield on investments with manageable risk, reasonable cost & quality services. Bank should lower the minimum balance requirement which is Rs.50,000 for NRI,s as compared to resident who have to keep Rs.1000. The documentation procedure in case of opening of a/c in banks, investing in any property, for buying shares & debt. should be reduced and in case of loan at a faster speed. The services of banks should be fast, accurate & upto the standard as they have to face competition not only from the local banks but also from the banks based overseas. Banks should also extend their services by providing ATM’s abroad, E -banking with efficient facility & balance inquiry message through mobilizes. Investment of NRI would help to bring more inflow of foreign exchange through taxes & investment policy & this would help Indian government to repay its debt to the World Bank. Indian government should give their best services & efforts to encourage NRI to invest in India. This would help our economy to flourish & grow in future.
6
NRI BANKING
RESEARCH METHODOLOGY In order to conduct the research an appropriate methodology became necessary. In primary as well as secondary data were attempted to be
this
direction
both
collected.
The methodology for collecting data with reference to the secondary data was taken from the different published articles, books, journals, and the relevant websites. The library of the college was of great help.The questionnaire was initially prepared in tough sketch at the first instance. These questions were discussed with our internal guides and our teaching faculty. They have provided valuable suggestions, additions deletions and modification of the rough questionnair Methodology became a preplanned strategy in collecting, editing, tabulating and in interpreting the required information for the research.Thus methodology relied on both primary and secondary data with the help of questionnaires, discussions, observations as well as published work and unpublished work
7
NRI BANKING
OBJECTIVE OF THE STUDY To get an overview of NRI BANKING SERVICES To analyze the growth of NRI banking services To study the innovative concepts emerging in the banking industry for NRI’s To observe the facility provided to NRI by Indian banks To analyse the response of the NRI given to the computerization & new invention in an Indian banks.
SCOPE OF STUDY:The scope of the study is to extended the knowledge about the nri banking services provided by banks but restricted to only ICICI Bank. AREA :- In the vicinity of Mumbai (India) services for NRI by banks
BRANCH :- ICICI ( Industrial Credit and Investment Corporation of India) bank Andheri branch.
TIME FRAME :- Aug 20th 2010 TO SEP 24th 2010.
8
NRI BANKING
CHAPTER 1. INTRODUCTION
NRI Banking – An Introduction:As per RBI guidelines, the residential status of an Indian changes to that of the Non-Resident, in the event of his stay abroad being more than 183 days. This period of 183 days is not applicable in certain cases like going overseas for employment or business. It is mandatory to inform the bank of your change of your residential status. With a view to attract the savings and other remittance into India through banking channels from the person of Indian Nationality / Origin who are residing abroad and bolster the balance of payment position, the Government of India introduced in 1970 Non-Resident(External) Account Rules which are governed by the Exchange Control Regulations. The funds held in Non-Resident (External) Accounts (NRE Accounts) qualify for certain benefits like exemptions from taxes in India, free repatriation facilities, etc. NRI banking facilities are available to NRIs and PIOs.
9
NRI BANKING
WHO IS A NON – RESIDENT INDIAN [NRI] ? A Non Resident Indian (NRI) as per FEMA 1999 is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year. To meet the specific needs of non-resident Indians related to their remittances, savings, earnings, investments and repatriation, the Government of India introduced in 1970 Non-Resident (External) Account Rules which are governed by the Exchange Control Regulations. "Non Resident Indian" (NRI) means an Indian citizen or a foreign citizen of Indian origin (excluding citizens of Bangladesh and Pakistan) residing outside India. Students studying abroad are also treated as NRIs. Indian citizen who stays abroad for an indefinite period on employment, business or on any vocation is a Non-Resident. Diplomats posted abroad, persons posted in UN Organizations and Officials deputed by PSU on temporary assignments are also treated as Non-residents.
10
NRI BANKING
PIO CARD SHCEME The Government has launched a comprehensive Scheme for the Persons of Indian Origin-called the ‘PIO Card Scheme’. Under this Scheme, Persons of Indian Origin up to the fourth generation (great grandparents) settled throughout the world, except for a few specified countries, would be eligible. The Card would be issued to
eligible
applicants
through
the
concerned
Indian
Embassies/High
Commissions/Consulates and for those staying in India on a long term visa, the concerned Foreigners Regional Registration Officer (Delhi, Mumbai, Calcutta, Chennai) would do the same. The fee for the card, which will have a validity of 20 years, would be US$1000. In this scheme, unless the context otherwise requires"Person of Indian origin" means a foreign citizen (not being a citizen of Pakistan, Bangladesh and other countries as may be specified by the Central Government from time to time) if, He/she at any time held an Indian passport; or He/she or either of his/her parents or grandparents or great grandparents was
born in and permanently resident in India as defined in the Government of India Act, 1935 and other territories that became part of India thereafter provided neither was at any time a citizen of any of the aforesaid countries (as referred to in 2(b) above); or He/she is a spouse of a citizen of India or a person of Indian origin covered
under (i) or (ii) above.
11
NRI BANKING
Besides making their journey back to their roots simpler, easier and smoother, this Scheme entitles the PIOs to a wide range of economic, financial, educationaland cultural benefits. The benefits envisaged under the Scheme include: No requirement of visa to visit India; No requirement to register with the Foreigners Registration Officer if continuous stay does not exceed 180 days. If continuous stay exceeds 180 days, then registration is required to be done within a period of 30 days of the expiry of 180 days; Parity with Non-Resident Indians in respect of facilities available to the latter in economic, financial, educational fields etc. These facilities ill include: Acquisition, holding, transfer and disposal of immovable properties in India except of agricultural/plantation properties; Admission of children in educational institutions in India under the general category quota for NRIs- including medical/engineering colleges, IITs, IIMs etc. Various housing schemes of Life Insurance Corporation of India, State Governments and other Government agencies; All future benefits that would be extended to NRIs would also be available to the PIO Card holders; However, they shall not enjoy political rights in India.
12
NRI BANKING
What is an OCB? Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. Such ownership interest should be actually held by them and not in te capacity as nominees. The various facilities granted to NRIs are also available with certain exceptions to OCBs so long as the ownership/beneficial interest held in them by NRIs continues to be at least 60% What are the various facilities available to NRIs/OCBs? NRIs/OCBs are granted the following facilities: Maintenance of bank accounts in India. Investment in securities/shares of, and deposits with Indian firms/ companies. Investments in immovable properties in India.
13
NRI BANKING
KEY BENEFITS NRI-Banking follows a modular structure. The various modules render our NRI Banking solution offerings (which are stated below) in a seamlessly integrated fashion. The Masters module permits maximum parameterization to be done, enabling the end user to make all changes with regard to Interest Rates or with regard to any changes
as
per
Maintains
Bank,
directives
from
Head
Office
/
RBI.
Branch and holiday details
Facilitates maintenance of Instrument, Interest rate and overdue interest rate details Masters. Inventory, Currency, Country, Exchange rate and return reason details are also maintainedFavors opening, authorization and freezing of AccountsTransaction entry and
passing
is
made
easy
Provisions availed for issuing, passing and stop payment of cheques. Supports Account closure, Preclosure, Renewal & overdue renewal of Deposits. Aids
Day
Begin,
Day
End
&
Month
End
Processing
Processes Quarterly, and transfer to Inoperative & Half Yearly - SB Interest Calculation. Hastens Deposit Receipt Printing, Changing to RFC, Interest Payment & Overdue Process. Supports Acceptance and Execution of standing instruction.
14
NRI BANKING
Types of accounts NRI accounts are maintained by banks which hold authorized dealers' licences from the Reserve Bank of India. Some cooperative and commercial banks have also been specifically permitted to maintain NRI accounts in rupees even though they are not authorized dealers. The financial budget for 2007-08 extends NRI accounts to regional rural banks (RRBs) as well. This would boost remittances from NRIs particularly in Bihar, Kerala, Uttar Pradesh and Gujarat where a large number of persons from rural areas from these states are employed overseas. Banking Laws for NRIs allow for accounts with authorized dealers to be maintained in Indian rupees and in foreign currency. Various accounts:
NRE A/c - non residential (external) rupee account.
FCNR-B A/c - foreign currency non residential account.
NRO A/c - non resident ordinary account.
RFC A/c - resident foreign currency account.
All NRIs can open such accounts, with the exception of individuals residing in Pakistan and Bangladesh, who require special permission from the RBI. Joint accounts of two or more non-residents and nomination facility are permitted. While the FCNR (B) is a term deposit only, the NRE and NRO accounts can be operated as either savings, current, recurring or fixed deposit accounts. As for 15
NRI BANKING
interest rates, FCNR (B) and NRE are subject to a cap, and should not exceed the LIBOR/SWAP rates. In the case of NRO accounts, rates are determined by the banks. The interest rates, currently at 3.5% apply to a period of 1 to 3 years. The total NRE/ FCNR deposits during 2006-2007, as per RBI statistics, are USD 37,751 million and are expected to grow with regional rural banks also mopping up funds. Banks are expected to offer lucrative interest rates to bolster NRI funds. Banks offer two types of accounts to NRIs, based on their reparability. Repatriable Accounts Funds that can be transferred or repatriated abroad are maintained in a Non Resident External Bank account. Generally, funds remitted from outside India are credited to this account. Investments made from foreign funds can be repatriated overseas, and such investments are maintained in a Repatriable Demat account. Non-Resident (External) Rupee (NRE) Accounts Both Principal and Interest can be repatriated/transferred out of India Savings rate on NRE accounts is at par with savings rates in resident accounts Term deposits can be made for 1 to 3 years. The interest rates on (NRE) Term deposits cannot be higher than LIBOR/SWAP rates as on the last working day of the previous month, for US dollar of corresponding maturity plus 50 basis points. The interest rates on three year deposits also apply in case the maturity period exceeds three years. The change in interest rate also applies to NRE deposits renewed after their present maturity period.
16
NRI BANKING
FCNR (B) Accounts As in NRE accounts, both principal and interest are repatriable.
Presently, deposits can be made in 6 specific foreign currencies (US Dollar, Pound Sterling, EURO, Japanese Yen, Australian Dollar and Canadian Dollar).
Interest rate- Fixed or floating within the limits of LIBOR/SWAP rates for the respective currency/corresponding term minus 25 basis points (except Japanese Yen). The term of deposits can range between 1 to5 years.
NRO Accounts Only current earnings are repatriable. Savings NRO accounts are normally operated to credit rupee income from shares, interest, rent from property in India, etc. In case of term deposits, banks are allowed to determine their own interest rates.
17
NRI BANKING
Banks can allow remittance up to USD 1 million per financial year for bonafide purposes from balances in the NRO accounts once taxes are paid out. This limit includes the sale proceeds of immovable properties held by NRIs and PIOs.
Resident
Foreign
Currency (RFC)
Account
NRIs and PIOs returning to India can maintain an RFC account with an authorized bank in India to transfer funds from their NRE/FCNR (B) accounts. Proceeds of assets held outside India before their return to India can be credited to the RFC account. These funds are free from all restrictions as to their utilization or in investment in any form outside India. Non-Repatriable Accounts Non-repatriable funds are those which cannot be taken out of India. These have to be maintained in a separate bank account i.e. a Non Resident Ordinary Bank account. Investments made from non-repatriable accounts cannot be repatriated but have to be maintained in a Non-Repatriable Demat account. Money once transferred from an NRE account to an NRO account cannot be transferred back to an NRE account. Non Resident Ordinary (NRO) Account When a resident becomes an NRI, his existing savings account is designated as a Non-resident Rupee (NRO) account. The NRO accounts could be maintained in the nature of current, saving, recurring or term deposits. NRIs can also open NRO accounts for depositing their funds from local transactions.
18
NRI BANKING
The interest earned from NRO accounts is accountable to tax laws. NRO accounts can be opened in the name of NRIs who have left India to take up employment or business temporarily or permanently in a foreign country. Funds from NRO accounts are not repatriable or transferred to NRE accounts without the prior approval of the RBI. However, NRIs, PIOs, Foreign Nationals, retired employees or non-resident widows of Indian citizens can remit, through the Authorized Dealer, up to USD one million per calendar year from the NRO account or from income from sale of assets in India
OPENING OF NRI ACCOUNT HOW TO OPEN NRI ACCOUNTS WITH A BRANCH IN INDIA To open an NRE account please complete the account opening form and mail it to the branch of your choice along with ; Passport copy Visa/residence permit 2 photographs initial money remittance Your signature may be verified by anyone of the following; Indian Embassy/consulate Any person known to the Bank Notary public Any of our offices abroad
19
NRI BANKING
You can open NRE Saving Bank a/c / Current Accounts Fixed Deposits in Indian Rupees Fixed Deposits in Foreign Currency NRO accounts (Rupee accounts for crediting income in India ) You can authorize a resident to operate your account through a Power of Attorney or Letter of Authority Nomination Facility available (Nominee can be a resident Indian also)
Procedures & Benefits: Non-Resident accounts can be opened along with your remittances through Banking channel. Photograph shall be enclosed with the opening form. There is no ceiling on the amounts remitted for your credit in Non-Resident account. When the NRI depositor returns to India, the NRE account will be automatically treated as Resident account. However NRE term deposit will continue to earn same rate till maturity even after such conversion. NRE accounts earn more interest than domestic deposits. Nomination facilities are available for registration in favor of a non resident or resident. Loans against deposits are allowed for purposes other than investment up to 90% of the deposit. The income from deposit is free from Indian Income Tax. It is also free from Gift tax for one time gifting. 20
NRI BANKING
Documents Required:In case account opened in person: Indian passport with overseas resident address or work permit (i.e. Green Card as residence permit for USA, H1 Visa as work permit for USA or Hongkong ID card for residence of Hongkong) Separate proof of Non Resident status if the passport holds Indian address and resident Visa permit is not included in passport. Photograph of individual account holder For persons employed with foreign shipping company Initial work contract Last wage slip For contract employees Last work contract Letter from local agent confirming next date of joining the foreign vessel (not more than six months from date of last return to India) Principal's overseas address or current work contract
21
NRI BANKING
In case of documents sent by mail All the relevant above mentioned documents / signatures to be attested by any one of the following:
Indian embassy overseas notary
Local bank Minimum balance in which one can open an account (Differs from bank to bank):NRO – Saving Account – Rs.5,000/NRO - Current Account – Rs.10,000/NRO – Term Deposit Account – Rs.5,000/NRE – Savings Account – Rs.5,000/NRE – Current Account – Rs.10,000/NRE – Term Deposit Account – Rs.10,000/FCNR – Term Deposit Account – USD 500/- or its equivalent in GBP or Euro If you submit the money for opening/credit to an account. Frequency of Interest payment on accounts: NRO – Term Deposit Account – Half yearly NRE – Savings Account – Quarterly NRE – Term Deposit Account – Half yearly
22
NRI BANKING
FCNR – Term Deposit Account – Quarterly
Opening of JOINT ACCOUNTS:Type of account
Joint Account with
Joint Account with
NRO NRE FCNR
Resident Indians Yes No No
Non-Resident Indians Yes Yes Yes
23
NRI BANKING
CHAPTER 2.
NRI definition- under Foreign Exchange Management Act, 1999 Definition of an NRI : Introduction: An Indian abroad is popularly known as an NRI – but the same has two important definitions - one coined under the Foreign Exchange Management Act, 1999 – [FEMA] and the other as per the Income Tax Act, 1961. FEMA definition: The most relevant definition concerning an NRI's various bank accounts and investments in movable and immovable properties in India is the one provided by Foreign Exchange Management Act, 1999 – [FEMA], which has replaced the Foreign Exchange Regulation Act , 1973- [FERA] with effect from June 1,2000. • Person Residing Outside India is the term used for an NRI , being a person
24
NRI BANKING
who has gone out of India or who stays outside India for the purpose of employment or carrying on business or vocation outside India or any other circumstances which indicate his intention to stay outside India for an uncertain period. Section 2(v) of FEMA,1999 •
Person resident in India" means—
a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—
a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; •
a person who has come to or stays in India, in either case, otherwise than—
for or on taking up employment in India, or for carrying on in India a business or vocation in India, or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (a) any person or body corporate registered or incorporated in India, (b) an office, branch or agency in India owned or controlled by a person resident outside India,
25
NRI BANKING
(c) an office, branch or agency outside India owned or controlled by a person resident in India; 2(w) "person resident outside India" means a person who is not resident in India;
•
Non Resident Indian, the phrase is for the first time defined in the regulations as “a person resident outside India who is either a citizen of India or a person of Indian Origin".
•
Recently RBI has clarified that students studying abroad also be treated as NRIs under FEMA and accordingly be eligible for foreign investments and NRE/FCNR a/cs
•
And the definition of "a person resident outside India " is simply put as " a person who is not Resident in India."
•
NOW, reading both the definitions together, it can be summarized that both:
an Indian Citizen residing outside India and also a Foreign Citizen of Indian origin residing outside India are defined as NonResident Indians. Person of Indian Origin: •
F.E.M.(Deposit) Regulations define a Person of Indian Origin (PIO) as:
a person, being a citizen of any country other than Pakistan and Bangladesh, who at any time held an Indian Passport. or
a person who himself or either of his parents or any of his grandparents were citizens of India, or
a spouse of an Indian citizen, or
26
NRI BANKING
a spouse of a person covered under (i) or (ii) above. 2(xii) 'Person of Indian Origin' means a citizen of any country other than Bangladesh or Pakistan, if he at any time held Indian passport; or he or either of his parents or any of his grand- parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955) or the person is a spouse of an Indian citizen or a person referred to in sub-clause •
Person of Indian Origin (PIO) defined under Regulations re: Immovable Property in India: This definition is further narrowed when it comes to rules regarding acquisition and transfer of immovable property in India. Probably with an intention of ensuring & restricting control of immovable properties in the hands of strictly defined persons of Indian Origin only, this definition is further narrowed to exclude individuals being citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan. As regards immovable property transactions it may be noted that herein the person's father or grandfather is included unlike parents or grandparents and spouse in earlier definition. Accordingly a Person of Indian Origin is defined herein as: a) Who held an Indian Passport at any time? An individual other than citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan, or
27
NRI BANKING
b) Who himself or his father or grandfather was a citizen of India. [Regulation 2(c) of F.E.M. (Acquisition and Transfer of Immovable Property in India) Regulation 2000]
2(c) 'a person of Indian origin' means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who (a) at any time, held 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); Conditions
of number of days stay in India:-
No doubt, Foreign Exchange Management Act, 1999 definition has also
incorporated an NRI's stay of 182 days or less during a year in India, but simply speaking if a person of Indian origin has gone out of India for settlement he is to be treated as an NRI irrespective of number of days he has stayed in India.
Stay in India during visits:
The Act also lays down that such a person will continue to be an NRI during
his visit/stay in India provided he has not returned to India for taking up employment or carrying on business or vacation or any other circumstances as would indicate his intention to stay in India for an uncertain period. Accordingly, an NRI settled abroad, irrespective of the number of days stay in India will continue to be an NRI during his visit to India provided he has not returned to 28
NRI BANKING
India for permanent settlement.
"Overseas Corporate Body" (OCB) means a Company, Partnership Firm,
Society etc. wherein 60 % or more ownership lies with NRIs or a Trust wherein 60 % or more financial interest is irrevocably held by NRIs. 2(xi) " Overseas Corporate Body (OCB)" means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty per cent by Non-Resident Indians and includes overseas trust in which not less than sixty per cent beneficial interest is held by Nonresident Indians directly or indirectly but irrevocably. Conclusion: At the cost of repetition, it is once again said that an NRI permanently settled and residing outside India will continue to be treated as an NRI under F.E.M.A.irrespective of the number of days of his stay in India or otherwise.
29
NRI BANKING
CHAPTER 3 DEPOSITORY’ S
Non-Resident (External) Account - NRE Account Eligibility -
30
NRI BANKING
Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) can open and maintain NRE accounts with authorized dealers and with banks (including cooperative banks) authorized by the Reserve Bank of India (RBI) to maintain such
accounts.
The account has to be opened by the Non Resident account holder himself and not by the holder of the power of attorney in India. Opening NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ownership requires approval of RBI Types of Accounts - Savings, Current, Recurring or Fixed Deposit accounts. Debits & Credits: Payments for local expenses and investments are allowed freely. Credits to an account, of funds emanating from a local source would be permissible only if the funds are of a repatriable nature. Permitted Credits
Proceeds of remittances to India can be in any permitted currency.
Proceeds of personal cheques drawn by the account holder on his foreign currency account and of travelers cheques, bank drafts payable in any permitted currency including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency, deposited by the account holder in person during his temporary visit to India provided the authorized dealer/bank is satisfied that the account holder is still resident outside India, the travelers’ cheques/drafts are standing/endorsed in the name of the account holder and in the case of travelers’ cheques, and they were issued outside India.
Proceeds of foreign currency/bank notes tendered by account holder during his
31
NRI BANKING temporary visit to India, provided (i) the amount was declared on a Currency Declaration Form (CDF), where applicable,
and
(ii) the notes are tendered to the authorized dealer in person by the account holder himself and the authorized dealer is satisfied that account holder is a person resident outside India.
Permitted Debits
Local disbursements
Remittances outside India
Transfer to NRE/FCNR accounts of the account holder or any other person eligible to maintain such account.
Investment in shares/securities/commercial paper of an Indian company or for purchase of immovable property in India within prescribed regulations.
Any other transaction if covered under general or special permission granted by the Reserve Bank. Rate of Interest - as per the directives of the Reserve Bank of India. Loans against Security of Funds held in the Accou
To the account holder i) For personal purposes or for carrying on business activities (except agricultural/plantation
activities/investment
in
real
estate
business).
ii) For making direct investment in India on non-repatriation basis. iii) For acquisition of flat/house in India for his own residential use. In January 2007, the RBI imposed a restriction on loans against deposits and securities for NRIs to a maximum of up to Rs. 20 lakh
32
NRI BANKING
To third parties
The loan should be utilized for personal purposes or for carrying on business activities (other than agricultural/plantation activities/real estate business). The loan should not be utilized for re-lending.
Loans outside India
Authorized dealers may allow their overseas branches/correspondents to grant fund based and/or non-fund based facilities to Non Resident depositors against the security of funds held in the NRE accounts and also agree to remittance of funds from India if necessary, for liquidation of debts.
Change of Resident Status of Account Holder
NRE Accounts should be re designated as resident account or the funds held in these accounts may be transferred to the Resident Foreign Currency (RFC) Accounts (if the account holder is eligible for maintaining RFC Account) at the option of the account holder immediately upon the return of the account holder to India (except where the account holder is on a short visit to India). Repatriation of funds to Non Resident Nominee can be permitted by the authorized dealer or bank in the case of an account holder who is deceased. Other Features Joint Accounts - in the names of two or more Non Resident individuals may be
opened provided all the account holders are persons of Indian nationality or origin. When one of the joint holder become residents, the authorized dealer may either delete his name or allow the account to continue as NRE account or redesignate the account as resident account at the option of the account holders. Opening of these accounts by a Non Resident jointly with a resident is not 33
NRI BANKING
permissible. An Account may be opened in the name of eligible NRI during his temporary
visit to India. Operation by Power of Attorney - Resident Power of Attorney holder can operate
on the NRE accounts but only for local payments to be made on behalf of the account holder. The Power of Attorney (POA) holder cannot credit proceeds of foreign currency notes/bank notes and travellers cheques to the NRE accounts. In cases where the account holder or a bank designated by him has been granted
permission by Reserve Bank to make investments in India, the POA holder is permitted to operate the account to facilitate such investments. POA holders cannot, however, make gifts from NRE accounts.
Foreign Currency (Non-Resident Indians) FCNR (B) Account Eligibility to Open and Maintain FCNR A/c With the exception of persons of Indian origin from Bangladesh and Pakistan, all NRIs and PIOs are eligible to maintain an FCNR account with an authorised bank in India. Accounts may be opened with funds remitted from outside, existing NRE/ FCNR accounts, etc. Remittances should be in the designated currency. Conversion to currency other than the designated currency also permitted at the risk and cost of the remitter.
34
NRI BANKING
Features of FCNR Account The account can be opened with funds remitted from abroad, or transferred from
an existing NRE/FCNR account. FCNR accounts can be opened with designated currencies, which are: GBP,
USD, Deutsche Mark, Japanese Yen and the Euro. Conversion to another designated currency is permitted at a cost to the account
holder. Only term deposits can be maintained in FCNR accounts, in a time range of 6
months to 3 years. As per RBI guidelines, banks are free to offer interest on FCNR deposits below
LIBOR rates, less 25 basis points for deposits between 6 months to one year, and LIBOR rates plus 50 basis points for deposits over a year. Banks are also free to decide on a fixed or a floating rate of interest on FCNR
term deposits. Interest rates are reviewed periodically and determined by directives from the
Reserve Bank (Department of Banking Operations and Development). The account holder can choose the periodicity of interest, from half-yearly to annual payments. The interest can be credited to a new FCNR (B) account or a NRE/NRO account. For permissible debits and credits, the regulations for FCNR accounts are similar to the NRE accounts. For conversion of currencies, from designated currency to rupees and vice versa, the day’s rate of conversion will apply. Funds from the FCNR account are allowed to move within the country at no extra cost to the account holder. For loans and overdrafts against FCNR accounts, the same conditions as the 35
NRI BANKING
NRE accounts apply. In case of premature withdrawal of the FCNR Term Deposit, a penalty is levied. Interest paid on the account is calculated at a 1% below the committed rate if accounts are closed prematurely. However, no interest is paid on deposits held for less than 6 months, and a penalty would have to be paid as per directives from the apex bank. The RBI guidelines prevail on these terms, issued as and when required. FCNR A/c after Change in Resident Status NRI deposits such as the FCNR can continue till the maturity date at the contracted rate of interest even after the account holder’s resident status changes to resident Indian. However, except for interest rates and reserve requirements of FCNR deposits, these accounts are treated as resident accounts effective from the account holder’s date of return to India. On maturity, these accounts are converted to either an RFC account or the Resident Rupee Deposit account. As for joint accounts, the same rules as those for NRE accounts apply to FCNR deposits too. For repatriation of funds from the FCNR account, the same conditions as those for NRE accounts apply. The RBI does not provide any guarantee on foreign exchange. Other Features Reserve Bank will not provide foreign exchange guarantee. Lending of resources mobilized by authorized dealers under these accounts are
36
NRI BANKING
not subject to any interest rate stipulations. Non-Resident Ordinary Rupee (NRO) Account Eligibility Any person or entity residing outside India is entitled to open a NRO account with an authorised dealer or an authorised bank for transactions conducted in Indian Rupees. Individuals or entities of Bangladeshi or Pakistani nationality or ownership require approval from the RBI. Types of Accounts NRO accounts can be opened as current, savings, recurring or fixed deposit accounts. The RBI determines the rate of interest on these accounts and issues guidelines for opening, operating and maintaining them.
Joint Accounts with Residents/Non-residents Joint accounts are permitted with resident and non-residents. Permissible Credits/Debits
-
Credits Remittances from outside India through normal banking channels received in
freely convertible foreign currency. Any freely convertible foreign currency can be deposited into the account during
the account holder's visit to India. Foreign currency exceeding USD 5000/- or its equivalent in the form of cash has to be supported by a Currency Declaration
37
NRI BANKING
Form. Rupee funds must be supported by an Encashment Certificate, if they are funds brought from outside India. Current income earned in India, such as rent, dividend, pension or interest. Even
proceeds from sale of assets including immovable property acquired out of rupee or foreign currency funds or through inheritance. Debits All payments towards expenses and investments in India Payment outside India of current income like rent, dividend, pension, interest
etc. in India of the account holder. Repatriation up to USD One million, per calendar year, for all bonafide purposes
with the approval of the authorised dealer.
Remittance
of
Assets
NRIs and PIO may remit upto USD One million per calendar year, out of balances held in the NRO account which could be acquired from the sale proceeds of assets acquired in India out of rupee or foreign currency funds or by way of inheritance from a resident Indian, provided: Assets acquired in India out of rupee/foreign currency funds (a) Immovable property: NRIs and PIO may remit sale proceeds of immovable property purchased by them when they were resident or out of Rupee as NRI
or
PIO.
38
funds
NRI BANKING
(b) Other financial assets: There is no lock-in period for remittance of sale proceeds of other financial assets Assets acquired by way of inheritance: Sale proceeds of assets acquired through inheritance can be remitted. No lock-in period applies here if the authorised dealer is satisfied that the proceeds are from inherited property. Remittance of assets out of NRO account by a person resident outside India other than NRI/PIO A foreign national who is not a citizen of Pakistan, Bangladesh, Nepal or Bhutan and who has retired as an employee in India, has inherited assets from a resident Indian, or is a widow residing outside India and has inherited assets of her deceased
husband who was a resident Indian can remit upto USD one million per calendar year on production of documentary evidence to support the acquisition by way of inheritance or legacy of assets to the authorised dealer. Restrictions The above facility of repatriation from sale of immovable property is not extended to citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan. Remittance of sale proceeds from other financial assets is not extended to citizens of Pakistan, Bangladesh, Nepal and Bhutan. Foreign Nationals of non-Indian origin on a visit to India Foreign nationals of non-Indian origin are permitted to open a NRO account (current/savings) on their visit to India with funds remitted from outside India through normal banking channels or by foreign exchange brought to India. The 39
NRI BANKING
balance in the NRO account is converted by the bank into foreign currency for payment to the account holder when he leaves India, provided the account was maintained for less than six months. The account should not be credited with any local funds during the term, except for interest accrued on it. Grant of Loans/ Overdrafts by Authorised Dealers/ Bank to Account Holders and Third parties Loans to NRI account holders and to third parties is granted in Indian Rupees by authorized dealers (banks) against the security of fixed deposits provided:
The loans are utilized only for meeting the borrower's personal requirements or for business and not for agricultural/plantation /real estate or relending activities
RBI regulations pertaining to margin and rate of interest will apply All norms and considerations which apply to loans to trade and industry will apply to loans and facilities granted to third parties. The authorized dealer/bank may allow an overdraft to the account holder subject to his commercial discretion and compliance with the interest rate directives. Change of Resident Status of Account holder (a) From Resident to Non-resident When a resident Indian leaves India for taking up employment or for carrying on business outside India, his existing account is designated as a Non-Resident (Ordinary) Account, except in the case of persons shifting to Bhutan and Nepal. For the latter, the resident accounts do not change to NRO accounts. (b) From Non-Resident
to Resident
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NRI BANKING
NRO accounts may be re-designated as resident rupee accounts once the account holder returns to India for taking up employment, or for carrying on business or for any other purpose indicating his objective to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account continues to be treated as non-resident during the visit. Treatment of Loans/ Overdrafts in the Event of Change in the Resident Status of the Borrower In case of a resident Indian who had availed of loan or overdraft facilities while resident in India and who subsequently becomes a NRI, the authorised dealer may at its discretion allow the loan facility to continue. In this case, payment of interest and repayment of loan may be made by inward remittance or out of bonafide resources in India.
Payment of
funds to Non-resident/Resident Nominee
The amount payable to a non-resident nominee from the NRO account of a deceased account holder is credited to the NRO account of the nominee. Facilities to a person going abroad for studies Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all the facilities enjoyed by NRIs. All loans availed of by them as residents in India will continue to be extended as per FEMA
41
regulations.
NRI BANKING
International Credit Cards Authorized dealers are allowed to issue International Credit Cards to NRIs and PIO, without the permission of the RBI. Such transactions can be made by inward remittance or out of balances held in the cardholder's FCNR/NRE/NRO Accounts. Income Tax The remittances, after payment of tax are allowed to be made by the authorized dealers on production of a statement by the remitter and a Certificate from a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, Government of India
TAX BENEFITS for NRIs
Interest on NRE & FCNR deposits are free of income tax.
Tax @ 30% will be deducted at source on all interest income in NRO accounts.
On permanent return to India, income on all investments out of foreign exchange funds would be eligible for a flat tax rate of 20% (excluding surcharge) till maturity of the investments.
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NRI BANKING
CHAPTER 4 SERVICES OFFERED BY VARIOUS BANK TO NRI’S
BANKING SERVICES NRI banking services including deposits, savings accounts, finance like home loans, personal loans etc. Various banks like ICICI Bank, Citibank, HDFC Bank
43
NRI BANKING
and many other nationalized and private banks that hold authorized dealer's licenses from the Reserve Bank of India (RBI) provide remittances, savings, earnings,
investments
and
repatriation
services.
Besides the major commercial banks, certain cooperative and regional rural banks (RRB's) have also been specifically permitted to maintain NRI accounts. This would increase NRI remittances in Bihar, Kerala, U.P. and Gujarat where a large chunk of the rural population have settled abroad. The banks also offer finance services to the NRI's that cover home loans for buying new residential property, housing renovation loans for constructing or modifying on the existing properties, personal loans and other loan products. Another FDI (Foreign Direct Investment) magnet has been the various money transfer services provided. Various banks provide quick, convenient and economical fund remit to India. These include: Online remittance services Remittance of funds to partner exchange houses in India Telegraphic or wire transfer Fund transfer through cheques/ DD's and Travelers' cheques.
Many banks also offer Demat account services to the NRI's that enable NRI's online stock investment and share trading services. Special NRI credit cards acceptable globally are available with various banks. These specialized services and banking accounts have drawn enormous NRI funds to India. SERVICE OFFERED BY ICICI BANK:Rupee plus plan :- At ICICI Bank, we believe in providing you with the most competitive returns on your hard earned money. Now you can earn even higher 44
NRI BANKING
returns on your deposits by investing in Rupee plus plan. What does the Rupee plus plan offer you :- NRE-FD interest rates rate being regulated by RBI, is nearly same across banks. In Rupee plus plan we have devised a way to make your money work harder and smarter and earn higher returns in terms of NRI as compared to a NRE FD. Currencies :- you can being funds in any convertible currency, which will be converted to USD (if not in USD already). Minimum Deposit :- USD 25,000 or equivalent. Tenor: - for 1 year only. How does the Rupee plus plan work? Instead of putting the money in NRE FD directly, the money is put in USD denominated FCNR. This FCNR earns interest as per prevailing FCNR interest rates. Additionally, at the time of booking the FCNR a Forward Agreement is also drawn to exchange the maturity amount of USD to Rupees at a given rate (Forward Rate). Rupee plus plan advantage :- on a average the returns are significantly higher compared to putting your money in NRE FD as per the prevailing market rates. Returns in rupee terms are assured once the deal is booked irrespective of the future movements in currency markets. The following banking facilities are available to NRIs, as per the current RBI/FEMA guidelines.
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NRI BANKING
Foreign Currency Non-Resident Particulars
Who can open an
(Non-Resident
(Non-Resident)
(External) Rupee Ordinary Rupee
Account (Banks)
Account
Account
Scheme(FCNR(B) Scheme(NRE
Scheme(NRO
Account) NRIs/PIOs
Account) Any person resident
Account) NRIs/PIOs
account
outside India (other than a person resident in Nepal
Joint account
In the names of two In the names of or
and Bhutan) May be held jointly
two or more NRIs with residents
NRIs
Nomination
Permitted
Permitted
Currency in which Pound Sterling, US Indian Rupees account
Dollar, Jap. Yen or
is denominated
Euro. Australian
Permitted Indian Rupees
Dollar, Canadian Repatriability
Dollar Repatriable
Type of Account
Term Deposit only Savings, Current, Savings, Current,
Repatriable
Non-repatriable*
Recurring, Fixed Recurring, Fixed Rate of Interest
Subject to cap:
Deposit Deposit Rate of interest on Rate of interest on
LIBOR minus 25
domestic savings domestic savings
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NRI BANKING
basis points except account will also account will also be in case of Japanese be applicable to
applicable to NRO
Yen where the cap NRE savings
savings account. For
would be based on account. For Fixed Fixed Deposits, the at the prevailing
Deposits, the rates rates can be fixed by
LIBOR rates
can be fixed by
banks subject to
banks subject to
ceilings prescribed
ceilings prescribed by RBI by RBI
Tax Aspects
Interest income tax Interest income tax Interest income free and no tax
free and no tax
deduction at source. deduction at source.
taxable and liable for TDS @30% plus applicable surcharge subject to conditions. DTAA benefit may be available subject to fulfillment of conditions.
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NRI BANKING
CHAPTER 5 RBI issues guidelines for money transfer scheme
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NRI BANKING
MONEY TRANSFER Money can be transferred either through on line or drafts or telegraphically or by wire transfer or Cheques. E-Transfer is completely online, paperless money transfer service which enables the customer to send money directly from one bank account in foreign country to India. Drafts in Indian rupees can be purchased from exchange companies of one country and mailed to the branch of another country where the customer has the account. Telegraphic or wire transfers can be made through branch to branch. Cheques can be deposited for credit of the customer’s accounts and the Cheques will be collected and credited to their accounts.
International SWIFT Transfer This is a secure, quick and efficient method of transferring funds, which enables you to send money easily to any bank which is part of the SWIFT network. There is a flat-rate charge of Rs 500 for each SWIFT transfer made from your account. There is no charge when you make a transfer from your Barclays NRI account in India
to
a
Barclays
account
49
in
UK
or
UAE.
NRI BANKING
Demand (or Banker's) Draft This is a means of initiating a transfer from your account to a named payee. You can send the Demand Draft to your intended payee, who will then be able to take the Draft into their bank – following presentation of this Draft, he/she will then receive payment. A Demand Draft made payable to a non-Barclays account will incur a charge of Rs 3.5 per Rs 1,000 sent (minimum charge Rs 100). A Demand Draft made payable to a Barclays account and a Foreign currency DD will incur a flat-rate charge of Rs 300.
UAE EXCHANGE PROVIDING speed, convenience and security of transactions, the Xpress Money Service of UAE Exchange company is proving to be a modern and reliable way of sending and receiving money from anywhere in the world, especially among the immigrant Indian in Gulf countries. With an extensive network of branches in UAE and a global presence in Australia, India, Kuwait, Oman, Qatar, UK, USA,
50
NRI BANKING
Fiji, Sri Lanka and Bangladesh, the UAE Exchange Centre specializes in Fund Transfer across the globe and enjoys a numerous uno status in the industry. UAE Exchange and Financial Services Ltd makes 80,000 remittances a month. The average amount of remittances per transfer is Rs 1,25,000. Western Union Money Transfer Western Union is a global leader in money transfer services, with a history of pioneering dating back more than 150 years. Non-resident Indians can now transfer their funds to India through the Money Transfer Service offered by Western Union. This
service
is
currently
available
for
inward
remittances
in
India.
"Credits to NRE/FCNR accounts are not permitted to be routed through Money Transfer Service Scheme (MTSS)" SENDWISE:A rupee demand draft delivered to the recipient’s doorstep within three to four working days and can be encashed at any nationalized bank in India.
MONEYGRAM Send money online today:You can send money around the world online to over 84,000 moneygram agent locations, in more than 170 countries. Not only is sending money with moneygram safe and convenient, you’ll find the same day services to be one fastest way to send your money online-usually arriving within minutes. Send money online or at a moneygram agent location near you. Moneygram is a global leader in international
51
NRI BANKING
money transfers and the largest processor of money orders in the U.S. We help people and business by providing affordable, reliable and convenient payment services.
ICICI Bank NRI Money Transfer:ICICI Bank, the leading bank in India offering financial services to the NRI community through NRI saving account, NRE Accounts, Fixed Deposit, FCNR deposits, and the quickest way to send money online to India.
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CHAPTER 6 NRI INVESTMENTS
The Government of India has adopted a liberal policy, with respect to investment by NRIs and OCBs in India, such investment are allowed, both, through the RBI route and also through the Government route, i.e., through the Foreign Investment Promotion Board (FIPB) NRIs and OCBs are permitted to invest up to 100% equity in real estate development activity and civil aviation sectors. Investment, made by the NRIs and OCBs, are fully repatriable, except in the case of real estate, which has a 3 year lock-in period on original investment and, 16% cap on dividend repatriation. Various investment opportunities in India available to NRIs: If one is NRI, the following investment opportunities are open to you: 53
NRI BANKING
Maintenance of bank accounts in India. Investment in securities/shares and deposits of Indian firms/companies. Investment in mutual funds in India.
Investment Policy for Non-resident Indians (NRIs):Recognizing the investment potential of the Non-resident Indians, a number of steps are being taken by the government on an ongoing basis to attract from them in Indian companies. Some of the investment schemes presently available to Nonresident Indians (NRIs) include the facility to invest upto 100 percent equity with full benefits of repatriation of capital invested and income accruing thereon in high priority industries mentioned in the Annexure-III to the industrial policy 1991, 100 percent export oriented units, sick units under revival, housing and real estate development companies, etc,. NRIs/PIOs/OCBs are also permitted to make portfolio investments through secondary markets. In terms of the relaxations announced in 1998-99, investment limits for an individual NRI has been revised upwards from 1% to 5%, aggregate portfolio investment limits by all NRIs increased from 55 to 10% of the issued and paid-up capital of the company. The aggregate investment limit would be separate and exclusive of FII portfolio investment limits. FOR NRI’S INVESTMENT:In order to help the tax-payers to plan their Income-tax affairs well in advance and 54
NRI BANKING
to avoid long drawn and expensive litigation, a scheme of Advance Rulings has been introduced under the Income-Tax Act, 1961. Authority for advance rulings has been constituted. The tax-payer can obtain a binding ruling from the Authority on issues which could arise in the determination of his tax liability. A non-resident or certain categories of resident can obtain binding rulings from the Authority on any question of law or fact arising out of any transaction/proposed transactions which are relevant for the determination of this tax liability.
PORTFOLIO INVESTMENT NRIs/OCBs are permitted to make portfolio investment in shares/debentures (convertible and non-convertible) of Indian companies, with or without repatriation benefit provided the purchase is made through a stock exchange and also through designated branch of an authorized dealer. NRIs/OCBs are required to designate only one branch authorized by Reserve Bank for this purpose. NRI’S INTEREST:NRIs invested only 5% of their investible assets in India with the balance being parked overseas. A major reason for this was that the Indian banking system was not a very preferred and trusted mode of investment for the NRI. The customer was looking for convenience, speed, high yield on investment with manageable risks, reasonable costs and quality services – A face of India he could associate with. Competition was not only from India based banks, but also from local banks based overseas; conventional and non conventional routes of money transfer. FACILITATION AGENCIES
55
NRI BANKING
The main regulatory and facilitation agencies involved in the matters related to NRIs/OCBs investment are Reserve Bank of India (RBI), Securities and Exchange Board of India (SWBI), Authority for Advance Rulings (AAR), Secretariat for Industrial Assistance (SIA), Ministry of Commerce and Industry; and Office of the Chief Commissioner (Investments & NRIs).
RBI FORMS NRIs/OCBs/PIOs do not have to seek specific permission for approved activities covered under ‘General permission’ schemes. The activities relating to NRIs/OCBs/PIOs not covered under those schemes either require declaration to RBI or permission from RBI. The activities requiring Declaration/Permission along with corresponding forms are as under; TS 1 Transfer of Shares/Debentures by Non-residents to Residents FNC Permission to establish a branch office in India by an Overseas Company 1
establishing a Representative Office by Overseas Company for Liaison Activities to open a Project/Site Office in India.
IPI
Company/Individual (declaration) acquiring property
56
NRI BANKING
CHAPTER 7
NRI
Investment
In
Immovable Property In India
NRIs, irrespective of their citizenship can freely acquire and transfer residential as also commercial properties in India barring agricultural land and plantation, with repatriation of foreign exchange equivalent of cost of acquisition (maxi. two in case of resi.houses) and no restrictions as regards holding period.
Rules for Acquisition & Transfer by NRIs being:
Indian citizen & Foreign citizen
Mode of Payment
Joint Holding / Restrictions
Repatriation of Sale Proceeds
Taxation of Capital Gains & Wealth-Tax 57
NRI BANKING
Rules for Acquisition & Transfer by Foreign Citizen NRIs Purchase / Acquisition: There is a general permission to acquire any immovable property (other than agricultural land, plantation or farm-house property) by way of purchase, provided the payment is made out of foreign exchange inward remittance or any Non Resident bank account in India, i.e.NR(E),FCNR(B) or NRO a/c..
Acquisition by way of Gift: General permission is granted to acquire any immovable property (other than agricultural land, plantation or farmhouse property) by way of gift from a person (donor) who is
A person resident in India, or
Aperson resident outside India (an NRI )who is Indian citizen or foreign citizen of Indian origin.
Acquisition by way of inheritance : General permission is granted for inheritance of immovable property including agricultural land, plantation or farm-house property from
A person resident in India, or
A person resident outside India who may be an Indian citizen or foreign citizen of Indian origin provided such person had acquired said property in accordance with the provisions of Foreign Exchange Law in force at the time of acquisition. i.e. FERA, 1973 or FEMA 1999. 58
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Hence Agricultural land, plantation or farmhouse property
can be acquired by
way of inheritance only. Transfer / Sale: General permission is granted for sale of any immovable property (other than agricultural land, plantation or farmhouse property) to a person who is resident in India.
Transfer of residential or commercial property by way of gift: General permission is granted to gift residential or commercial property to
A person resident in India, or
A person resident outside India who may be an Indian citizen or foreign citizen of Indian origin,
Transfer of agricultural land, plantation or farmhouse property by sale/ gift General permission is granted to sell or gift such property to a person who is resident in India and also an Indian citizen.
Mode of Payment : The payment for purchase of immovable properties is required to be made from NRI's bank account, being: a) Non Resident External Account (NRE); b) Foreign Currency Non Resident (B) Account (FCNR) (B), or
59
NRI BANKING
c) Non Resident Ordinary Account (NRO), or d) Foreign Exchange Inward Remittance from abroad. It is advisable to retain records of payment made i.e. banker’s certificate All incidental expenses such as stamp duty, registration fees etc. should also be
paid through bank only.
Repatriation of Sale proceeds
An NRI being an Indian citizen or a foreign citizen of Indian origin is allowed to repatriate the sale proceeds of an immovable property subject to the following conditions:
a) . the acquisition should be in accordance with the existing Foreign Exchange Laws (i.e. FERA, ‘73 or FEMA ‘99). b) the purchase price was met out of Foreign Exchange Inward Remittance or NRE / FCNR (B ) account, and c) in case of residential properties, repatriation is restricted to a maximum of two properties. It may be noted that the eligibility criteria of holding period of 3 years for repatriation is removed w.e.f. 29-06-02.[ vide notification no FEMA 65/2002 RB dated 29-06-02.]4 It may be noted that there are no restrictions as re: repatriation of sale proceeds 60
NRI BANKING
vis-a-vis number of commercial or industrial properties. The amount of repatriation is restricted to foreign exchange equivalent of the purchase price i.e. profits / gains are not allowed to be repatriated.
CHAPTER 8 PAN Card for NRIs
For all Indian citizens who are liable to pay tax under the Income Tax Act, 1961, or are required to enter into financial transactions in India, it is mandatory to have a Permanent Account Number. The Permanent Account Number (PAN) is a combination of 10 alphanumeric 61
NRI BANKING
numbers issued by the Income Tax Department. The Department has entrusted UTI Investor Services Ltd. (UTIISL) with the task of managing IT PAN Service Centers wherever the IT department has an office in the country. The National Securities Depository Limited (NSDL) has also been engaged to allot PAN cards from TIN Facilitation centers. Applying for a PAN Form 49A, which is the application form for a PAN, can be downloaded from the Income Tax, UTIISL and NDSL websites: www.incometaxindia.gov.in & www.utiisl.co.intin.nsdl.com The forms care also available at the IT PAN Service Centers and TIN Facilitation Centers. A “tatkal” or priority service has been provided for, to enable speedy allotment of the PAN card through the Internet. The PAN is allotted through e-mail on priority in 5 days as against the normal 15 days to the applicant upon online payment through a credit card. The PAN has lifetime validity. The necessity for a PAN Card to NRIs Apart from income returns which must carry the PAN, it is mandatory to submit the PAN in all financial transactions, like the purchase and sale of property in India, payments for purchase of vehicles, foreign visits, securing a telephone connection or making time deposits in a bank worth over Rs.50,000. For NRI’s, PAN is necessary to conduct monetary transactions in India, invest in stocks, and pay tax on their Indian income. The application for a PAN must be accompanied by:
a recent colored photograph of size 3.5 cms x 2.5 cms on the application form .
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NRI BANKING
a proof of residence and identity (attested school leaving/matriculation certificate/degree/credit
card/voter
identity/ration/passport/driving
license/telephone/electricity bill/employer certificate .
code of the concerned Assessing Officer of the IT Department obtainable from the IT office where form is submitted .
DEMAT ACCOUNT :-
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NRI BANKING
A demat account facilitates buying and selling shares, precluding cumbersome paperwork and meaningless delays. Advantages of a Demat Account It is a safe, secure and convenient mode of transacting in shares. Minimizes brokerage charges Ensures immediate liquidity Removes uncertainty on ownership title of securities Allows quick allotment of public issues Enables smooth process in pledging shares Avoids delays due to wrong/incorrect signatures, post, and misplacement of certificates Prevents risks like forgery and counterfeit, theft or damage to documents Saves on stamp duty, paperwork on transfer deeds Gives immediate benefits from bonus shares and stock splits Who offers Demat Facility? Depository Participants or DPs offer demat account services, which would include banks. Holding a demat account with a bank enables quick on-line dealings, ensuring credit of a transaction to the account holder’s savings account by the third day. Banks have an added advantage over other DPs with their large network of branches. How to Open a Demat Account in India Fill up the demat account opening form at the nearest Depository Participant You may refer to either 64
NRI BANKING
CDSLathttp://www.cdslindia.com/demat_acct/open_demat.jsp or NSDLathttps://nsdl.co.in/for the list of DPs in India. Joint demat accounts can be opened, retaining the same order of names Separate demat accounts have to be opened for different combinations of names in the case of three or more joint holders. Any number of demat accounts and DPs are permitted A multiple-sign demat is feasible, operated by several holders DPs charge a fee for switching shares from electronic to physical form and viceversa, which varies from a flat fee to a variable fee. Remat and demat charges may also show a discrepancy between DPs. Some DPs offer a discount to frequent traders. It is advisable to maintain all demat accounts with the same DP to keep track of capital gains liabilities. Different DPs follow dissimilar methods of computing the capital gains, which is determined by the period of holding. The charges on a demat account vary between DPs. Broadly, they are: account opening fee, an annual folio maintenance charge paid in advance, a monthly custodian fee, and a charge on transactions, which may either be charged every month or as a flat fee per transaction, and its nature. Some DPs may skip the account opening fee but charge a re-opening fee for the account. Account holders are also subject to a service tax. No opening balance is required for a demat account. Supporting documents to open a demat account Passport-size photograph Proof of identity, address and date of birth
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NRI BANKING
DP-client agreement on non-judicial stamp paper PAN Card The applicant receives an account number and a DP ID number which are required for all future communication with the DP. NRI Demat Accounts NRIs need to fill in “NRI” in the type and “repatriable or “non-repatriable” in the sub-type on the form. No special permission from the RBI is required by NRIs to open a demat account, though specific cases may require authorization from the designated authorised dealers. NRIs require separate demat accounts for securities under the foreign direct investment (FDI) scheme, which is repatriable; and the Portfolio Investment Scheme and Scheme for Investment which can be either repatriable or nonrepatriable. Repatriable and non-repatriable securities cannot be held in a single Demat account.
Resident Indians can continue to hold non-repatriable demat accounts they hold even after they acquire non-resident Indian status. However, when a NRI returns to India permanently, he must inform his designated authorised dealer of his new status, and a fresh account would have to be opened. The securities held in the NRI Demat account would have to be transferred to the new resident demat account, and the NRI Demat account closed. The Demat account would have to be linked with the NRI’s NRO account for non-repatriable accounts and NRE accounts for repatriable accounts to credit dividends and interest.
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NRI BANKING
CASE STUDY ON NRI BANKING Increasingly at Personal we are meeting Indians living abroad who are relocating to India. Usually such individuals have a significant portion of their assets in the foreign country; investments in India are usually linked to inheritance or savings made before shifting abroad The task we are entrusted with is to help such individuals plan their finances. Here's how we assisted one such family. 67
NRI BANKING
We recently met a Person of Indian Origin (PIO) who was based in the United States (US); he has now shifted permanently to India. Let's call this individual Rajeev. Almost all of rajeev's savings are in the US; in US mutual funds and bonds. He has no exposure to India in his asset allocation, although he does expect to inherit some Indian assets over time.
More about Rajeev -
He is 44 years of age and was settled in US for many years before relocating to India He is married and has a 8-yr old daughter Although he is not sure, there is a likelihood that his daughter might want to go back to US for further studies
Rajeev's investment details are as follows:
His combined investment in stocks and funds in the US accounts for 50% of his net assets. Remaining 50% of his investments are in short-term deposits, again in the US. Important to note that he does not own any residential property, either in the US or in India. As mentioned earlier, since the client is now settled in India, and is certain to be here for the rest of his life, in our view, it makes sense to shift his assets back to
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India. Why do we say that? Well, if you know you are going to be in India, and all your future incomes and expenses are going to be in Indian Rupees, why take on the risk of being invested in US Dollars? In case the US Dollar were to depreciate vis-a-vis the Rupee, the value of your US assets would effectively erode. This is not to say that no one should have money invested in other currency assets. From our perspective, one should evaluate such investment opportunities only when one has completed their investment plans for domestic assets. Importantly, you should have that much money in another currency asset that is required to meet future needs (that need to be provided for in the other currency). In order to reallocate his assets, Sanjeev will need to liquidate his assets in the US and transfer the proceeds to India. Since his daughter might go back to US for higher education in future he will require money (US Dollars) at that point of time. Therefore, in his case, the liquidation and then allocation of assets must be based on his needs in India as well as in the US. Keeping this in mind we proposed to conduct his entire financial planning exercise in two phases. The first phase involved understanding of his needs in India and the US and accordingly liquidating his investments. The second phase involved, investing the proceeds in India. Liquidation process: We first started with liquidation of his investments in US, and for this, demarcating his needs in India and US became the starting point for us. Since the client has no prior investments in India, it gave us a good opportunity to define a welldiversified portfolio for him. The next step was to decide the quantum of investment to be liquidated based on
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his needs. In US, he has to continue with some of his investments for his daughter's future education. We found that around 10% of the client's total wealth will be sufficient for this purpose and rest he can liquidate. Thus, we advised him to liquidate 90% of his total investments in US. The next step was to transfer the proceeds to India. Normally, people who have foreign currency (in this case US Dollar) get apprehensive about the exchange rate at which their proceeds are to be transferred. In this particular case, since the client is already settled in India, we advised him not to pay much heed to the exchange rate and instead start transferring the funds. Asset allocation based on the client's needs in India: Given that the client has no investment in property (he was living in a rented premise), the top priority was to invest in a property. About 40% of his assets were allocated for the purpose. Given the hype about property, Sanjeev was keen to consider a higher exposure; however we recommended otherwise. In our view, and this holds true for most individuals, the number of properties you own should be linked to your 'real' needs i.e. property which you need to give as inheritance or property for self use.
The fact that the client is financially very sound and in a position to take some risk, we recommended that he invest upto 35% of the surplus in well-managed diversified equity funds in a disciplined manner based on his needs and objectives. The portfolio consisted of no more than six schemes. Equities as an asset class are best equipped to generate high returns over longer
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time frames (3-5 years). Thus, his investment in equities should be well equipped to cater his future needs such as his daughter's marriage, his retirement planning or any other need as and when required. Another 10% of the surplus cash inflows could be invested in debt funds (shortterm debt funds, as at present interest rates are on the rise). Inclusion of debt funds in the portfolio will ensure that the portfolio becomes well diversified across asset classes. The balance (5%) could be maintained in liquid assets for any immediate requirement or for contingency.Rajeev was also advised to take up a term insurance policy for himself. This is a pure risk cover plan that enables the individual to opt for a high insurance cover at relatively lower premiums. It goes without saying that our recommendation to Rajeev (although very critical) was just a starting point. First and foremost, it needs to be executed (investing in mutual funds, buying property) and then the plan needs to be monitored regularly. This is necessary as over time, Rajeev's risk profile will change, as he gets older, he may not be comfortable with a higher allocation to equity, so a portion of his money will have to be shifted to lower risk assets. Also the performance of the mutual fund schemes will have to be monitored. Given the nature of the task, it is best for Rajeev that he engages the services of a professional and competent financial planner who can actively monitor his financial plan CONCLUSION NRI Banking today stands as one of the most profitable business for banks. With India having one of the largest NRI populations and a very prosperous one too, NRI banking is one hot business no bank can afford to ignore today. India needs
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foreign exchange reserves for its developing economy. Realizing this, banks are shaping up their strategies in order to attract this NRI money. Further with India pushing for Capital Account Convertibility, and the success of Pravasi Bharatiya Diwas, prospects for NRI banking has never been so good than today.
PRIMARY DATA QUESTIONARIES :VISITED ICICI BANK ANDGERI BRANCH MET MR. KALPESH DHANJI MOTA 72
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ANNEXURE :-
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Can I break my deposit before the maturity period?
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If I am visiting India, can I use travelers cheques or currency to open an account or credit my existing NRE Account?
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Can any person in India be authorised to operate the NRI's account?
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Can an FCNR deposit in one currency be converted to a deposit in another currency
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Can FCNR/NRE deposits be value dated?
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How much money can an NRI remit abroad annually from his NRO accounts?
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Can an NRI repatriate sale proceeds of his property purchased by him by remittance from abroad?
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What is the frequency of interest payment in an NRE savings account?
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What is the limit on the international ATM-cum-Debit card for NRI customers?
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What are the charges applicable for debit card?
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Can I repatriate money out of balances held in my NRO accounts?
FINDINGS & SUGGESTIONS :•
Yes.deposits can be broken before the maturity period but the interest payable would be the applicable interest rate prevailing for that period at the time of opening the deposit. The minimum period for NRE and FCNR would be 1 year. 73
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A penalty charge as applicable will be levied. •
Travelers cheques can be used to credit/open the account. If you are bringing foreign currency notes & travellers cheques, you will have to submit a Currency Declaration Form (CDF) to the Customs authorities on arrival in India if the foreign currency notes exceed USD 5,000 or travellers cheques and notes exceed USD 10,000. You must produce the CDF for endorsement by the bank when you submit the money for opening/credit to an account.
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Yes. The mandate facility is available for NRI customers. The mandate form duly completed (with Form 60 or PAN card, proof of identity, proof of address, and photo) may be handed over to the branch when the account is opened to authorise a person in India to operate the account. This is possible only in the case of savings accounts.
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Yes. However, you may consider doing so only on maturity of the deposit so that there is no loss of interest.
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Deposits are value dated. The date will be the date on which the funds are received by Barclays (India) in its Nostro accounts.
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A NRI can remit up to USD 1 million (or equivalent) per calendar year for any bonafide purpose subject to payment of tax and furnishing the required documents.
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Yes. However the amount repatriated should not exceed the amount paid for acquisition i.e.
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Amount received in foreign exchange through normal banking channel
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The foreign currency equivalent as on date of payment of amount paid by debit to NRI a/c
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The frequency of interest payment would be half yearly.
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The International ATM-cum-Debit card offers Rs 50,000 of cash withdrawal per 74
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day and transactions worth Rs 50,000 at merchant establishments. •
There are no withdrawal charges for cash withdrawn from any VISA ATM network across the world. For purchases and ATM transaction(s) outside India there is a 2.5% currency conversion charge, at all VISA enabled POS and ATM machines. Service Tax (currently 12.36%) on these charges will be levied.For details of charges on Domestic debit cards, kindly refer the schedule of charges for Consumer banking.
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Interest earnings can be repatriated. In addition to this, remittance/s up to USD 1 million per calendar year from balances in NRO accounts subject to payment of applicable taxes is allowed.
Bibliography
Website
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www. Google.com
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www.icici.com
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www.google.com
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www.wikipedia.com
Books/Journal •
Nri Banking
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Articles in Newspapers
Libraries referred •
College library
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