OCBs make a comeback as NRI investment vehicle
Disclose foreign assets, redesignate NRO a/c and open a Resident Foreign Currency a/c to park forex earnings
India remains one of the fastest growing economies in the world. For those who are planning to return and settle in India and wish to build a focussed investment portfolio, there's no better time. However, adequate care has to be taken to ensure that your hard-earned wealth is properly diversified to minimise risk, is tax efficient and is compliant in all ways with the extant legal framework.
If you have returned to India with the intention to stay back, inform your bank for a change in your residential status in their records and re-designate your existing Non Resident Ordinary (NRO) account to resident Savings account. Also, your existing NRI demat account under the Portfolio Investment Scheme (PIS) cannot be continued anymore and a separate resident demat account should be opened and shares/units in that account should be transferred to the new account. Your Foreign Currency Non-Resident (FCNR) deposits can run till maturity but your earnings in Non Resident External (NRE) savings account will have to be transferred to resident savings account, or you have an option to transfer it to Resident Foreign Currency (RFC) account.
OPEN RFC ACCOUNT
The account is a safe way to park your foreign exchange earnings in India. As per the extant RBI regulations, you are allowed to open a Resident Foreign Currency (RFC) Account and credit your foreign exchange earnings. Persons of Indian Origin (PIO) who, having been resident outside India for not less than 1 year, and have become resident on or after April 18, 1992, are eligible to open the account. Persons who returned to India prior to April 18, 1992 after having been resident outside India for not less than one year provided they hold Returning Indians Foreign Exchange Entitlement (RIFEE) permit are eligible as well. Interest is taxable and there is a penalty on early foreclosure of RFC deposit. Repatriation is allowed and both funds and interest thereon is free from all restrictions and can be transferred to NRE/FCNR accounts or investment outside India (see table).
REDUCING TAX LIABILITY
As per the Indian income tax law, the moment you become a resident Indian (which given the income tax rules generally happens a couple of years after you're back in India), you start getting taxed on your 'global income'. Of course, the benefit of Double Taxation Avoidance Agreements, or DTAA, may be availed if the overseas income is also getting taxed locally. One good way you can hold the global tax liability as stated above is to plan your stay in India in such a way as to try to maintain Resident and Not Ordinary Resident (RNOR) status for the maximum possible time. In such a scenario, except for some incomes, rest of your foreign incomes will remain exempt from tax.
As per RBI norms, you are free to hold, own, transfer assets outside India if such assets were acquired by such person when he was resident outside India or inherited from a person resident outside India. However, note that if you plan to sell those assets after becoming resident Indian, there might be a capital gains tax liability under the Indian tax laws. To avoid that, it's wiser to explore the possibility of disposing off those assets before you earn Indian resident status. Also, note that the Supreme Court has clarified in the case of Keshav Mills Ltd. v. CIT  23 ITR 230 that income received outside India and remitted to India will not be considered 'receipt' and shall not be taxed in India. Some more ways to reduce tax liability on your return to India are:
> Spreading income through gifting assets to parents/major children
> Creating a separate tax file for Hindu Undivided Family (HUF) and taking advantage of separate exemption limit available to HUF
> Investing in tax-free bond issues announced from time to time
OTHER POINTS TO REMEMBER
> Inform the respective companies from which you have purchased insurance or investments in India of the change in your status and new communication address. This will help the company to stop deducting the mandatory Tax Deduction at Source (TDS) on payouts at the rate of 30.9 per cent and there will be no glitches at the time of servicing.
> If your income is above exemption limit, you will have to file your tax return. In case you hold foreign assets, you need to disclose details in your tax returns. Note that the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015 imposes stringent penalties for not doing so.
> Look at your portfolio afresh, including insurance needs. Think before buying a residential house as it can lock a major portion of your savings towards retirement.
NRIs returning to India need to carefully manage the financial aspects of their shift..
Non-resident Indians (NRIs) should also give a lot of thought to the financial aspects of shifting back to India and the challenges that arise in its wake.
FILE INCOME-TAX RETURNS
When an NRI returns to India, he should be aware of his tax residency status and file his income tax returns accordingly. Tax residency status is determined by an individual's actual physical presence in India during the financial year. To qualify as a resident, you would have to satisfy one of the following conditions: Your stay in India during the financial year should be 182 days or more; or your stay in India during the financial year should be 60 days or more and it should be 365 days or more in the four financial years preceding the current one.
Once you qualify as a resident, you need to find out whether you fall in the category of ordinarily resident (OR) or not ordinarily resident (NOR). If you meet any of the following conditions, you will qualify as an OR: you should be a resident in India in nine out of the previous 10 financial years; or, your stay in the seven years preceding the relevant financial year should altogether be 729 days or more. If you don't meet these criteria, you would be an NOR.
If your status is that of an NOR, you need to pay tax only on your Indian income but not on your global income. Once you fall in the category of OR, your entire income in India and abroad becomes taxable in India.
REPORT FOREIGN ASSETS
Once you become a resident Indian, you need to report all your foreign assets under the Undisclosed Foreign Income and Assets Bill, 2015. "Since July 2015, you have to ensure that you report all your bank accounts, financial interests, immovable property and trusts held abroad in your tax returns. These assets need to be reported even if you have no income from them. Failure to report could result in a penalty of Rs 10 lakh," says Sonu Iyer, partner and national leader, people advisory services, EY (see table: High penalty for not disclosing foreign assets).
CHANGE STATUS OF BANK ACCOUNTS
As an NRI, you would have held NRO, NRE and FCNR accounts. The moment you become a resident Indian, the status of the NRO and NRE accounts should change to resident accounts. The FCNR account should be converted into a resident foreign currency (RFC) account. The taxation status of these accounts also changes. The NRO account is always taxable. The moment you become a resident, interest income from both NRE and FCNR accounts becomes taxable. Notify your bank and request for a change in status.
A major challenge NRIs face is in transferring the wealth they have accumulated back to India. The complexity arises especially in dealing with the money lying in your employer's retirement account, such as the 401 (k) account in the US. Since you no longer work for that employer, you may want to bring the money completely under your control. You have two options: Leave it in the US but transfer it to other types of accounts, or bring it to India. If you decide to keep the money in the US, you can move it into a traditional IRA or a Roth IRA account, which are also retirement schemes. IRA accounts are offered by asset management companies. In a 401(k) account or a traditional IRA, you pay tax at the time of retirement, that is, at the age of 59.5 years. If you decide to pay taxes on the money right away, you can invest it in a Roth IRA account, where it becomes tax-free at the time of withdrawal.
There are other challenges if you decide to bring the money to India. "You might have to pay penalties for premature withdrawal and tax on capital gains. You will have to take into account whether India has a double taxation avoidance agreement (DTAA), and whether it covers retirement funds. If there is no DTAA, you might end up paying taxes in both the countries, and could well lose 50-60 per cent of the corpus," says financial planner Ankur Kapur of ankurkapur.in. Each of these decisions could lead to penalties for premature withdrawal and tax liabilities whose impact needs to be studied in detail. You may have to seek professional help as the issue is complicated.
NRIs also need to decide whether to dispose of their real estate abroad. The main criterion should be whether you plan to use the property in the near future, say, if you wish to return to that country in a few years or plan to visit it periodically. Usually, it is not advisable to retain the property for rental income. "In countries like the US, you are not left with much after paying the high management fee and taxes. The appreciation in rental from year-to-year is also low," says Kapur.
Whether you buy a term plan on your return should depend on your age and the amount of assets you have accumulated. Someone with a corpus of, say, Rs 20 crore, may not need to buy term insurance, while another person with an asset base of only Rs 50 lakh will need to buy one.
NRIs should also buy a personal health cover for their family. "Buy a health cover a few years prior to shifting to India so that the waiting period for pre-existing diseases is crossed while the family is still abroad and the family is fully covered on its return to India," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
NRIs, who are accustomed to the more streamlined processes and higher degree of professionalism abroad, could find themselves at sea when trying to buy a house in India. One challenge is to ascertain whether the features and amenities that the developer has advertised will come true. The second is to assess whether the developer has the financial strength to deliver the project on time. Third, developers might advertise that various infrastructure projects will come up in their area, which will boost the prices of apartments in their project. NRIs need advice regarding whether these projects will come up at all and whether this will happen within the time frames mentioned.
Before setting out to make a purchase, NRIs should do a lot of homework. Many developers provide information about their projects on their web sites. Property portals also provide listings of projects with details about them. "Zero in on a few reputed developers and a few projects whose specifications match your requirements," says Ashutosh Limaye, head of research and REIS, JLL India. To evaluate a developer, look at the construction quality of his past projects and his track record for timely completion and providing the promised specifications. For most NRIs, it might be a good idea to engage a professional broking agency. "That agency should be able to tell you whether all the permissions are in place and offer advice on the infrastructure projects slated to come up in the area. It should also be able to offer an assessment of the project's potential for price appreciation," says Limaye.
MUMBAI: Karur Vysya Bank, a private sector bank with over 95 years of banking tradition in India, announced a tie-up with TimesofMoney, for an online remittance solution for Non Resident Indians (NRIs). This service provided byTimesofMoney will ensure that all NRI customers of Karur Vysya Bank get a transaction platform along with better pricing, safety and speedy money transfers.
Commenting on the occasion, V. Bhaskar, General Manager, International Banking Group, Karur Vysya Bank said, "With our NRI portfolio growing at a rapid pace, we already have in place a robust online transfer arrangement with TimesofMoney for the US dollar. This is being expanded now to cover more countries, especially all European countries and currencies, so that our NRI customers, as also non-customers can remit funds home in a fast, secure and hassle-free environment. With this tie-up in place, we also expect our NRI inflows to grow at a faster pace".
Commenting on the tie-up, Avijit Nanda, President - TimesofMoney said "India is the top remittance receiver in the world, with a robust US$ 64 billion in 2011 (as per a World Bank Report), a growth of 16% over last year. Online remittances, increasingly being preferred by consumers is growing at an incredible rate of approx. 20% CAGR. We at TimesofMoney ensure that we satisfy the needs of Indians abroad with a superior & user-friendly service. Karur Vysya Bank with its strategic focus on new services, combined with our proven expertise in managing online remittances, gives the customer an excellent platform to send money home to his family."
The IMPS—interbank mobile payment service—allows a person to electronically transfer money to another party using his mobile phone. In order to do so, both the remitter and the beneficiary's bank must be registered with the National Payments Corporation of India (NPCI).
The remitter needs to register himself with his bank for mobile banking services by filling up a registration form. The remitter's mobile number, through which the facility will be used, has to be registered with the bank.
MMID: On successful registration, a unique seven-digit mobile money identifier (MMID) is allotted against each account held by the holder. An MPIN is a PIN allotted for authenticating the mobile transactions.
Mobile app: The remitter needs to download the mobile banking app from his bank's website on a phone compatible for using such an application. Alternatively, one can transfer funds using IMPS by using a mobile phone's SMS facility, if the bank offers such a service.
Money transfer: To transfer funds, the remitter needs to log in to the mobile application and enter the beneficiary mobile number, beneficiary MMID, amount to be transferred, and MPIN in the application. Once the details are authenticated, the remitter receives a confirmation SMS for the debit. If the remitter chooses to use the SMS mode, he needs to send a text message to a designated mobile number in a manner specified by the bank.
Points to note
> The maximum limit for transfer on a single day per customer is Rs 50,000.
> The transaction reference number received on confirmation of the transfer can be used as a reference for queries.
Xpress Money in association with Union Insurance - one of the leading insurance firms in the Gulf Co-operation Council(GCC) region, launched remittance industry's first free life insurance for Indian expats working in the region. Designed specifically to suit the blue collared population, this monthly renewable free life insurance scheme, is available to any person remitting money through Xpress Money.
This pioneering insurance will provide a life insurance protection of AED 15,000 Dirhams including AED 5,000 Dirhams of repatriation expenses of the mortal remains, something that not many insurance companies cover. The life insurance benefit will be available to any person remitting money through Xpress Money for a period of one month, from the day the customer makes a transaction. A remitter can avail this life insurance free of cost irrespective of the amount transacted.
Mr. Sudhesh Giriyan, Vice President and Business Head, Xpress Money, said: "Majority of the Indian expats from blue-collared category, residing and working in the GCC region, generally work in hazardous conditions at construction sites, factories etc. We launched this free life insurance scheme because we are sensitive to humanity and believe that every life is priceless. This life insurance is a critical value addition to our services and we are glad to be associated with Union Insurance - a leading insurance brand in the Gulf Co-operation Council (GCC) region in creating a new milestone in the remittance sphere."
Speaking about the launch, Mr. Arvind Mylar, Regional Vice President- Business Development, South Asia, Xpress Money said, "This is a pioneering initiative that no remittance player has offered so far. The launch of this innovative product will truly benefit many blue-collared Indian expats and will give an edge to Xpress Money and Union Insurance. Being one of the biggest global remittance brands, we look forward to further expansion to other countries and regions over the next few months."
The life insurance cover will be offered to Xpress Money customers sending money to India from major send markets like UAE, Kingdom of Saudi Arabia, Oman, Qatar, Kuwait and Bahrain.
In 2004, as a step towards further simplification and liberalization of foreign exchange facilities available to resident Indians, the Reserve Bank of India (RBI) announced the Liberalised Remittance Scheme (LRS).
Thanks to this scheme, foreign remittances today can be freely made by residents to the extent of $200,000 per financial year. Remittances made under the LRS can be used to buy property abroad or to invest in shares, mutual funds or debt instruments in any foreign country without prior approval of the RBI.
While the scheme looks attractive on paper, it is ridden with several practical roadblocks. Confusion exists on what is allowed under the scheme, what documents are needed to be submitted and so on. Let us try to throw light on these practical aspects.
What can the LRS be used for?
LRS can be used for:
> Buying property abroad
> Investing in shares, securities, bonds, mutual funds abroad
> Opening and maintaining foreign currency accounts with banks outside India for carrying out the above mentioned transactions
> Gifts and donations abroad
The RBI prescribes separate limits for other remittances such as travel, education or medical expenses (see table). These limits are in addition to the limits prescribed by the LRS.
These limits are also gross limits. That is, you can remit up to these limits out of the country irrespective of how much you bring in. For instance, if a customer decides to open a broking account abroad and deposits $200,000 (under the Liberalised Remittance Scheme) and later that year, decides he wants to withdraw all his money and open an account at another financial institution, he will not be able to do so.
What is not permitted under the LRS?
The following transactions are not permitted for remittance under the LRS:
> Transactions that are explicitly prohibited by RBI such as purchase of lottery tickets, sweepstakes etc
> Remittance from India for margins or margin calls to overseas exchanges
> Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market;
> Remittance for trading in foreign exchange abroad;
> Remittance by a resident individual for setting up a company abroad;
There is also restriction on remittance to some countries like Bhutan, Nepal, Mauritius, Pakistan and certain other countries that are enlisted by the Government from time to time.
How does the bank verify your purpose of remittance?
At the time of making remittance, you would have to submit a self declaration form stating the purpose of your remittance. The bank or authorised dealer will only go by your declaration.
What is the procedure to remit funds under the LRS?
Step 1: Approach your bank to make the remittance. If you have been an account holder in the bank for less than one year, you would need to provide copies of bank statement of the previous year or copies of the latest income tax return or assessment order.
Step 2: Submit the application cum declaration form A2
Step 3: Submit a draft for the amount you want to remit
While these are the only documents needed to be submitted, several banks ask for other documents such as a Form 15CA and 15CB.
"These documents are completely unnecessary for this type of transaction and are not at all required by RBI. Based on what our customers tell us, the cost of getting these documents completed can range from Rs 3,000 to Rs 6,000," says Neel Pujara, Co-Founder and CEO of Duniyatrade.com, an online broker that enables Indians to invest in the US markets.
In fact, in 2011 the RBI called for a review of the remittance facilities. The report recognized the need for clarity on remittance procedures. 'There is no clarity or uniformity among ADs and while some ADs insist on the submission of the Form 15 CA/CB for remittances under the Liberalised Remittance Scheme (LRS), some insist only for remittances above US $ 5000 and some don't obtain Form 15 CA/CB at all. This is borne out by the survey results (Annex V) and is not an acceptable situation as it means some residents are subjected to unnecessary costs and harassment while others are not,' the report stated. The report further went on to recommend, 'To enable hassle-free remittances by resident individuals banks may be advised by RBI not to insist on the submission of form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS).'
We can hope that the process becomes clearer and more transparent in the coming days. But in the meantime, if you plan to use the LRS, here are some tips from Pujara, "An individual needs to be very well aware of these limitations.
There is an extensive list of FAQs on the RBI site which might be helpful. Although some of it might still be unclear, we recommend that you go through it to understand the requirements.
One needs to go into the bank, educated, before giving the bank an opportunity to pose difficulties. Most the time, it's the bank which is actually unaware of the LRS process."
If the bank officer is unaware of the regulations, Pujara advices that you educate him with information from the RBI website and persistently follow up with his superiors.
(The author is a chartered accountant and a finance writer. She also blogs