Understanding Non-Resident Individuals in India
An individual residing outside India is commonly referred to as a Non-Resident Indian (NRI).
Definition of NRI
Non-Resident Indian (NRI) encompasses:
- A person who is a citizen of India or of Indian origin and resides outside India.
- Persons of Indian Origin (PIOs), which include individuals who:
- Have previously held an Indian passport.
- Have parents or grandparents who were Indian citizens under the Constitution of India or the Indian Citizenship Act, 1955.
- Are spouses of an Indian citizen or those mentioned as per the above criteria.
Definition of Person Resident Outside India
A "person resident outside India" is simply someone who is not considered a resident of India.
Criteria for Resident Status under FEMA
The Foreign Exchange Management Act (FEMA) defines a "person resident in India" as someone who:
- Has been residing in India for over 182 days during the preceding financial year (April-March).
- Intends to remain in India for an uncertain period due to employment, business, or any other significant purpose.
It is essential to meet both the duration of stay and the intention of remaining in India to be classified as a resident.
FEMA specifically excludes:
- Individuals leaving India for employment or business from the resident category.
- Tourists or visitors are also not considered residents.
Foreign Exchange Dealings under FEMA
Section 3 of FEMA restricts any person from:
- Withdrawing or transferring foreign exchange or securities, except to an authorized person.
- Making payments in foreign exchange or receiving funds from individuals residing outside India.
- Receiving any payments, unless through an authorized person, from those residing outside India.
- Entering into any agreement for financial transactions related to acquiring assets outside India.
Transactions in foreign exchange must adhere strictly to these regulations.
Current Account Transactions
FEMA provides general permission for current account transactions, allowing individuals to sell or draw foreign exchange from authorized persons. Current account transactions typically involve income and expenses.
Examples of current account transactions include:
- Payments related to foreign trade, services, and short-term banking in the normal course of business.
- Interest payments on loans and net income from investments.
- Remittances for living expenses of family members abroad.
- Expenses related to foreign travel, education, and medical care for family members.
Prohibited Current Account Transactions:
- Remittances from lottery winnings.
- Income from racing or hobbies.
- Export commissions for equity investments in joint ventures or wholly owned subsidiaries abroad.
- Interest on funds held in Non-Resident Special Rupee (Account) Scheme.
- Travel to Nepal.
- Transactions with residents of Nepal or Bhutan without RBI approval.
Capital Account Transactions
Capital account transactions alter the assets or liabilities of persons residing in India and vice versa. The Central Government and the RBI outline the conditions, limits, and classification of capital account transactions.
Permissible Capital Account Transactions for Residents in India:
- Acquiring, owning, or transferring foreign exchange, foreign securities, and immovable property outside India.
Examples of capital account transactions include:
- Inbound Investment (Foreign Direct Investment - FDI): Investments by foreign residents in Indian companies or businesses.
- Outbound Investments (Overseas Direct Investment - ODI): Investments in joint ventures or wholly owned subsidiaries abroad by Indian residents.
- External Commercial Borrowings (ECB): Loans sourced from foreign entities by Indian companies.
Conclusion
This overview of NRIs and their classifications under FEMA is meant to provide clarity on foreign exchange dealings and the nature of current and capital account transactions. It is advisable to consult with a professional for specific actions or transactions regarding foreign exchange to ensure compliance with applicable laws.