Simply put, an NRI is a person who is an Indian but resides outside India. There are a number of rules and regulations that govern NRI banking in India. However, there are rules and regulations which are specifically made for NRIs and non-adherence can attract penalties. A person is considered non-resident for tax purposes if he leaves the country for a job abroad or as a crew on an Indian ship and spends less than 182 days in a year in India. All financial transactions carried out in India by NRIs are governed by the Foreign Exchange Management Act, 1999 or FEMA. It is thus advisable for NRIs to get to know to know all the rules properly before they operate any account or carry out business transactions in India.
Some of the basic rules of NRI banking that you need to be aware of are:
• It is illegal for NRIs to hold savings bank accounts. FEMA has regulated that as and when a person acquires NRI status, his resident savings bank account has to be converted to a NRO account. All income like rentals from property, investments, pension etc is to be deposited in this account.
• NRI banking rules state that NRE accounts are required if you want to deposits funds in an Indian bank from abroad. There is no limit on repatriating funds back home to India.
• Another important aspect of NRI banking is that they are not allowed to open a PPF account. This fund account is a very effective savings tool for long term planning can be availed only by resident Indians. However, if an NRI has a PPF account before becoming an NRI, he or she can continue to operate the account till its maturity. The funds will have to be withdrawn on maturity and proceeds should be deposited in an NRO account. If the account is left unattended on maturity, it will be considered as ‘extension without contribution’ and penalties will be levied.
• An NRI will have to pay taxes on any income accrued or received in India. Rental income, salary, interest income on fixed deposits or saving bank accounts are all taxable.
• A person who has been non-resident for 9 consecutive years remains RNOR (Resident but not Ordinarily Resident). This is actually a transition period between being an NRI and becoming a full-fledged Indian resident. This period is for two years and this implies that the foreign income of the NRI does not immediately become taxable.
• If an NRI without PAN card can provide alternative documents, TDS will not be deducted at a higher rate.
• An NRI will have to disclose all foreign assets and foreign income in the tax return if he returns to the country and turns Ordinary Resident Indian for a particular year.
Some of the basic rules of NRI banking that you need to be aware of are:
• It is illegal for NRIs to hold savings bank accounts. FEMA has regulated that as and when a person acquires NRI status, his resident savings bank account has to be converted to a NRO account. All income like rentals from property, investments, pension etc is to be deposited in this account.
• NRI banking rules state that NRE accounts are required if you want to deposits funds in an Indian bank from abroad. There is no limit on repatriating funds back home to India.
• Another important aspect of NRI banking is that they are not allowed to open a PPF account. This fund account is a very effective savings tool for long term planning can be availed only by resident Indians. However, if an NRI has a PPF account before becoming an NRI, he or she can continue to operate the account till its maturity. The funds will have to be withdrawn on maturity and proceeds should be deposited in an NRO account. If the account is left unattended on maturity, it will be considered as ‘extension without contribution’ and penalties will be levied.
• An NRI will have to pay taxes on any income accrued or received in India. Rental income, salary, interest income on fixed deposits or saving bank accounts are all taxable.
• A person who has been non-resident for 9 consecutive years remains RNOR (Resident but not Ordinarily Resident). This is actually a transition period between being an NRI and becoming a full-fledged Indian resident. This period is for two years and this implies that the foreign income of the NRI does not immediately become taxable.
• If an NRI without PAN card can provide alternative documents, TDS will not be deducted at a higher rate.
• An NRI will have to disclose all foreign assets and foreign income in the tax return if he returns to the country and turns Ordinary Resident Indian for a particular year.
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