A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.
A Rediff India Abroad feature:
I am an NRI and have an NRE FD & saving account (NRO). I am living in Singapore since 1994. I am relocating to India this year and I need to plan my join date to India office. I have a few questions:
1. Shall I be considered an NRI for FY 07, if I join October 1 this year? And is there any advantage for me by joining after October 1?
2. If I join after October 1 this year, would my residential status become RNOR immediately or only after the next financial year (2008)?
3. What should I do with my current NRE FD & NRO, if I return to India before October?
4. What should I do with my current NRE FD & NRO, if I return to India after October?
5. Is there any advantage by transferring my local Singapore FD and Euro FD to India upon my return to India?
6. When I return to India can I keep my NRO saving until its maturity (365 days) upon my return? If not, what should I do with that amount I have invested in an NRO account?
A Resident is one who during a Financial Year, which is from April to March, satisfies any one of the following 2 basic conditions:
He is in India for at least
a. 182 days in the FY, or
b. 365 days out of the preceding 4 FYs AND 60 days in the FY.
The stay in India need not be continuous.
Yes, you will remain an NRI for the year during which you return to India permanently, only provided your stay in India for that year is less than 182 days. However, if you have come to India during the last four years for vacations, business or any other purpose and if your total stay in India during these four years was for 365 days or more, then you will have to ensure that your stay in India is for less than 60 days.
The advantage of being classified as an NRI is that for that year your foreign income is not taxable in India. So, in your case, the income earned in Singapore till October would not be taxable in India.
An NRI who has returned to India permanently is allowed a reasonable time to inform all the banks (and companies) about the change in his status wherever he has his investments.
On receipt of this information, the bank will re-designate the NRE/FCNR accounts as a 'resident's accounts'. These can be run up to their maturity but the interest on NRE becomes taxable from the date of the return whereas the FCNR interest is tax-free as long as the holder remains an NRI or becomes an RNOR.
Alternatively, both the accounts can be converted into RFC without any penalty but the interest even on RFC is tax-free only for RNORs. The corpus in RFC is freely repatriable.
Whether RFC is tax-free or not, withholding tax will be applied @30.9 per cent and if the interest is over Rs 1000,000 the rate will be 33.99 per cent.
The NRE SB and NRO SB accounts will be re-designated as Ordinary SB accounts.
It is also necessary to inform all the companies/DPs where you have investments about the change in your residential status.
You will be enjoying the RNOR status for the two years (beginning from the year in which you come to India first) during which your forex income will be tax-free in India.
The NRO FD will be re-designated as a resident account.
You are allowed to retain your assets abroad. Whether the transfer of your local Singapore FD and EURO FD to Indian Bank will be beneficial or not will depend on the interest and exchange rates at that time.
Five years ago I lent my friend some money -- not all at once, but little by little. Now that he has some cash in hand after selling one of his properties he is planning to give it back to me. He will be transferring this amount in bits and pieces to my NRO account. I wish to buy a property and need to pay my builders. Can I take that money? Is this money coming into my NRO taxable? What if I take it as and when he deposits the funds?
A resident individual, partnership or proprietorship firm may borrow in rupees on non-repatriable basis from an NRI subject to:
- The term of the loan shall not exceed three years.
- The loan has to be utilised for meeting the borrower's personal requirement or for his business purposes and not for re-lending.
- The rate of interest should not exceed 2 per cent over the bank rate.
If you have documentary evidence of a loan given to your friend consistent with the above norms, we do not see any problem.
However, if you do not have the necessary documents, the loan you have given to your friend will be considered as a gift. Consequently, he cannot return the amount to you, treating it as repayment of loan.
If that be the case, the only recourse available is for your friend to give a gift to you.
RBI Circular AP (DIR) 24 dt 20.12.06 has raised the limit of remittances allowed to individuals from $25,000 per calendar year to $50,000 per financial year for any permissible current or capital account transactions or a combination of both.
Under this facility, resident individuals can acquire and hold immovable property or shares or any other asset outside India without prior approval of the RBI. Individuals can also open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme for permissible transactions.
This limit of $50,000 would also include remittances towards gift and donation which have separate sub-limits.
These facilities are available only to resident individuals and not to corporates, partnership firms, HUF, Trusts, etc.
The forex against this scheme as well as other purposes may be released without insisting on any supporting documents but on the basis of self-declaration in a revised format which replaces the previous Form-A2.
Now comes the worst difficulty.
Where any sum of money exceeding Rs 50,000 is received without consideration by an individual or an HUF from any person, the whole of such sum will be charged to income tax of the recipient under the head, Income from Other Sources.
If the gift amounts received by the donee from all the sources, exceeds Rs 50,000, the donee has to treat the entire amount as income for the year and pay income tax thereon. In other words, if the amount is Rs 51,000, the amount chargeable to tax is Rs 51,000 and not Rs 1,000.
Income up to Rs 110,000 is not chargeable to tax. Consequently, if you have no Indian income arising from any other source in India, you can get a gift of up to Rs 110,000 (about $2,750) per financial year without attracting any tax. Unfortunately, the exempt amount is not Rs 160,000 (110,000 + 50,000).
We strongly feel that this is the best recourse available to you since you are scheduled to get the repayment of the loan (= gift) in bits and pieces.
Gifts can be remitted abroad by the donor and the donee can use this amount whichever way he chooses, including crediting it to his NRE account in India after receiving it abroad. This mode will retain the repatriability of the amount, if and when you sell the property in future.
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