How much money can an Individual transfer out of India?

The Reserve Bank of India (RBI) in its monetary policy review enhanced the limit under Liberalized Remittance Scheme (LRS) to $250,000 per person per year from existing limit of 125,000 USD.

RBI had reduced the eligibility limit for foreign exchange remittances under LRS to $75,000 in 2013 as a macro-prudential measure. With stability in the foreign exchange market, this limit was enhanced to $125,000 in June 2014 without end-use restrictions, except for prohibited foreign exchange transactions such as margin trading, lotteries and the like.

It was in 2004 that the Reserve Bank of India (RBI) announced the Liberalized Remittance Scheme to facilitate the Indian Residents to transfer funds abroad without its prior permission.

Under this scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 (or its equivalent freely convertible foreign currency) per financial year (April – March).

This scheme is applicable to people like you and me; not for NRIs. If you wish to send money abroad for the following purposes, you can do so without the prior approval of RBI

Purpose of remittance:
• For travel, studies, medical treatment etc.
• To acquire shares or debt instruments in listed or unlisted companies or any other assets including acquisition of immovable property directly or indirectly outside India
• To invest in Mutual funds, Venture funds, unrated debt securities, promissory notes, etc
• To gift or to give donations
• To acquire ESOPs in overseas companies (in addition to acquisition of ESOPs linked to ADR/GDR)
• Repayment of loan taken while an individual was a Non Resident Indian
• To open, maintain and hold foreign currency accounts with banks outside India for carrying out any permitted transactions
Prohibited transactions: Some of them are –
• Purchase of lottery tickets/sweep stakes!
• To use as margin money for trading in overseas stock exchanges
• To use for trading in overseas stock exchanges
• To purchase Foreign Currency Convertible Bonds (FCCB) issued by Indian Companies abroad
• For setting up a company abroad ( however, with effect from August, 2013, to set up a Joint Venture or a Wholly Owned Subsidiary outside India is permitted)
• Remittance directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan

Q1: A Resident individual gifts money in Indian rupees to their NRI relatives and such amount is credited to the NRO account of the relative for an onward transfer outside India. Is the overall limit of USD 125000 applicable for this transaction?
Yes. Gift in Indian rupees (by way of crossed cheque or electronic transfer) is also to be considered while calculating the overall limit of USD 125000

Q2: Can Resident Individual give loans to NRIs?
Yes. The resident individual can lend money by way of crossed cheque or electronic transfer within the overall limit of USD 125000 per financial year. However, the loan should not be remitted out of India. Secondly the loan should be interest free and have a maturity of minimum one year.

Q3: Should the interest or dividend earned on overseas investments be remitted back to India?
No. the investment along with interest or dividend can be retained and reinvested abroad.

Q4: Can the resident Individual open bank account abroad?
Yes. Resident Individuals are allowed to open and hold bank accounts abroad.
Source : Simplifiedlaws

Posted in NRI

Can Non Resident Indian (NRI) invest in Partnership firm or a proprietary concern?

The applicable rules for investment in a partnership firm or a proprietary concern under FEMA are summarized below –

Automatic route –
As per FDI policy of India, A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of capital of a firm or a proprietary concern in India on non-repatriation basis, provided
• the amount is brought in by inward remittance or out of NRE/FCNR(B)/ NRO account
• the amount should come as capital of the firm. No loan or grant is permitted.

Approval route –
In case NRI/PIO wants to repatriate the funds from the firm, then prior permission of Reserve Bank of India (RBI) has to be sought before investing the amount in the firm.

Prohibited sectors
The firm where the investment to be done should not be engaged in any agricultural or plantation or real estate business or print media sector.
The list of prohibited sectors –
• Business of chit fund, or
• Nidhi company, or
• Agricultural or plantation activities, or
• Real estate business, or construction of farm houses, or
• Trading in Transferable Development Rights (TDRs).
• It is clarified that “real estate business” means dealing in land and immovable property with a view to earning profit or earning income there from and does not include development of townships, construction of residential / commercial premises, roads or bridges, housing, hotels, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships.
However, the construction of small commercial building is not covered in the above permitted activity for foreign investors! (means the below conditions are not applicable to NRIs) The investment will be subject to the following conditions –

Condition A: Minimum Area under development
• In case of development of serviced housing plots, a minimum land area of 10 hectares
• In case of construction-development projects, a minimum built-up area of 50,000 sq.mts
• In case of a combination project, any one of the above two conditions would suffice.

Condition B: Minimum amount to be invested in the project
• 10 Million USD for wholly owned subsidiary
• 5 Million USD for Joint Venture projects
• The entire amount should be brought in within 6 months of commencement of business of the company

Condition C: Restriction on Repatriation, completion of the project:
• The entire amount brought into the project can’t be repatriated before 3 years from the date of last installment of remittance into India.
• At least 50% of the project must be developed within a period of 5 years from the date of obtaining all statutory approvals.

Source : Simplifiedlaws

Posted in NRI

Things you must know about Income Tax before buying property from Non Resident Indian (NRI)

1. Check whether the seller has PAN: Seller has to necessarily obtain Permanent Account Number (PAN). So, at the time of finalizing the transaction, we suggest you to take a copy of PAN card of the seller. If the seller is not having one, he has to apply for PAN Card.

2. TDS @ 20.60% – If you are buying property (such as site or house or flat) from a NRI, you have to do TDS (Tax Deducted at Source) @ 20% on the sale value of the property. Suppose, you are buying a residential site at Bangalore for Rs.1,00,00,000, then you have to pay Rs.80,00,000 in favor of seller and Rs.20,00,000 in favor of Income Tax department.

3. Obtain TAN – After deducting tax (TDS) you have to remit it to Income Tax department. To remit you have to obtain Tax Deduction Account Number (TAN) from Income Tax department. While remitting the amount you have to quote TAN as well as PAN number of the seller.

4. File e-TDS return and Issue Form 16A – After deduction of tax (TDS), the buyer has to file a statement called e-TDS (Form 27Q). Within 30 days from the end of the month in which the payment is made, Form 16A has to be issued to the seller.

5. What if no TDS is done? The buyer will have to pay an amount equal to the amount of tax not deducted to the Income Tax department.

6. Option for Lower deduction of Tax – The seller or the buyer can apply to Income Tax department (International Tax Ward) for determination of the amount of tax on capital gain. Based on the certificate of lower deduction issued by the Income Tax Officer, the seller can deduct lower taxes. Suppose, the Sale Price is Rs.1,00,00,000 and the indexed cost of purchase of the site is Rs.80,00,000, the difference of Rs.20,00,000 is called as capital gain. On getting a certificate from the Officer stating that the capital gain is Rs.20 Lakhs, the seller can deduct 20.60% on Rs.20 Lakhs.

7. Chartered Accountant Certificate–won’t do for lower deduction of tax. The seller has no option other than obtaining lower deduction certificate from the Income Tax officer. In the event the seller/buyer fails to obtain the certificate, TDS to be done at 20.60% on the sale value.


Posted in NRI

Buying property from NRI and consequence of Non Deduction of Tax

Purchase of property in India from Non-Resident Indians (NRI) is a bit tricky when compared to buying it from Resident Indians.

TDS at the time of buying the property – You may be aware about Tax Deduction at Source (TDS) to be done at the rate of 20.6% in case the sale price is less than Rs.1 Crore or 22.66% in case the sale price is over Rs.1 Crore.

Non Deduction of Tax – You or your consultant have no power to reduce TDS percentage. Only Income Tax Officer (ITO) is authorized to reduce TDS percentage. For this one has to apply (buyer or seller) to ITO and get the certificate. You can read How to obtain TDS exemption certificate from Income Tax officer to know more about it.

Consequences of Non Deduction of Tax – Suppose you failed to deduct tax (TDS) and paid the entire sale consideration to the seller at the time of buying the property. You will have trouble from Tax department. The department can paint you as ‘Assessee in default’ and recover the entire tax dues from you.

What will happen if the taxes are paid by the seller directly?
This can be explained through two examples –

Example A: Let’s assume that you are buying a property from Mr.Duniya (a NRI) for Rs.1.20 Crores on 25th May 2014. As per the law, you are obliged to deduct tax (TDS) at the rate of 22.66%, i.e Rs.27,19,200 and remit it to the government. The balance amount of Rs.92,80,800 to be paid to the seller.
Suppose, you failed to deduct the tax, but the seller has paid the entire tax on, say 10th July 2014. In such case, the department can’t ask you to pay the taxes again. Once the applicable taxes are paid by the seller, the department will condone the default of non deduction of tax.

Example B: Suppose, in the above example, the seller pays the applicable taxes in June, 2015 (at the time of filing his income tax return). Then the department can levy interest at the rate of 12% simple interest u/s 201(1A) till the date of payment of taxes by the seller. In this case, the seller was supposed to pay taxes as advance tax during the financial year 2014-15. Since he has not paid it, the buyer has to pay Rs.3,26,304 (for 12 months i.e., from June 2014 to June 2015 at 12% p.a)

Apart from the interest, the department can also levy penalty u/s 271C towards ‘failure to deduct tax at source’. The penalty amount is equal to tax deducted or paid!

Precautions to be taken – We suggest all readers of this article to take note of these aspects seriously. Please be aware that the department will come back after couple of years and not in the year of sale! The non-compliance of TDS provisions will cost the buyer heavily.

Source : Simplifiedlaws

Posted in NRI

How to repatriate fund by NRI after property sale

Among the many apprehensions that NRIs’ have about investing in property in India, one is about the ways and means of repatriating funds back to their country abroad, after the sale of a property. Any NRI investor, while investing in property in India, should ideally chalk out the process from conception to completion.

In other words, the purchase should not be viewed in isolation, rather the entire process of planning, purchasing, holding and disposing such property needs to be worked out in detail beforehand so that there is no difficulty while repatriating the returns from the sale of such property.

Here is a quick guide about the rule that governs repatriation of funds from India post the disposal of property.

Repatriation of Principal Funds
While undertaking the purchase of a property in India, the NRI investor has to arrange for the principal amount to be invested for buying such property in India. This fund may be brought into India either through bank transfers or alternatively it could be parked in NRE (Non-resident external) account from which a cheque is drawn to complete the purchase transaction.

Scenario 1: Funds brought into India through banking channels
Rules for repatriation of such funds are simple. The NRI investor can repatriate such principal fund invested in India to his home country without any restriction and without having to seek the permission of RBI to do so. There is no upper limit or cap whatsoever for repatriation of such principal amount.
It should however, be noted that this rule is valid for two residential properties and unlimited commercial properties only.

Exception to the rule is when the number of residential properties exceeds two. From the third property onwards, the NRI investor has to deposit the principal portion into a NRO (Non-resident Ordinary) account and out of this an amount not exceeding USD 1 million (approximately Rs. 6 crores) can only be repatriated as principal amount per financial year to an overseas bank account.

Scenario 2: Funds lying in NRO account
When the entire property is purchased with funds lying in NRO accounts then the complete sale proceeds, i.e. both the principal and the profit must be deposited into the NRO account and then a maximum amount of USD 1 million, out of the total amount, can be repatriated back in one financial year.

Scenario 3: Combination of scenario 1 and 2
If funds for purchase are partly sourced through banking channels and partly from NRO accounts or from balances lying in FCNR/NRE accounts, then the rules explained above will apply in proportion to the respective fund’s sources.

In simpler terms, funds used for purchase out of NRO account can be repatriated to the extent of USD 1 million per annum and funds invested from FCNR/NRE accounts can be wholly repatriated without any stipulation of limit.
However, the rules as laid down for residential properties as mentioned above will apply.

Additional requirements
• The NRI investor needs to get the initial amount invested in India for the purpose of purchase of property, certified by a qualified Chartered Accountant. The bank statement can be used to substantiate such investments.
• The Chartered Accountant may also be consulted for the impact and taxability implications at the time of disposing of, of such property with regards to short-term and long-term capital gains.
• This will help the NRI investor to make crucial decisions about the holdings and disposals of such properties. They will thus be benefitted and will be able to maximize their savings.
• Income tax liabilities accruing in India, taxation on investments made in India also need special attention.
• Besides this, if the NRI investor rents out such property or holds it without renting it out, then relevant tax provisions as per the Indian Income Tax will apply and the investor would be wiser if such situations are taken into account while investing in India.

Source : Simplifiedlaws

Posted in NRI

RBI fixes USD 2,50,000 for remittances by individual for aggregate of certain current account transactions

FEMA Rule-Current Account Transactions-Amendment

The Reserve Bank of India (‘RBI’) has notified amendment to the Foreign Exchange Management (Current Account Transactions) Rules to specify an aggregate limit of USD 2,50,000 for remittance in foreign currency for certain current account transactions, inter-alia, for private visits to any country (except Nepal and Bhutan), gifts or donations, going abroad for employment, emigration, business travels, or medical treatment abroad, etc.

Remittances in foreign currency by an individual for the following current account transactions shall be made within limit of USD 2,50,000:

a) Holiday/Private Visits abroad

b) Business trip

c) Gifts/Donation

d) Employment or education

e) Remittance for Maintenance of a close relative abroad

f) Medical treatment abroad

g) Emigration facilities

Further, it is provided that an individual can avail of foreign exchange facility of an amount exceeding the limits as prescribed above under the Liberalized Remittance Scheme (‘LRS’) for the purpose of emigration, education, business travel, medical treatment, etc.

However, the amount so remitted by individual under the LRS shall be reduced from the USD 250,000 by the amount so remitted.

Posted in NRI

Tax liability when You Transfer Money to India from Overseas bank?

Do I need to Pay Taxes in India When I transfer money from Overseas bank to India?

Many of your IT friends are working abroad and when you go abroad first time, you have lot of queries in your mind, related to NRI status, Taxation in foreign country, remittance and Taxation in India. One of the most common question is “Do you need to pay taxes in India when you transfer funds from and Overseas bank to Indian Saving account?”, short answer is No, provided you are an NRI i.e. you have stayed more than 182 days abroad in that financial year (31st March to 1st April). Since you have already paid tax on that amount in the country you are earning and currently staying e.g. US or UK, you are not required to pay further tax on same money, whether you keep them in US Dollars or Indian Rupees; but there are other things to consider. For example, why you want to transfer your foreign currency in India? Who holds that saving account etc? Motive is important because it will open more and better options.

Posted in NRI