Letting out Immovable property

Reserve Bank of India has granted general permission to Foreign Citizens of Indian Origin (whether resident in India or not) and Non-residents of Indian nationality and origin (except citizens of Pakistan, Bangladesh, Nepal, Bhutan, Afganistan and Sri Lanka ) to let out, either their commercial or residential premises, to persons in India, subject to the following conditions:

a) The rental income and the proceeds of any investment, out of such income, shall be repatriable (due to current account convertibility); otherwise

b) The rental income shall be credited in the owner’s Non-Resident (Ordinary) Rupees Account or to the Non-Citizen’s Resident Rupee Account maintained with a Bank in India.

Further, it must be noted that there seems to be no direct reference to Foreign Citizens of Non-Indian Origin, for the above relaxation. In their cases, therefore, it may be necessary to take Reserve bank of India’s prior approval before renting out their properties.

Acquisition of Immovable property by NRIs(Contd..)

The relatives of NRIs often wish to bequeath properties to non-residents in their wills. For such cases, Reserve Bank of India has granted general permission to non-residents of Indian Origin (irrespective of their citizenship) to acquire immovable properties by way of inheritance and also to hold and enjoy these properties acquired by them.

However, Reserve Bank of India has not granted any repatriation facilities for sale proceeds of such inherited properties. This is because there is no convertibility of the Indian Rupee on capital account.

Acquisition of Immovable property by NRIs by gifts

Non-residents have also been granted general permission to acquire such properties by way of gifts. However, the gift must be from/to a relative who may be either an Indian Citizen or a person of Indian Origin who may or may not be a Resident in India. “Relative” is to be construed as per definition given under section 6 of the Companies Act, 1956.

Acquisition of immovable properties by NRIs

There are no formalities under FERA in case of a Non-Resident Indian who is an Indian Citizen and who wishes to sell his immovable property in India. Even if the non-resident is a foreign citizen (regardless of origin), he has been granted general permission by Reserve Bank of India to sell his immovable property situated in India.

However, while a Non-Resident Indian can sell his immovable property without Reserve Bank of India’s permission, as per FERA, a Resident Indian cannot make any payment including the purchase price for the property to a non-resident without RBI’s prior permission. Section 9 of FERA prohibits any payment by a resident to any non-resident except with prior general or special permission from Reserve Bank of India. For purchase and sale of a flat, while the non-resident is under no obligation to obtain any permission from Reserve Bank of India to sell his flat, the resident should seek prior permission to make payment (including the purchase consideration) to a non-resident. The resident should not pay without RBI’s permission, even the earnest or token money to the non-resident, as a mark of completion of the negotiations for the transaction.

NRIs Investment oppertunities

NRIs can make direct investments in proprietary / partnership concerns in India as also in the primary issues of shares / debentures of Indian companies. They can also make portfolio investments, i.e. purchase of shares / debentures of Indian companies through stock exchanges in India. These facilities are available on both repatriation and non-repatriation basis.

In order to facilitate NRIs to set up new companies in India, Reserve Bank vide its Notification NO. FERA 143/93 RB dated 26^th April 1993, has granted general permission to NRIs to subscribe to the Memorandum and Articles of Association and to take up the shares of Indian companies for their incorporation. The general permission empowers such Indian companies to issue shares to NRIs provided the total face value of the shares to be issued does not exceed Rs. 10,000/- and the company is not engaged into activity relating to agricultural and plantation.

A. DIRECT INVESTMENT

NRIs are permitted to make direct investment in partnership/ proprietorship concerns in India as also by way of subscription to shares/ debentures of Indian companies. They are also permitted to place funds in company deposits. Similar facilities are also available to OCBs with certain exceptions. Investments made will either be on repatriation or on non repatriation basis depending on the terms and conditions applicable under the existing schemes for NRI investment Wherever the investments are allowed with repatriation benefits, the funds for the purpose should be received by inward remittances from abroad or from the investor’s NRE/ FCNR Accounts. However, in respect of investment on non repatriation basis, funds in NRO Accounts could also be used.

Non resident Indians resident in Nepal will be permitted to make investments in India provided the funds for the purpose are remitted in free foreign exchange through proper banking channels.

I. Investments Without Repatriation Benefits NRIs / OCBs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non repatriation basis. The income earned on these investments as and when accrued are required to be credited to the Ordinary Non Resident Rupee (NRO) account of the investor. Reserve Bank would, however, permit repatriation of the net (i.e. after payment of tax) income / interest earned during the financial year 1994/95 and onwards on such investments/ deposits in accordance with the procedure laid down. The categories of investment under this head are the following

Investment in Partnership/ Proprietorship Concerns

Investment in New Issues of Shares/ debentures of Indian Companies

Investment in Non Convertible Debentures of Indian companies

Purchase of Shares of Indian Companies by Private Arrangement

Investment in Domestic Public Sector and Private Sector Mutual Funds

Investment in Money Market Mutual Funds (MMMFs)

Acceptance of deposits by proprietary concerns/firms/companies in India on Non-repatriation basis.

and meny more to add.. The above topics will be discussed in detail frm tommrow on wards

Gold and Silver Allowed for NRIs

The Government has permitted NRI’s to legally import gold (Maximum 5 kgs. w.e.f. 1-1-97, duty of Rs. 220 per 10 grams increased to Rs. 250 from June, 1998 and Rs. 400 from 5^th January, 1999) and silver (100 Kgs. Per passenger, duty of Rs. 500 per Kg.). The NRI should be coming to India, after a period of not less than six months stay abroad and the duty has to be paid in convertible foreign exchange. Gold or Silver, in any form, including ornaments (excluding studded with stones or pearls) is allowed to be imported. Octroi duty will also be payable, outside the airports, as per the municipal rule.

When gold is sold in India, the profit is liable to tax as business income or capital gains, depending on the facts of each case i.e., the intention of the NRI. If his intention was to take advantage of the business opportunity and sell gold/ silver, it will be treated as business profit. If his intention was to hold it as a capital asset, it will be treated as capital gains.

Most NRIs want to take advantage of the business opportunity and buy gold/silver before coming to India and sell it soon. In such circumstances, it will be treated as business income. From the sale proceeds of the metal, the cost and expenses incurred for the sale can be deducted and profits worked out.

In a majority of the cases, the NRI would have purchased the precious metal just prior to his return to India and sold it within short time after his arrival in India, such a transaction would constitute an "adventure in the nature of trade" and the income from the sale would be taxable as business income. It is a well settled principle that income from a single transaction could also constitute business income. Hence the profit on sale of gold/silver would be treated as business income.

If the NRI has acquired the precious metal as a capital assets, the income will be treated as short-term or long-term capital gains depending on the period of holding.

NRI 'S concessions

NRIs, who return to India after 18^th April,. 1992 after having been "a person resident outside India" for a continuous period of at least one year, have been granted the following general permissions on their return to India:

(a) To maintain and operate, their foreign currency accounts with banks abroad. Funds held in these accounts can be used by resident account holders for making any payments to persons resident outside India. There will be no restrictions on utilisation of the balances in these accounts for any bona fide payments in foreign currency. The funds can also be utilised for making further investments in shares/ securities or immovable properties etc. abroad provided the cost of such investment and/or any subsequent payments required therefore are met exclusively out of foreign currency held in these accounts.

(b) To hold, transfer or dispose of their other foreign currency assets like shares, securities, life insurance policies, and immovable properties, abroad . In case of the NRI who wants to retain his link abroad through business, vocation or employment, then his investments or interest in business abroad can continue as usual even after his return to India.

(c) To enjoy absolute freedom for utilisation of their foreign currency assets, including freedom to gift or settle their foreign currency assets to anybody, anywhere.

(d) To earn and retain abroad pension and retirement benefits, after return to India.

(e) To earn, hold or dispose off or invest, in any manner they deem fit, incomes on their foreign currency assets.

(f) To make any payments to or make any further investments abroad, provided that the payments and the cost of such fresh investments and any subsequent payments required thereof, are met exclusively out of the foreign currency assets.

However, to earn the above facilities, it is necessary that foreign currency assets should have been acquired by the returning NRI lawfully without any contravention of FERA when he was living abroad and carrying on employment, business or vacation outside India.