Financial Rights, Restrictions, and Prohibitions Of Non-Resident Indian (NRI)

Who is an NRI According to FEMA?

A Non Resident Indian (NRI) as per Foreign Exchange Management Act 1999 (FEMA), India, is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year.

To be more precise, according to FEMA, a Non Resident Indian (NRI) is:

1. An Indian Citizen who resides in India for less than 182 days during the course of the preceding financial year.
2. An Indian Citizen who has gone out of India or who stays outside India for the purpose of employment.
3. An Indian Citizen who has gone out of India or who stays outside India for carrying on business or vocation outside India.
4. An Indian Citizen who has gone out of India or who stays outside India for any other purpose indicating his intention to stay outside India for an uncertain period.

Who is an NRI According to Income Tax Act?

An NRI is a person who is not resident in India. An individual is deemed to be a resident in India if person is in India for a period of 182 days or more during the previous year; or person is in India for a period of 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year.

How Do We Know That A Person is NRI?

When you encounter the acronym NRI or phrase Non-Resident Indian, you may ask this question that "How do I know that this or that person is NRI?"

Here is the answer for the above question: Non-resident Indian (NRI) is a person who is a citizen of India or a Person of Indian Origin and who is not a resident of India.

To determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined under Section 6 of Income-tax Act, India. According to section 6, an individual is said to be non-resident in India if the person is not a resident in India and an individual is deemed to be resident in India in any previous year if person satisfies any of the following conditions:

1. If person is in India for a period of 182 days or more during the previous year.
2. If person is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year. However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned here shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.

Note: A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.

Banking of a Non Resident Indian (NRI)

An NRI is permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with Authorised Dealer. Such accounts can be opened with banks specially authorised by the Reserve Bank of India (RBI) in this behalf. 

An NRI can maintain multiple accounts simultaneously with different banks in India.

An NRI can open an account with Zero balance but, he / she should remit funds to make the account operative within a reasonable time, where-after only cheque book will be issued.

There are restrictions maintaining bank accounts in Indian Banks for a Non Resident Indians (NRI), in-general,  a non-resident Indian can maintain the following accounts:

1. Non Resident External Account (NRE) and / or Non Resident Ordinary Account (NRO) in Indian Rupees (INR).

An NRI is eligible to open NRE rupee denominated accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRI is permitted. Power of attorney can be granted to residents for operation of accounts for limited purposes. The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI. Funds held in NRE accounts may be freely transferred to Foreign Currency Non Resident (FCNR) accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders.

2. Foreign Currency Non Resident (FCNR) in Foreign Currency.

An NRI is permitted to open FCNR (B) Accounts in Canadian Dollars and Australian dollars also besides the existing provision of maintaining such accounts in US dollars, Japanese Yen, Sterling Pounds, Euro. The account may be opened only in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less than two years (ii) two years and above but less than three years and (iii) three years only. Interest income is tax free in the hands of NRI until person maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws. FCNR(B) accounts can also be utilised for local disbursements including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.

3. Ordinary Non-Resident Rupee Accounts (NRO Accounts)

These are Rupee denominated non-repatriable accounts and can be in the form of savings, current, recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National/PIO resident in India leaves for taking up employment, etc. outside the country, other than Nepal or Bhutan his bank account in India gets designated as NRO account. The deposits can be used to make all legitimate payments in rupees. Interest income, from NRO accounts is taxable. Interest income, net of taxes is repatriable. Authorised Dealers may allow remittances up to US $ 1 million, per financial year, out of balances held in NRO account for any bonafide purpose. Power of Attorney can be granted to residents for operation of account for limited purposes.Terms of Forex Facilities for Non-Resident Indians (NRI)

Banking Facilities to An NRI Without Permission From The Reserve Bank of India (RBI)

A Non-Resident Indian (NRI) can avail of the following facilities without permission from the Reserve Bank of India (RBI):

1. Deposits: An NRI can open, hold and maintain following types of accounts with an authorised dealer in India ie., a bank authorised to deal in foreign exchange:
   1. Non-Resident (Ordinary) Rupee Account or NRO Account with the modes of Current, Savings, Recurring, Fixed Deposits.
   2. Non-Resident (External) Rupee Account or NRE Account with the modes of Current, Savings, Recurring, Fixed Deposits.
   3. Foreign Currency Non Resident (Bank) Account or FCNR (B) Account with the mode of Term deposits.
2. Account Currency denominated:
   1. FCNR (B) Account: Pound Sterling/ US Dollar/Jap.Yen/Euro.
   2. NRE Account: Indian Rupees.
   3. NRO Account: Indian Rupees.
3. Investment in India:
   1. Government Securities / Units with repatriation rights.
   2. Company shares / Debentures with repatriation rights.
   3. Shares / debentures of Indian companies through stock exchange under port-folio investment scheme with repatriation rights.
   4. Indian companies without any limit on non-repatriation basis, freely.
4. Immovable property: You can acquire immovable property in India other than agricultural/plantation property or a farm house.
5. Repatriate options:
   1. Sale proceeds of immovable property acquired in India out of your repatriable funds, without any lock-in period.
   2. Refund of application / earnest money / purchase consideration made by house-building agencies / seller on account of non-allotment of flats / plots / cancellation of booking / deals for purchase of residential / commercial properties, together with interest, net of taxes, provided original payment is made out of NRE / FCNR(B) account/inward remittances.
6. On return to India:
   1. You may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when you were resident outside India.
   2. You may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to keep your foreign currency assets. Assets held outside India at the time of return can be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India.