F.R.Q.

Who is a Non-Resident Indian (NRI)?

A non-resident Indian (NRI) is an Indian citizen or a person of Indian origin who stays abroad for employment, business or vocation outside India, or stays abroad under circumstances indicating an uncertain duration.

Who is a Person of Indian Origin (PIO)?

A Person of Indian Origin means a citizen of any country (other than Bangladesh or Pakistan), if the person: (a) at any time held an Indian passport; or (b) or the person's parents or grandparents were citizens of India; or (c) is a spouse of an Indian citizen, or of a person referred to in (a) or (b) above.

Who is a Foreign Institutional Investor (FII)?

An FII is an institution established or incorporated outside India which proposes to invest in Indian securities and is registered with SEBI.

Who is an Overseas Corporate Body (OCB) ?

An OCB includes overseas companies, partnership firms, societies and other corporate bodies owned predominantly by non-resident persons of Indian nationality or origin outside India.

Can an NRI maintain a bank account in India?

Yes. NRIs can maintain accounts in rupees as well as in foreign currency.

What types of rupee accounts may NRIs maintain?

There are 4 types: 1. Non-resident (External) Rupee Accounts (NRE) 2. Non-Resident (Special) Rupee (NRSR) Account 3. Ordinary Non-resident Rupee Accounts (NRO) 4. Non-resident (Non-repatriable) Rupee deposit accounts (NRNR)

What are NRE, NRO and FCNR accounts?

Non-Resident (External) Rupee (NRE).This is a Rupee account from which funds are freely repatriable. It can be opened with either funds remitted from abroad or local funds which can be remitted abroad. Non-Resident Ordinary Rupee (NRO). This is a Rupee account and can be opened with funds either remitted from abroad or generated in India. These funds are non-repatriable. However, under certain circumstances, these are allowed to be repatriated. Fully Convertible Non-Resident Rupee (FCNR). This account is similar to the NRE account except that the funds are held in foreign currencies and can be maintained in Pound Sterling,U.S. Dollar, Euro and Japanese Yen. FCNR accounts can be maintained only in the form of 'term deposits', i.e. a deposit kept for fixed periods ranging from 6 months to 3 years.

How do NRE, NRO and NRSR accounts differ?

Balances held in NRE accounts can be repatriated abroad freely, whereas funds in NRSR and NRO account cannot be normally remitted abroad but have to be used only for local payments in rupees. Consequently, funds remitted from abroad or local funds which can otherwise be remitted abroad to the accountholder can only be credited to NRE accounts.

Can an NRI, and FIIs invest in mutual funds in India?

Yes. The following summary outlines the various provisions related to investments by Non-Resident Indians ('NRIs'), Persons of Indian Origin ('PIOs') and Foreign Institutional Investors ('FIIs') in the Schemes of the Mutual Fund and is based on the relevant provisions of the Income-tax Act, 1961 ('the Act'), regulations issued under the Foreign Exchange Management Act, 1999 and the Wealth-tax Act, 1957 (collectively called 'the relevant provisions'). The following information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult with his or her own tax advisors / authorised dealers with respect to the specific tax and other implications arising out of his or her participation in the funds.

Does an NRI, FII require any approval from the RBI to invest in mutual funds?

No special approval is required. NRIs/PIOs/FIIs have been granted a general permission by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000] for investing in /redeeming units of the funds subject to conditions set out in the aforesaid regulations.

Can an NRI invest in foreign currency?

An NRI cannot make the investment in foreign currency. He needs to give a Rupee cheque from his NRE, NRO, NRSR bank account in India. He may also send a Rupee cheque from abroad payable in a bank in India. However, for an NRI to invest, it is mandatory that he maintains a bank account in India.

What is the mode of payment for Repatriation and Non-Repatriation Basis?

Repatriable Basis. Payments for the purchase of the units may be made by Indian Rupee drafts purchased abroad, or by cheques drawn on the NRE/FCNR Account of the investor, payable at the city where the application form is accepted by any Investor Service Centres. Non-Repatriable Basis. Payments for the purchase of the units may be made by Indian Rupee drafts purchased abroad, or by cheques/demand drafts drawn on the NRE/FCNR/NRO/NRSR/NRNR account of the investor, payable at the city where the application form is accepted by any Investor Service Centres. FII Investors. FIIs may pay for their subscription amounts by Indian Rupee drafts purchased abroad, or from funds held in a Foreign Currency account or Non-resident Rupee account maintained in a designated branch of an authorised dealer. The Indian Rupee drafts/cheques should be made payable at a city where the application is accepted by any Investor Service Centres.

When will my NRI purchase take effect?

If an application is received before the 3 p.m., Indian Standard Time on any business day, the allocation of units will be based on the NAV of that business day. All applications received after the prescribed time will be treated as having been received on the next business day and the units allotted accordingly.

How does an NRI redeem funds?

In the open-end schemes of mutual fund units can be purchased or redeemed at any point in time. To redeem funds, submit the redemption request to the nearest Investor Service Centre. Your form must contain the investor's folio number and the amount / units you would like to redeem. Redemption requests by telephone, telegram, fax or email that lack valid signatures will not be accepted.

How will the redemption proceeds be paid?

Redemption proceeds will be paid by cheque. The cheque will be payable to the first unitholder and will include the bank account number. Redemption proceeds/repurchase price and/or dividend or income earned (if any) will be payable in Indian Rupees only.

How can the redemption proceeds be repatriated?

The investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India. In the case of an FII, the designated branch of the authorised dealer may allow remittance of net sale/maturity proceeds (after payment of taxes) or credit the amount to the Foreign Currency account or Non-Resident Rupee account of the FII, maintained in accordance with the approval granted to it by the RBI. In any other case, where the investment is made out of inward remittance or from funds held in the NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to the NRE/FCNR/NRO/NRSR account of the non-resident investor maintained with an authorised dealer in India

What about redemption proceeds where investments were made on a non-repatriable basis?

Where the purchase of units is made on a non-repatriable basis, the maturity proceeds/repurchase price of units (after payment of taxes) will not qualify for repatriation and may be credited to the NRO/NRSR account of the non-resident investor. Where the investment is made out of funds held in a NRSR account, the maturity proceeds/ repurchase price of units (after payment of taxes) may be credited to the NRSR account maintained by the investor with an authorised dealer in India. Similarly, investments in units purchased in Rupees, where the investor was a resident of India and subsequently becomes a non-resident, will not qualify for repatriation of repurchase proceeds of units. The entire income distribution on the investment will, however, qualify for full repatriation. Investors are advised to contact their banks/tax consultants if they desire remittance of the income distribution on units abroad.

Is the income/dividend on mutual fund units repatriable?

The investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India. In the case of an FII, the designated branch of the authorised dealer may allow remittance of net sale/maturity proceeds (after payment of taxes) or credit the amount to the Foreign Currency account or Non-resident Rupee account of the FII maintained in accordance with the approval granted to it by the RBI. In any other case, where the investment is made out of inward remittance or from funds held in NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to NRE/FCNR/NRO/NRSR account of the non-resident investor maintained with an authorised dealer in India.

What is the tax liability on redemptions?

Under Section 2(42A) of the Income Tax Act, units of the fund held as a capital asset for a period of more than 12 months immediately preceding the date of transfer, will be treated as a long-term capital asset for the computation of capital gains, thus qualifying for the long-term capital gains tax rate. In all other cases, it would be treated as a short-term capital asset and would be taxed at the short-term capital gains tax rate.

What is the tax liability for income received from your mutual funds?

As per Section 10(35) of the Income Tax Act, 1961, income received from mutual fund units specified under Section 10(23D) is exempt from income tax in India and the mutual funds are subject to pay distribution tax in debt oriented schemes. Hence all dividends are tax-free in the hands of non-resident investors and no TDS is applicable on the same.

Is it mandatory to have a Permanent Account Number (PAN)?

Yes. Submission of PAN card copy (irrespective of the amount of investment) is mandatory for all existing as well as prospective investors including joint applicants / holders, guardians and NRIs for investing with Mutual Funds from January 1, 2008.

How does one apply for a PAN?

An application is required to be made in Form 49A (download form).

What is the proof of the Tax Deduction at Source?

A TDS certificate is issued in the name of the investor mentioning the details of the transaction and the tax deducted. The TDS certificate is commonly known as Form16 A.

When will the TDS certificate be issued?

A TDS certificate (Form 16A) will be despatched to the investor at his or her registered address along with the redemption warrant.

Can an NRI have a joint account in a mutual fund with a resident Indian?

Yes. An NRI investor can jointly own a fund account with a resident Indian or a Non-resident Indian.

Is the indexation benefit available to NRIs?

Yes, if units are held for more than 12 months i.e. on long-term capital gains.

Are fund units liable to the wealth tax?

No. Units issued to overseas investors will not be treated as assets as defined under section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to wealth tax.

Can dividend received from a mutual fund in an NRO account be repatriated?

Yes. Income generated from investments (dividend, in this case) done on a non-repatriable basis qualify for full repatriation.

Can an NRI fax a request followed by the original documents?

No. Units cannot be redeemed or allotted on the basis of fax applications. A request that lacks a valid signature cannot be processed due to legal restrictions.

Can a Power of Attorney (POA) invest on behalf of the NRI investor?

Yes. unlike banks where a POA holder cannot open an account on behalf of the NRI, in a mutual fund the POA has the authority to invest on behalf of the investor and sign documents for initial and additional purchases as well as redemptions. While applying for purchase of units the POA holder needs to submit the original POA or a copy duly notarised should be submitted. The Power of attorney should contain the signature of both the first holder and the POA holder. Only when the POA is registered does the POA holder have the right to transact on behalf of the NRI investor. His signature will be verified for processing any transaction/request.

Is nomination by NRIs allowed in Mutual Funds?

Yes. It is allowed only for Individuals/HUFs.

Can a resident Indian have an NRI as nominee?

Yes. The same rules apply for nominees to resident Indian accounts. An NRI can be a nominee to an account which is in the name of a resident Indian.

Restricted Countries For NRI Investment

NRO, NRE and FCNR accounts for NRIs

There are several options available for NRIs considering opening a account in an Indian bank:

• Non-Resident Ordinary (NRO) Savings Account

• NRO Fixed Deposit Account

• Non-Resident External (NRE) Savings Account

• NRE Fixed Deposit Account and

• Foreign Currency Non Resident (FCNR) Fixed Deposit Account

Each of these account types has certain advantages and disadvantages. Understanding them can help you in making a choice.

Key aspects of NRE accounts are as follows:

• NRE accounts are maintained in rupees. This means that the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account.

• The primary source of funds deposited into NRE accounts must be from your earnings abroad. In other words, you cannot deposit money from sources in India such as house rent or pensions in this account.

• The principal amount and the interest are fully repatriable (can be converted to any foreign currency). The conversion back to foreign currency is done at the prevailing forex rates.

• Interest income earned on the money in a NRE account is non-taxable in India. However, it may be taxable in your country of residence as per that country's tax rules.

• You can only have other NRIs as joint account holders on NRE accounts. Resident Indians cannot be joint account holders in NRE accounts with NRIs.

Key aspects of NRO accounts are as follows:

• NRO accounts are maintained in rupees. This means that the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates when the money is deposited into the account.

• The source of funds deposited into NRO accounts can be from India or abroad. NRO accounts are appropriate for NRIs who have had earnings in India earlier and became NRIs later as well as NRIs with income from sources in India such as house rent, pensions etc. You an also deposit money from your earnings abroad or transfer money from a NRE account into a NRO account.

• Current Income like rent, dividend, pension can be remitted abroad through the NRO account. Funds which can be repatriated from the NRO are subject to a maximum limit of USD 1 million per financial year. Repatriability is subject to conditions.

• Interest income earned on the money in a NRO account is liable for taxes in India.

• You can have other NRIs or resident Indians as joint account holders on NRO accounts.

Key aspects of FCNR accounts are as follows:

• FCNR accounts have to be opened and maintained in the foreign currency itself.

• The source of funds deposited into FCNR accounts have to be from sources abroad. They can also be from your other NRE or FCNR accounts.

• The principal amount and the interest are fully repatriable

• Interest income earned on the money in a FCNR account is non-taxable in India. However, it may be taxable in your country of residence as per that country's tax rules.

• You can only have other NRIs as joint account holders on FCNR accounts. Resident Indians cannot be joint account holders in FCNR accounts with NRIs.

NRE and FCNR accounts have the advantages of not having to pay taxes in India which could be a hassle for NRIs trying to figure out the tax rules in India as well as their country of residence.

People opening NRE accounts and would like to repatriate their funds at some point must consider the foreign currency conversion rates at the time the funds are being deposited versus the time when the funds have to be repatriated. This can carry risks as well as rewards depending on the forex rates trend. For example, if $1000 is converted to Indian rupees at Rs. 50 per dollar and then converted back to dollars at a conversion rate of Rs. 40 per dollar, then you would get back $1250 for a good gain. On the other hand, if the dollar is at Rs. 55 per dollar, you would lose some of your principal when you do the repatriation.

FCNR accounts do not carry any forex rate risk as the accounts are always maintained in the foreign currency.

NRO accounts have the advantage of being able to deposit funds from both sources in India and abroad and having joint account holders in India. Repatriability of funds is a disadvatage for NRO accounts. The key advantage of NRO fixed deposit accounts is the substantially higher interest rates as compared to FCNR and NRE accounts. The rate of interest offered is different in different banks and also depends on the fixed deposit tenure. So your choice of which bank to open a account in can depend on the interest rates.

FCNR and NRE fixed deposit accounts typically yield much lower than NRO fixed deposit accounts. Most banks in India offer the same interest rate for FCNR and NRE fixed deposit accounts. So if you are planning to choose a bank for your NRE or FCNR fixed deposits, interest rates offered is not a consideration.

Both NRE and NRO savings accounts yield 3.5% currently. There is no savings account option for FCNR accounts.

NRE Savings and NRO Savings accounts allow you to have family members in India as mandate holders whereas you cannot have mandatees for the fixed deposit options available in NRE, NRO and FCNR accounts. Mandate holders can withdraw funds from your accounts in India with some type of a card such as a debit card of a ATM card. They can also withdraw funds at the bank locations.

Most banks also provide for taking loans for a certain percentage of your existing balance on your NRE, NRO and FCNR fixed deposit accounts