FEMA Banking Guidelines – Documents and Tax implications
Despite moving overseas, NRIs remain connected to their roots in some form or another. For example, the NRIs often have to take care of their near and dear ones or ancestral properties in India. In another scenario, NRIs earn passive income such as rent and investments in India, and they need this money in their country of residence. As a result, they often need to transfer money from abroad to India or vice versa, a process which can be made easier and more secure if NRIs know the rules regarding the repatriation of funds. Before moving ahead, knowing what kind of bank accounts NRIs can hold becomes essential.
What types of Bank Accounts can be held in India by an NRI or a PIO?
As per the guidelines of RBI- NRIs and Persons of Indian Origin are free to hold the following type of accounts:
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- NRE (Non-Resident External) Account: NRIs open this account to manage the income earned outside India. Thus, the interest earned on NRE accounts is not taxable in India. With NRE Account, the NRIs can use their foreign earnings in India with ease.
- NRO (Non-Resident Ordinary) Account: This type of account is opened to manage income earned in India by an NRI. In this account, the NRI can park income such as rent, dividends, pensions, etc.
- FCNR (Foreign Currency Non-Resident) Account: This account holds fixed deposits in foreign currency, which is easily convertible into an Indian rupee denomination.
These types of accounts can only be opened by RBI-authorised banks.
What is Repatriation?
Repatriation of funds by NRIs refers to transferring of funds from an NRI’s Indian bank (NRO) account to an overseas bank account or NRE bank account held by an NRI. The Foreign Exchange Management Act 1999 and various RBI guidelines govern the repatriation of funds.
RBI Guidelines for Repatriation of Funds:
The RBI has issued guidelines for the repatriation of funds by NRIs. These guidelines are as follows:
1. NRI can repatriate any amount from his NRE Bank account balance without limit.
- However, for repatriation through the NRE account, you need to fill Bank request form and Form A2.
2. NRI can repatriate up to USD 1 million in a financial year from his NRO account. Sale proceeds of assets acquired by inheritance, settlement deeds, etc., are also included in this amount.
- For repatriation through NRO Account, you need to fill following forms:
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- Bank request form stating the amount to be repatriated
- Form A2, a form for repatriation
- Form 15 CA, which makes sure that taxes are collected on the funds to be remitted
- Form 15CB, Certificate of an Accountant
3. As per FEMA guidelines, the sale proceeds of immovable assets bought in India by an NRI can be repatriated up to USD 1 million in one financial year.
FEMA guidelines governing the repatriation of funds:
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- Repatriation of funds is subject to tax implications.
- You can repatriate your current income either in the current or subsequent financial year.
- NRO account must not hold borrowed funds or funds transferred from any other NRO account.
- There is a limit of USD 1 million for repatriation from the NRO account, and no such limitation is imposed on the NRE account.
- You can only repatriate sale proceeds maximum of two properties in India.
Tax Implications on Repatriation of Funds:
All types of repatriation are subject to payment of taxes which the Authorised dealer Banks need to ensure the NRI has complied with.
Conclusion:
The RBI guidelines and FEMA rules on the repatriation of funds ensure that NRIs can repatriate their funds from India for legitimate purposes. The guidelines also help to prevent the misuse of foreign exchange by NRIs. However, repatriation of funds is a complex matter you should consult with a tax advisor for guidance.