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READY RECKONER FOR OVERSEAS INDIANS

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					READY RECKONER FOR
OVERSEAS INDIANS



By
Knowledge Partner on Taxation & FDI of OIFC
CA Anupma Agarwal
Director
Peeyush Aggarwal & Co. Consultants Pvt Ltd
B-132 Anand Vihar
Delhi-110092
Tel: +9111 22164800, 2216 4700, +9312276731
Fax : +91 11 22164800
Email : anupma@indialiaison.com
Website:www.indialiaison.com
DISCLAIMER

This Ready Reckoner has been compiled/summarised from information available in official
documents/circulars/websites of the Govt. of India, RBI and other reliable sources. Every
possible care has been taken to provide current and authentic information. This Ready
Reckoner for Overseas Indians is intended to serve as a guide to them and does not purport
to be a legal document. In case of any variation between what has been stated in this Ready
Reckoner and the relevant Act, Rules, Regulations, Policy Statements etc., the latter shall
prevail.
                                    PREFACE

Overseas Indians have made the country proud by their hard work and achievements in
their adopted countries. Many of the Indian Diaspora who had left the shores of India
with only education provided by the country and inherent entrepreneurial capabilities,
have established themselves as prominent citizens in their adopted countries as
entrepreneurs, businessmen, professionals and skilled workmen. The Overseas Indian
Community is today the most diverse, eminently successful and best educated
communities wherever it resides seeking avenues to contribute to and benefit from India’s
progress. The new emergent India, burgeoning with opportunities across sectors is waiting
to benefit from the expertise and experience of her expatriate community.

The Overseas Indian Facilitation Center (OIFC) has been established to facilitate and
expand the engagement of Overseas Indians with India. The Overseas Indian Facilitation
Center (OIFC) is not for profit, public private partnership between the Ministry of
Overseas Indian Affairs (MOIA) and the Confederation of Indian Industry (CII).

OIFC has great pleasure in bringing out ‘Ready Reckoner for Overseas Indians’. This
book has been updated till November 30, 2007. It brings together important but otherwise
scattered information from the latest press notes, RBI master circulars, websites of
Government of India and other reliable sources.

Ready Reckoner for Overseas Indians is divided into three parts. The first part deals
with Foreign Exchange Management Act, 1999, the second part deals with Taxation
and third part deals with other important matters affecting the Overseas Indians.

We hope the Reader will find this Ready Reckoner handy and user friendly. We look
forward to your comments and suggestions.

We are grateful to Hon’ble Minister of Overseas Indian Affairs Shri Vayalar Ravi and
officials of the Ministry of Overseas Indian Affairs for their encouragement and guidance
in bringing out this book. We acknowledge the efforts made by our knowledge partner
on Taxation and Foreign Direct Investment Peeyush Aggarwal & Co. Consultants Pvt
Limited for their contribution.


Subha Rajan
CEO, Overseas Indian Facilitation Center
    OVERSEAS INDIAN FACILITATION CENTRE (OIFC)


BACKGROUND

Overseas Indians, today constitute significant economic, social and cultural force in the
world. They are estimated at over 25 million spread across 130 countries. On these lines the
Hon‘ble Prime Minister of India, Dr. Manmohan Singh made a promise at Pravasi Bharatiya
Divas 2007, organized in New Delhi in January, to assist and facilitate the Overseas Indian
Diaspora by opening a facilitation Centre for them.

 “Facilitation Centre is envisaged as a source of investment advisory services for overseas
Indian Investors. This proposal is being developed on the understanding that an Indian entity,
independent of the Government, though supported by us, and set up in partnership with
industry, could be an effective instrument to liaise with members of the Indian Diaspora on
matters related to investment in our country”. He said.

Following the Prime Minister’s announcement, Ministry of Overseas Indian Affairs (MOIA),
formed in the year 2003, started the research work to enable the dream come true. After
numerous presentations and discussions, MOIA decided to partner with Confederation of
Indian Industry (CII) to jointly launch the Centre namely Overseas Indian Facilitation Centre.
CII is partner and host institution of this not-for-profit neutral trust.

OBJECTIVES OF OIFC

Ø Promote overseas Indian investment into India and facilitate business partnership by
  giving authentic & real time information

Ø Establish and maintain a Diaspora Knowledge Network by creating a database of Overseas
  Indians

Ø Function as a clearing house for all investment related information

Ø Assist States to project investment opportunities to overseas Indians in the infrastructure
  and social sectors. The objectives of the OIFC will be to bring the Indian States, Indian
  Business and potential Overseas Investors on the same platform and to facilitate the
  investors to identify the investment opportunities.

Ø Provide a host of advisory services to NRIs and PIOs. These could include matters such
  as consular questions, stay in India, investment and financial issues etc.
SIGNING OF MOU

On 28 May 2007, Ministry of Overseas Indian Affairs (MOIA) had an agreement with the
Confederation of Indian Industry (CII) in New Delhi. CII and MOIA signed a Memorandum
of Understanding (MOU) and launched the Overseas Indian Facilitation Centre. The MOU
was signed between Joint Secretary of MOIA and Director General of CII.

Speaking at the launch of the Centre Mr Vayalar Ravi, Hon‘ble Minister, MOIA mentioned
that Centre is opened for the “Overseas Indians to enable them benefit from the numerous
investment opportunities in India”. He added that the Ministry has given CII full freedom to
run the Centre. OIFC would be a one-stop shop centre to help the Overseas Indians to invest
in India.

The website (www.oifc.in) was also launched on the occasion by the Hon‘ble Minister.

ORGANISATION STRUCTURE

The trust will have a two-tier body for its management. The body will include a Governing
Council and an Executive Directorate. The Governing Council will provide a broad policy
framework for the programmes and activities of the trust in consonance with the objectives
of trust. The Executive Directorate/CEO will evolve strategies and implement the
programmes / projects for achieving the goals set by the Governing Council.
The Chairman of the trust would be Secretary, MOIA and the Co- Chairman would be Chief
Mentor, CII.

OIFC SERVICES

OIFC would be focusing on providing real time services to the NRIs and PIOs.

HANDHOLDING SERVICES

OIFC provides a wide range of consultative, advisory and handholding services in broad
sectors like
   •   Capital Market Investment

   •   Manufacturing, Service Sector Investment

   •   Taxation Issue

   •   Real Estate Investment, etc
INFORMATION

The prime focus of OIFC would be to provide information services to the NRIs and PIOs
round the clock. This would include the following:

     Ø One stop shop for all investment related information

     Ø Focus on Sector specific information and location

     Ø Providing specific project investment information

     Ø To explore investment opportunities in India.

CUSTOMISED

OIFC would be providing customized services, with the focus on the following:

     Ø Finding sector and state specific investment project for the individual investors

     Ø Preparing feasibility study reports related to different projects

     Ø Assisting overseas road shows to attract FDI

     Ø Facilitating investors through various forums

BUSINESS TO BUSINESS PARTNERSHIPS

B2B partnerships could focus on the following:

     Ø        Preparing sector wise and state wise database of Indian business

     Ø        Preparing database of potential Overseas Indian Investors

     Ø        Creating a virtual market place for the Overseas Indians

     Ø        Organizing sector and region specific investment interaction meet

DIASPORA KNOWLEDGE NETWORK

A strong Diaspora network would enable individual, Government of India & Associations
of Overseas Indians to shake hands across the virtual space and identify any project in
which they could partner.
These projects may not necessarily be confined to industrial and financial sectors but also
could be in the social development sectors.

It would help in promoting joint collaborations in Science and Technology by enabling
overseas Indians scientist to explore the R&D opportunities in India.

CONSULAR

The long-term objective of OIFC is to also provide consular services to the NRIs and PIOs.
This has been a major cause of concern for the Non Resident Indians.

The services would be on paid up basis and would include facilities such as taking care of
Visas, Passport, OCI card of NRIs and PIOs etc.

Later on services such as admission related issues of Overseas Indian Children & Marriage
could also be focused upon.

The Governing Council is in the process of discussion and making advices on strengthening
OIFC services.

KNOWLEDGE PARTNERS

In order to provide quality services it was decided that the need of the hour was to work with
organisations, which have expertise in sectors, considered most important investment hub
by the Overseas Indians. To start with, after numerous meetings, we have finalized the
following knowledge partners. They are:

    •   Edelweiss, Levi Consultancy, Client Associates for Investment Opportunities and
        Wealth Management
    •   Cushman & Wakefield, Knight Frank, DGS Realtors for Real Estate.
    •   Peeyush Aggarwal and Co. Consultants Pvt Ltd for Taxation & FDI.
CONTENTS

                               PART I
                 FEMA Provisions and Overseas Indians
1.    Foreign Direct Investment                                   2
2.    Portfolio Investments                                      32
3.    Acquisition & Transfer of Immovable Property in India      36
4.    Establishment of Branch/Liaison/Project office in India    49
5.    Investment in Partnership Firm / Proprietary Concern       56
6.    Remittance Facility for NRIs / PIOs / Foreign Nationals    57
7.    Bank Accounts                                              60
8.    Miscellaneous Remittances from India                       79

                                 PART II
                    Tax Provisions and Overseas Indians
9.    Residential Status for Tax Purposes                       108
10.   Chargeable Income                                         114
11.   Special Provisions Relating to certain Income of NRIs     117
12.   Tax Exemption from Income Tax                             118
13.   Tax Exemption from Wealth Tax                             119
14.   Tax Exemption from Gift Tax                               119
15.   Presumptive Tax Provisions                                121
16.   Tax Incentive for Industries                              123
17.   Authority for Advance Rulings                             125
18.   Double Tax Avoidance Agreements                           128

                              PART III
             Other Important Matters and Overseas Indians
19.   Overseas Citizenship of India (OCI)                       130
20.   PIO Card                                                  144
21.   Baggage Rules and Visa Rules                              146
22.   Foreign Contribution Regulation Act, 1976                 152
23.   Special Economic Zones                                    169
24.   List of Important Websites                                174
25.   Contact Details                                           176
26.   Feedback Form                                             177
          FOREIGN DIRECT INVESTMENT




    PART - I
FEMA Provisions
      and
Overseas Indians




                                  1
READY RECKONER      FOR   OVERSEAS INDIANS




    FOREIGN DIRECT INVESTMENTS

FOREIGN INVESTMENT IN INDIA                     i.     Business of chit fund, or
                                                ii.    Nidhi Company, or
Foreign Investment in India is governed by
                                                iii.   Agricultural or plantation activities, or
the FDI policy announced by the
                                                iv.    Real estate business, or construction
Government of India and the provision of
                                                       of farm houses
the Foreign Exchange Management Act
                                                v.     Trading in Transferable Development
(FEMA) 1999. Reserve Bank has issued
                                                       Rights (TDRs)
Notification No. FEMA 20/2000-RB dated
May 3, 2000, which contains the Regulation      It is clarified that Real Estate Business does
in this regard. This notification has been      not include development of townships,
amended from time to time.                      construction of residential/commercial
                                                premises, roads or bridges. It is further
Entry Routes for Investment in India
                                                clarified that partnership firms/
Foreign Investment is freely permitted in       proprietorship concerns having investment
almost all sectors. Foreign Direct Investment   as per FEMA regulations are not allowed to
can be made under two routes-Automatic          engage in Print Media sector.
Route and Government Route. Under the
                                                In addition to the above, investment in the
Automatic Route, the foreign investor or the
                                                form of FDI is also prohibited in certain
Indian company does not require any
                                                sectors such as:
approval from the Reserve Bank or
Government of India for the investment.         i.     Retail Trading
Under the Government Route, prior approval      ii.    Atomic Energy
of Government of India, Ministry of Finance,    iii.   Lottery Business
Foreign Investment Promotion Board (FIPB)       iv.    Gambling and Betting
is required.
                                                Agriculture (excluding Floriculture,
Prohibition on Investment in India
                                                Horiculture, Development of seeds, Animal
Foreign Investment in any form is prohibited    Husbandry, Pisiculture and Cultivation of
in a company or a partnership firm or a         vegetables, mushrooms etc. under controlled
proprietary concern or any entity, whether      conditions and services related to agro and
incorporated or not (such as Trusts) which      allied sectors) and Plantation (Other than Tea
is engaged or proposes to engage in the         plantations).
following activities:



2
                                                    Part - I
                            Foreign Investments in India-Schematic representation :



                                                         Foreign
                                                       Investments




       Foreign Direct      Foreign Portfolio        Foreign Venture       Other Investments     Investments on
        Investments          Investments                 Capitl                                 non-Repatriable
                                                     Investments                                     basis




    Automatic      Govt.    FIIs        NRIs,         SEBI regd.                G-Sec,               NRIs,
     Route         Route                PIOs            FVCIs                  NCDs, etc             PIOs




                                                         VCF,               FIIs        NRIs,
                                                        IVCUs                           PIOs
                                                                                                                  FOREIGN DIRECT INVESTMENT




3
READY RECKONER       FOR   OVERSEAS INDIANS



Eligibility for Investing in India                      reserved for small scale sector, and
A person resident outside India (other than        c.   It complies with the sectoral caps
a citizen of Pakistan or Bangladesh) or an              specified in Annexure 2.
entity incorporated outside India, (other than
                                                   It is clarified that the company /SSI Unit
an entity incorporated in Pakistan or
                                                   would be reckoned as having given up its
Bangladesh) can invest in India, subject to
                                                   SSI status, if the investment in plant and
the FDI policy of the Government of India.
                                                   machinery exceeds the limits prescribed
Erstwhile OCBs, who have converted                 under the Micro, Small and Medium
themselves into companies incorporated             Enterprises Development Act, 2006.
outside India, can make fresh investment in
                                                   Investment in EOU/ FTZs/ EPZs / HTPs
India under the FDI Scheme provided they
                                                   and STPs
are not under the adverse notice of Reserve
Bank/SEBI.                                         An SSI Unit which is an Export Oriented
                                                   Unit or Unit in Free Trade Zone or in Export
Type of Instruments
                                                   Processing Zone or in a Software
Indian companies can freely issue equity           Technology Park or in an Electronic
shares/convertible debentures and preference       Hardware Technology Park.
shares subject to valuation norms prescribed
                                                   Issue of shares / convertible debentures/
under FEMA Regulations.
                                                   preference shares exceeding 24% of the paid
Investment in Small Scale Industrial               up capital upto the sectoral caps specified in
Units                                              Annexure-2.
A foreign investor can invest in an Indian         Investment in Asset Reconstruction
company which is a small-scale industrial          Companies (ARC)
unit provided it is not engaged in any activity,
                                                   Person resident outside India Other than
which is prohibited under the FDI policy.
                                                   Foreign Institional Investors (FIIs), can
Such investments are subject to a limit of
                                                   invest in the equity capital of Asset
24% of paid up capital of the Indian
                                                   Reconstruction companies (ARCs)
company/SSI unit. An SSI Unit can issue
                                                   registered with Reserve bank under the
equity shares / fully convertible preference
                                                   Government Route. Automatic Route is not
shares /fully convertible debentures more
                                                   available for such investments. Such
than 24% of its paid up capital if:
                                                   investments have to be strictly in the nature
a.    It has given up its small scale status,      of FDI and investments by FIIs are not
                                                   permitted. FDI is restricted to 49% of the
b.    It is not engaged or does not propose
                                                   paid up capital of the ARC.
      to engage in manufacture of items



4
                                                               FOREIGN DIRECT INVESTMENT



However, FIIs with SEBI can invest in the        exchange through normal banking channels
Security Receipts (SRs) issued by ARCs           by debit to the NRE/FCNR (B) accounts of
registered with Reserve Bank. FIIs can invest    NRIs.
upto 49% each tranche of scheme of SRs,
                                                 Issue of Rights / Bonus Shares
subject to the condition that investment by
single FII in each tranche of scheme of SRs      FEMA provision allow Indian companies to
shallnot exceeds 10% of the issue.               freely issue Right /Bonus shares to existing
                                                 non-resident shares-holders, subject to
Investment in Infrastructure Companies
                                                 adherence to sectoral cap, if any. However
in the Securities Market
                                                 such issue of bonus / rights shares have to
Foreign Investment is permitted in               be in accordance with other law/ statues like
infrastructure companies in securities market    the Companies Act 1956, SEBI (Disclosure
namely stock exchanges, depositories and         and Investor Protection) guidelines (in case
clearing corporations, in compliance with        of listed companies) etc. The price of shares
SEBI Regulation and subject to the               offered on rights basis by the Indian company
following conditions:                            to non resident shareholders shall not be
                                                 lower than the price at which such shares
i.     Foreign Investment upto 49% of the
                                                 are offered to resident shareholders.
       paid up capital, is allowed in these
       companies with a separate Foreign         Rights Issue to Erstwhile OCBs
       Direct Investment (FDI) cap of 26%
                                                 As such entitlement of rights shares is not
       and Foreign Institutional Investment
                                                 automatically available to Overseas
       (FII) cap of 23%;
                                                 corporate Bodies (OCBs). OCBs have been
ii.    FDI will be allowed with specific prior   de-recognized as a class of investors with
       approval of FIPB; and                     effect from September 16, 2003. Therefore
                                                 companies desiring to issue rights shares to
iii.   FIIs can invest only through purchase
                                                 such erstwhile OCBs will have to take
       in the secondary market.
                                                 specific prior permission from the Reserve
Investment from Nepal & Bhutan                   Bank.
NRIs resident in Nepal & Bhutan as well as       However, bonus shares can be issued to
citizens of Nepal and Bhutan are permitted       erstwhile OCBs.
to invest in shares and convertible
                                                 Renunciation of Rights by Residents to
debentures of Indian companies under FDI
                                                 Non-Residents
scheme on repatriation basis, subject to the
condition that the amount of consideration       Existing non-resident shares-holders are
for such investment shall be paid only by        allowed to apply for issue of additional
way of inward remittance in free foreign         shares/preference shares/convertible


                                                                                            5
READY RECKONER      FOR   OVERSEAS INDIANS



debenture Over and above their rights           owned subsidiary abroad, other then citizens
entitlements. The investee company can allot    of Pakistan. Shares under ESOPs can be
the additional rights shares out of un-         issued directly or through a Trust subject to
subscribed shares; subject to the condition     the condition that:
that the overall issue of shares to non-
                                                (i) The scheme has been drawn in terms
residents in the total paid up capital of the
                                                of relevant regulations issued by the
company does not exceed the sectoral caps.
                                                Securities and Exchange Board of India; and
Acquisition of Shares Under Scheme of
                                                (ii) The face value of the shares to be
Amalgamation / Merger
                                                allowed under the scheme to the non-resident
Mergers & amalgamations of companies in         employees does not exceed 5 percent of the
India are usually governed by an order issued   paid-up capital of the issuing company.
by a competent court on the basis of the
                                                If the company is not listed, it has to follow
scheme submitted by the companies
                                                the provisions of the Companies Act, 1956.
undergoing mergers/ amalgamation. Once
                                                The Indian company can issue ESOPs to
the scheme of merger or amalgamation of
                                                employees who are resident outside India,
two or more Indian companies has been
                                                other than citizens of Pakistan and
approved by a court in India, the transferee
                                                Bangladesh. The issuing company is
company or new company is allowed to issue
                                                required to report the details of such issues
share to the shareholder of the transferor
                                                to the concerned Regional Office of the
company resident outside India subject to the
                                                Reserve Bank, within 30 days from the date
condition that:
                                                of issue of shares under ESOPs.
(i)    The percentage of shareholding of
                                                Reporting of FDI
       persons resident outside India in the
       transferee or new company does not       Reporting of Inflow
       exceed the sectoral cap.                 An Indian company receiving investment
(ii)   The transferor company or the            from outside India for issuing shares /
       transferee or the new company is not     convertible debenture / preference shares
       engaged in activities, which are         under the FDI Scheme, should report the
       prohibited in terms of FDI policy.       details of the inflow to the Reserve Bank not
                                                later than 30 days from the date of receipt.
Issue of Shares Under Employees Stock
                                                Details to be reported are:
Option Scheme
                                                (i)    Name and address of the foreign
Listed Indian companies are allowed to issue
                                                       investors,
shares under the Employees Stock Option
Scheme (ESOPs), to its employees or             (ii)   Date of receipt of funds in foreign
employees of its joint venture of wholly               currency and its rupee equivalent,

6
                                                                               FOREIGN DIRECT INVESTMENT



(iii) Name and address of the Authorised                               c)   The company is eligible to issue
      Dealer through whom the funds have                                    shares under these Regulation;
      been received, and                                                    and
(iv) Details of Government approval for the                            d)   The company has all original
     investment, if any.                                                    certificates issued by authorized
                                                                            dealers in India evidencing
Reporting of Issue of Shares
                                                                            receipt      of    amount      of
After issue of shares /convertible debentures/                              consideration.
preference shares, the Indian company
                                                                 ii.   A certificate from Statutory Auditors
has to file Form FC-GPR enclosed in
                                                                       or Chartered Accountant indicating the
Annexure- 6 not later than 30 days from the
                                                                       manner of arriving at the price of the
date of issue. The form can be downloaded
                                                                       shares issued to the persons resident
from the Reserve Bank’s website
                                                                       outside India.
h t t p : / / w w w. r b i . o r g . i n / S c r i p t s / B S
ViewFemaForms.aspx.                                              Both the above reports have to be submitted
                                                                 to the concerned Regional Office of the
Part A of Form FC-GPR has to be duly filled
                                                                 Reserve Bank under whose jurisdiction the
up and signed by the Authorised Signatory
                                                                 registered office of the company is situated.
and submitted to the Authorised Dealer of
the company, who will forward it to the                          Part B of FC-GPR should be filed on an
Reserve Bank.                                                    annual basis with the Reserve Bank. This
                                                                 filing has to be done in the month of June
While forwarding the Form, the Authorised
                                                                 every year, for all outstanding investment by
Dealer will enclose a KYC Report on the
                                                                 way of FDI as well as Portfolio / other
foreign investor. Along with Part A of FC-
                                                                 investment by way of re-invested earnings
GPR, the following documents has to be
                                                                 for the previous April to March period. (For
attached by the company:
                                                                 example, all Indian companies who have
i.      A certificate from the Company                           received FDI, Portfolio investments, other
        Secretary of the company certifying                      investments (such as bonds, debentures etc.)
        that                                                     from foreign investors during the period
        a)      All the requirements of the                      April 2006 to March 2007, have report in
                Companies Act, 1956 have been                    Part B of Form FC-GPR in the month of June
                complied with;                                   2007, along with their retained earnings
                                                                 during the period.)
        b)      Terms and conditions of the
                Government approval, if any,                     The above mentioned three stage reporting
                have been complied with;                         mechanism has to be followed wherever



                                                                                                            7
READY RECKONER      FOR   OVERSEAS INDIANS



there is inflow of funds through normal          Indian Venture Capital Undertaking (IVCU)
banking channels or debit to NRE/FCNR            or Indian Venture Capital Fund (IVCF) or in
account for investment purpose. Moreover,        a Scheme floated by such IVCFs subject to
issue of bonus/ rights shares or stock options   the condition that the VCF should also be
                                                 registered with SEBI.
to persons resident outside India directly or
stock options to persons resident outside        An IVCU is defined as a company
India directly or on amalgamation/merger         incorporated in India whose shares are not
with an existing Indian company, as well as      listed on a recognized stock exchange in
                                                 India and which is not engaged in an activity
issue of shares on conversion of ECB/
                                                 under the negative list specified by SEBI. A
royalty/lump sum technical know-how fee
                                                 VCF is defined as a fund established in the
has to be reported in Form FC-GPR.               form of a trust, a company including a body
Issue Price                                      corporate and registered under the Securities
                                                 and Exchange Board of India (Venture
Price of shares issued to persons resident       Capital Fund) Regulations, 1996 which has
outside India under the FDI scheme, shall        a dedicated pool of capital raised in a manner
be worked out on the basis of SEBI               specified under the said Regulations and
guidelines in case of listed companies. Incase   which invests in Venture Capital
of unlisted companies, valuation of shares       Undertakings in accordance with the said
                                                 Regulations.
has to be done by a Chartered Accountant in
accordance with the guidelines issued by the     FVCIs can purchase equity/ equity linked
erstwhile Controller of Capital Issues.          instruments/ debt /debt instruments,
                                                 debentures of and IVCU or of a VCF through
Foreign Currency Account                         initial public offer or private placement in
Indian companies, which are eligible to issue    units of schemes / funds set up by a VCF. At
                                                 the time of granting approval, RBI permits
shares to persons resident outside India under
                                                 the FVCI to open a foreign currency account
the FDI Scheme, will be allowed to retain        or rupee account with a designated branch
the shares subscription amount in a foreign      of an AD bank.
currency account, with the prior approval of
                                                 The purchase / sale of shares, debentures and
RBI.
                                                 units can be at a price that is mutually
                                                 acceptable to the buyer and the seller.
FOREIGN VENTURE                  CAPITAL
INVESTMENT                                       Authorized Dealers can offer forward cover
                                                 to FVCIs to the extent of total inward
Investments by Venture Capital Funds             remittance. In case the FVCI has made any
                                                 remittance by liquidating some investments,
A SEBI registered Foreign Venture Capital
                                                 original cost of the investments has to be
Investor (FVCI) with specific approval from
                                                 deducted from the eligible cover.
RBI under FEMA Regulations can invest in



8
                                                                  FOREIGN DIRECT INVESTMENT



                                                   Purchase of Other Securities by FIIs
OTHER FOREIGN INVESTMENTS
                                                   Foreign Institutional Investors can buy dated
Purchase of Other Securities by NRIs               Government securities / treasury bills, listed
                                                   non-convertible debentures / bonds issued
On Non-Repatriation Basis:                         by Indian companies and units of domestic
NRIs can purchase shares/ convertible              mutual funds either directly from the issuer
debentures issued by an Indian company on          of such securities or through a registered
non-repatriation bases without any limit.          stock broker on a recognized stock exchange
Amount of consideration for such purchase          in India. These purchases are subject to limits
shall be paid by inward remittance through         notified by SEBI.
normal banking channels from abroad or out         Investment by MDBs
of funds held in NRE / FCNR / NRO account
maintained with the AD bank. NRI can also,         A Multilateral Development Bank (MDB),
without any limit, purchase on non-                which is specifically permitted by
repatriation basis dated Government                Government of India to float rupee bonds in
securities, treasury bills, units of domestic      India, can purchase Government dated
mutual funds, units of Money Marker                securities.
Mutual Funds. Government of India has              Foreign Investment in Tier I and Tier II
notified that NRIs are not permitted to make       Instruments Issued by; Banks in India
Investments in Small Savings Schemes
including PPF. In case of investment on non-       FIIs registered with SEBI and NRIs have
repatriation basis, the sale proceeds shall be     been permitted to subscribe to the perpetual
credited to NRO account. The amount                Debt Capital instruments (eligible for
invested under the scheme and the capital          inclusion as Tier I capital) and Debt Capital
appreciation thereon will not be allowed to        instruments (eligible for inclusion as upper
be repatriated abroad.                             Tier II capital), issued by banks in India,
                                                   subject to the following conditions.
On Repatriation Basis:
                                                   a)    Investment by all FIIs in Perpetual debt
A Non- resident Indian can purchase on                   instruments (Tier I) should not exceed
repatriation bases, without limit,                       an aggregate ceiling of 49 per cent of
Government dated securities (other than                  each issue, and investment by
bearer securities) or treasury bills or units of         individual FII should not exceed the
domestic mutual funds; bonds issued by a                 limit of 10 per cent of each issue.
public sector undertaking (PSU) in India and
shares in Public Sector Enterprises being          b)    Investments by all NRIS in perpetual
disinvested by the Government of India,                  Debt instruments (Tier I) should not
provided the purchase is in accordance with              exceed an aggregate ceiling of 24 per
the terms and conditions stipulated in the               cent of each issue and investments by
notice inviting bids.                                    a single NRI should not exceed 5
                                                         percent of the issue.



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READY RECKONER      FOR   OVERSEAS INDIANS



c)   Investment by FIIs in Debt capital          outside the limit prescribed by SEBI for
     instruments (Tier II) shall be within the   investment by FIIs in these instruments will
     limits stipulated by SEBI for FIIs          be subject to a separate ceiling of USD 500
     investment in corporate debt.               million.
d)   Investment By NRIs In Debt capital          The details of the secondary market sales /
     instruments (Tier II) shall be in           purchase by FIIs and the NRIs in these
     accordance with the extant policy for       instruments on the floor of the stock
     investment by NRls in other debt            exchange are to be reported by the custodians
     instruments.                                and designated banks respectively, to the
                                                 Reserve Bank of India through the soft copy
The issuing banks are required to ensure
                                                 of the LEC Returns.
compliance with the conditions stipulated
above at the time of issue. They are also        Investments by Overseas Corporate
required to comply with the guidelines           Bodies (OCBs)
notified by the Department of Banking
                                                 With effect from November 29, 2001, OCBs
Operations and Development (DBOD),
                                                 are not permitted to invest under the PIS in
Reserve Bank of India, from time to time.
                                                 India. Further, the OCBs which have already
The issue-wise details of amount raised as       made investments under the Portfolio
perpetual Debt Instruments qualifying for        Investment Scheme are allowed to continue
Tier I capital by the bank from FIIs / NRIs      holding such share / convertible debentures
are required to be reported in the prescribed    till such time these are sold on the stock
format within 30 days of the issue to the        exchange. OCBs have been de-recognized
Reserve Bank.                                    as a class of investors in India with effect
                                                 from September 16, 2003.
Investment by FIIs in Upper Tier II
Instruments raised in Indian Rupees will be




10
                                                           FOREIGN DIRECT INVESTMENT




                                  ANNEXURE-1
      SECTORS/ACTIVITIES PROHIBITED/RESTRICTED
                  UNDER FDI POLICY

(A)   List of activities for which Automatic Route of RBI for investment from
      person resident outside India is not available.
1     Petroleum Refining (except for private sector oil refining), Natural Gas /LNG
      Pipelines
2     Investing companies in Infrastructure & Services Sector
3     Defence and Strategic Industries
4     Atomic Minerals
5     Print Media
6     Broadcasting
7     Postal Services
8     Courier Services
9     Development of Integrated Township
10    Tea Sector
11    Establishment & Operation of satellite
12    Asset Reconstruction Companies
(B)   List of activities or items for which FDI is prohibited.
1     Retail Trading
2     Atomic Energy
3     Lottery Business
4     Gambling & Betting
5     Housing & Real Estate business
6     Agriculture (excluding floriculture, Horticulture, Development of seeds, Animal
      Husbandry, Pisiculture & Cultivation of vegetables, Mushrooms etc. under
      controlled conditions & services related to agro & allied sectors) and Plantations
      (other than Tea plantations)



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READY RECKONER   FOR   OVERSEAS INDIANS


                                    Annexure-2
      SECTORAL CAP ON INVESTMENTS BY PERSONS RESIDENT
                        OUTSIDE INDIA
S.No. Sector                  Investment    Description of Activity / Items /
                              cap           conditions
1.    Private sector          74%           Subject to guidelines issued by RBI
      banking                               from time to time
2.    Non-Banking             100%          FDI / NRI investments allowed in the
      Financial Companies                   following 19 NBFC activities shall be as
                                            per the levels indicated below:
                                            (a) Activities Covered
                                            1. Merchant Banking
                                            2. Under writing
                                            3. Portfolio Management Services
                                            4. Investment Advisory Services
                                            5. Financial Consultancy
                                            6. Stock broking
                                            7. Asset Management
                                            8. Venture Capital
                                            9. Custodial Services
                                            10. Factoring
                                            11. Credit Reference Agencies
                                            12. Credit Rating Agencies
                                            13. Leasing & Finance
                                            14. Housing Finance
                                            15. Forex broking
                                            16. Credit Card Business
                                            17. Money changing Business
                                            18. Micro credit
                                            19. Rural credit
                                            (b) Minimum capitalisation norms
                                                for fund based NBFCs
                                            1. For FDI upto 51% US $ 0.5 million
                                               to be brought in upfront.
                                            2. If the FDI is above 51% & upto 75%
                                               US $ 5 million to be brought upfront.


12
                                                  FOREIGN DIRECT INVESTMENT



S.No. Sector              Investment   Description of Activity / Items /
                          cap          conditions
                                       3. If the FDI is above 75% and upto
                                          100%, US $ 50 million out of which
                                          $ 7.5 million to be brought in upfront
                                          and the balance in 24 months.
                                       (c) Minimum capitalisation norms for
                                           non fund based activities
                                       Minimum capitalisation norm of US $ 0.5
                                       million is applicable in respect of non-
                                       fund based NBFCs with foreign
                                       investment.
                                       (d) Foreign investors can set up 100%
                                           operating subsidiaries without the
                                           condition to disinvest a minimum of
                                           25% of its equity to Indian entities,
                                           subject to bringing in US $ 50 million
                                           as at (b) (3) above (without any
                                           restriction on number of operating
                                           subsidiaries without bringing in
                                           additional capital)
                                       (e) Joint Venture operating NBFCs that
                                           have 75% or less than 75% foreign
                                           investment will also be allowed to set
                                           up subsidiaries for undertaking other
                                           NBFC activities subject to the
                                           subsidiaries also complying with the
                                           applicable minimum capital inflow
                                           i.e. (b) (1) & (b) (2) above.
                                       (f) FDI in the NBFC sector is put on
                                           automatic route subject to
                                           compliance with guidelines of the
                                           RBI .RBI would issue appropriate
                                           guidelines in this regard.
3.    Insurance           26%          FDI upto 26% in the Insurance sector is
                                       allowed on the automatic route subject
                                       to obtaining license from Insurance
                                       Regulatory & development authority.
4.    Telecommunication   49%          (i) In basic, cellular, Value added
                                           Services, and Global Mobile
                                           Personal Communication by
                                           Satellite, FDI is limited to 49%


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READY RECKONER   FOR   OVERSEAS INDIANS



S.No. Sector                  Investment   Description of Activity / Items /
                              cap          conditions
                                              subject to licensing and security
                                              requirements & adherence by the
                                              companies (who are investing & the
                                              companies in which the investment
                                              is being made) to the license
                                              condition for foreign equity cap &
                                              lock in period for transfer and
                                              addition of equity and other license
                                              provisions.
                                           (ii) ISP with gateways, radio paging and
                                                end-to-end bandwith, FDI is
                                                permitted upto 74% with FDI,
                                                beyond 49% requiring Government
                                                approval. These services would be
                                                subject to licensing and security
                                                requirements.
                                           (iii) No equity cap is applicable to
                                                 manufacturing activities.
                                           (iv) FDI upto 100% is allowed for the
                                                following activities in the telecom
                                                sector.
                                           (a) ISPs not providing gateways (both
                                               for satellite and submarine cables)
                                           (b) Infrastructure Providers providing
                                               dark fibre (IP Category 1)
                                           (c) Electronic Mail, and
                                           (d) Voice Mail
                                           The above would be subject to the
                                           following conditions:
                                           (a) FDI upto 100% is allowed subject to
                                               the condition that such companies
                                               would divest 26% of their equity in
                                               favour of Indian Public in 5 years, if
                                               these companies are listed in other
                                               parts of the world.
                                           (b) The above services would be
                                               subject to licensing and security
                                               requirements, wherever required



14
                                                      FOREIGN DIRECT INVESTMENT



S.No. Sector                 Investment   Description of Activity / Items /
                             cap          conditions
                                          (c) Proposal for FDI beyond 49% shall
                                              be considered by FIPB on case-to-
                                              case basis.
5.    (i) Petroleum Refining 100%         FDI permitted upto 100% incase of
          (private Sector)                private Indian companies
      (ii) Petroleum Product 100%         Subject to the existing sectoral policy
           Marketing                      and regulatory framework in the oil-
                                          marketing sector.
      (iii) Oil Exploration in 100%       Subject to and under the policy of
            both small &                  Government on private participation in
            medium sized field
                                          (a) Exploration of oil and
                                          (b) the discovered fields of national oil
                                              companies.
      (iv) Petroleum product 100%         Subject to and under the Government
           pipelines                      Policy & regulations thereof.
6.    Housing and Real       100%         Only the NRIs are allowed to invest in
      Estate                              the areas listed below:
                                          (a) Development of serviced plots and
                                              construction of built up residential
                                              premises.
                                          (b) Investment in real estate covering
                                              construction of residential and
                                              commercial premises including
                                              business centers and offices.
                                          (c) Development of townships.
                                          (d) City and regional level urban
                                              infrastructure facilities including both
                                              roads and bridges.
                                          (e) Investment in manufacture of
                                              building material.
                                          (f) Investment in participatory ventures
                                              in (a) to (e) above.
                                          (g) Investment in housing finance
                                              institution which is also opened to
                                              FDI as an NBFC.




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READY RECKONER   FOR   OVERSEAS INDIANS



S.No. Sector                  Investment   Description of Activity / Items /
                              cap          conditions
7.    Coal & lignite                       (i) Private Indian companies setting up
                                               or operating power projects as well
                                               as coal & lignite mines for captive
                                               consumption are allowed FDI upto
                                               100%.
                                           (ii) 100% FDI is allowed for setting up
                                                processing plants subject to the
                                                condition that the company shall not
                                                do coal mining and shall not sell
                                                washed coal or sized coal from its
                                                coal processing plants in the open
                                                market and shall supply the washed
                                                or sized coal to those parties who
                                                are supplying raw coal to coal
                                                processing plants for washing or
                                                sizing.
                                           (iii) FDI upto 74% is allowed for
                                                 exploration or mining of coal or
                                                 lignite for captive consumption.
                                           (iv) In all the above cases, FDI is allowed
                                                upto 50% under the automatic route
                                                subject to the condition that such
                                                investment shall not exceed 49% of
                                                the equity of a PSU.
8.    Venture Capital Fund (VCF)           Offshore Venture Capital Funds /
      and Venture Capital                  companies are allowed to invest in
      company (VCC)                        domestic Venture Capital undertaking
                                           as well as other companies through
                                           automatic route, subject to only SEBI
                                           regulations and sector specific caps on
                                           FDI.
9.    Trading                              Trading is permitted under automatic
                                           route with FDI upto 51% provided it is
                                           primarily export activities, and the
                                           undertaking is an export house/trading
                                           house/ star trading house/ super trading
                                           house. However, under the FIPB route:
                                           (i) 100% FDI is permitted in case of
                                               trading companies for the following
                                               activities:



16
                                        FOREIGN DIRECT INVESTMENT



S.No. Sector   Investment   Description of Activity / Items /
               cap          conditions
                            (a) Exports
                            (b) Bulk imports with export/ex-bonded
                                warehouses sales;
                            (c) Cash and carry wholesale trading.
                            (d) Other import of goods or services
                                provided at least 75% is for
                                procurement and sale of the same
                                group and not for third party use or
                                onward transfer/distribution/sales.
                            (ii) The following kinds of trading are
                                 also permitted, subject to provision
                                 of EXIM policy.
                            (a) Companies for providing after sales
                                services i.e. not trading per se.
                            (b) Domestic trading of products of JVs
                                is permitted at the wholesale level
                                for such trading companies who
                                wish to market manufactured
                                products on behalf of their joint
                                ventures in which they have equity
                                participation in India.
                            (c) Trading of hi tech items requiring
                                specialized after sales service
                            (d) Trading of items for social sector.
                            (e) Trading of hi-tech medical and
                                diagnostic items
                            (f) Trading of items sourced from the
                                small scale sector under which,
                                based on technology provided and
                                laid down quality specification, a
                                company can market that item
                                under its brand name.
                            (g) Domestic sourcing of products for
                                exports.
                            (h) Test marketing of such items for
                                which a company has approval for
                                manufacture provided such test
                                marketing facility will be for a period
                                of two years, and investment in


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READY RECKONER   FOR   OVERSEAS INDIANS



S.No. Sector                  Investment   Description of Activity / Items /
                              cap          conditions
                                               setting up manufacturing facilities
                                               commences simultaneously with
                                               test marketing.
                                           (i) FDI upto 100% permitted for e-
                                               commerce activities subject to the
                                               condition that such companies would
                                               divest 26% of their equity in favour
                                               of the Indian public in five years, if
                                               these companies are listed in other
                                               parts of the world. Such companies
                                               would engage only in business to
                                               business (B2B) e-commerce and
                                               not in retail trading.
10.   Power                   100%         FDI allowed upto 100% in respect of
                                           project relating to electricity generation,
                                           transmission and distribution, other
                                           than atomic reactor power plants. There
                                           is no limit on the project cost and
                                           quantum of foreign direct investment.
11.   Drugs &                 100%         FDI permitted upto 100% for manu-
      Pharmaceuticals                      facture of drugs and pharmaceuticals
                                           provided the activity does not attract
                                           compulsory licensing or involve use of
                                           recombinant DNA technology and
                                           specific cell / tissue targeted
                                           formulations. FDI proposals for the
                                           manufacture of licensable drugs and
                                           pharmaceuticals and bulk drugs
                                           produced by recombinant DNA
                                           technology and specific cell/tissue
                                           targeted formulations will require prior
                                           Government approval.
12.   Road and highways,      100%         In project for construction and main-
      Ports and harbours                   tenance of roads, highways, vehicular
                                           bridges, toll roads, vehicular tunnels,
                                           ports and harbours.
13.   Hotel & Tourism         100%         The term hotels include restaurants,
                                           beach resorts and other tourist
                                           complexes providing accommodation
                                           and/or catering and food facilities to
                                           tourists. Tourism related industry include


18
                                       FOREIGN DIRECT INVESTMENT



S.No. Sector   Investment   Description of Activity / Items /
               cap          conditions
                            travel agencies, tour operating agencies
                            and tourist transport operating
                            agencies, units providing facilities for
                            cultural, adventure and wild life
                            experience to tourists, surface, air and
                            water transport facilities to tourists,
                            leisure, entertainment, amusement,
                            sports and health units for tourists and
                            Convention/Seminar units and
                            organizations.
                            For foreign technology agreements,
                            automatic approval is granted if
                            (i) Upto 3% of the capital cost of the
                                project is proposed to be paid for
                                technical and consultancy
                            (ii) Upto 3% of the net turnover is
                                 payable for franchising and
                                 marketing/publicity support fee, and
                                 Upto 10% of gross operating profit
                                 is payable for management fee,
                                 including incentive fee.
14.   Mining   74%          (i) For exploration and mining of
                                diamonds and precious stones FDI
                                is allowed upto 74% under automatic
                                route
               100%         (ii) For exploration and mining of gold
                                 and silver and minerals other than
                                 diamonds and precious stones,
                                 metallurgy and processing FDI is
                                 allowed upto 100% under automatic
                                 route
                            (iii) Press Note 18 (1998 series) dated
                                  14/12/98 would not be applicable for
                                  setting up 100% owned subsidiaries
                                  in so far as the mining sector is
                                  concerned, subject to a declaration
                                  from the applicant that he has no
                                  existing joint venture for the same
                                  area and/or the particular mineral.




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S.No. Sector                  Investment   Description of Activity / Items /
                              cap          conditions
15.   Advertising             100%         Advertising sector - FDI upto 100%
                                           allowed on the automatic route
16.   Films                   100%         Film Sector (Film production, exhibition
                                           and distribution including related
                                           services/products)
                                           FDI upto 100% allowed on the
                                           automatic route with no entry level
                                           condition
17.   Airports                74%          Govt. approval required beyond 74%
18.   Mass Rapid Transport 100%            FDI upto 100% is permitted on the
      Systems                              automatic route in mass rapid transport
                                           system in all metros including
                                           associated real estate development
19.   Pollution Control &     100%         In both manufacture of pollution control
      Management                           equipment and consultancy for
                                           integration of pollution control system
                                           is permitted on the automatic route
20.   Special Economic        100%         All manufacturing activities excepts:
      Zones                                (i) Arms and ammunition, Explosives
                                               and allied items of defence
                                               equipments, Defence aircrafts and
                                               warships,
                                           (ii) Atomic substances, Narcotics and
                                                Psychotropic Substances and
                                                hazardous Chemicals,
                                           (iii) Distillation and brewing of Alcoholic
                                                 drinks and
                                           (iv) Cigarette/cigars and manufactured
                                                tobacco substitutes.
21.   Any other Sector/       100%         If not included in Annexure A
      Activity
22.   Air Transport Services 100% for      No direct or indirect equity participation
      (Domestic Airlines)    NRIs 49%      by foreign airlines is allowed
                             for others
23.   Townships, housing,     100%         The investment shall be subject to the
      built-up infrastructure              following guidelines:
      and construction-
      development projects.



20
                                                         FOREIGN DIRECT INVESTMENT



S.No. Sector                     Investment   Description of Activity / Items /
                                 cap          conditions
      The sector would
      include, but not be
      restricted to, housing,
      commercial premises,
      hotels, resorts,
      hospitals, educational
      institutions,
      recreational facilities,
      city and regional
      level infrastructure
                                              (a) Minimum area to be developed
                                                  under each project shall be as
                                                  under:
                                                 (i) In case of development of
                                                     serviced housing plots - 10
                                                     hectares
                                                 (ii) In case of construction
                                                      development project - 50,000 sq.
                                                      mtrs.
                                                 (iii) In case of combination project,
                                                       any one of the above two
                                                       conditions.
                                              (b) The investment shall be subject to
                                                  the following conditions:
                                                 (i) Minimum capitalization of US$
                                                     10 Million for wholly owned
                                                     subsidiaries and US $5 Million
                                                     for joint ventures with Indian
                                                     partners. The funds would have
                                                     to be brought in within six
                                                     months of commencement of
                                                     business of the Company.
                                                 (ii) Original investment cannot be
                                                      repatriated before a period of
                                                      three years from completion o
                                                      minimum         capitalization.
                                                      However, the investor may be
                                                      permitted o exit earlier with prior
                                                      approval of the Government
                                                      through the FIPB.



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S.No. Sector                 Investment   Description of Activity / Items /
                             cap          conditions
                                          (c) At least 50% of the project must be
                                              developed within a period of five years
                                              from the date of obtaining all statutory
                                              clearances. The investor shall not be
                                              permitted to sell undeveloped plots.
                                          (d) The project shall conform to the norms
                                              and standards, as laid down in the
                                              applicable building control regulations,
                                              bye-laws, rules, and other regulations
                                              of the State Government /Municipal /
                                              Local Body concerned.
                                          (e) The investor shall be responsible for
                                              obtaining all necessary approvals,
                                              including those of the building/ layout
                                              plans, developing internal and
                                              peripheral areas and other
                                              infrastructure facilities, payment of
                                              development, external development
                                              and other charges and complying with
                                              all other requirements as prescribed
                                              under applicable rules / bye-laws /
                                              regulations of the State Government
                                              / Municipal / Local Body concerned.
                                          (f) The State Government / Municipal /
                                              Local Body concerned, which
                                              approves the building / development
                                              plan, shall monitor compliance of the
                                              above conditions by the developer.
                                          Note: For the purpose of these guidelines,
                                          "underdeveloped plots" will mean where
                                          roads, water supply, street lighting,
                                          drainage, sewerage, and other
                                          conveniences, as applicable under
                                          prescribed regulations, have not been
                                          made available. It will be necessary that
                                          the investor provides this infrastructure
                                          and obtains the completion certificate
                                          from the concerned local body / service
                                          agency before he would be allowed to
                                          dispose of serviced housing plots



22
                                                             FOREIGN DIRECT INVESTMENT



FREQUENTLY ASKED QUESTIONS                            ii.    Where more than 24% foreign
(FAQs)                                                       equity is proposed to be
                                                             inducted for manufacture of
Q.1.   What are the forms in which                           items reserved for the Small
       business can be conducted by a                        Scale sector.
       foreign company in India?                      iii.   FDI in sectors/activities to the
A.1    A foreign company planning to set                     extent permitted under
       up business operations in India has                   Automatic Route does not
       the following options:                                require any prior approval
                                                             either by Government or the
       •    As an Incorporated entity by                     Reserve Bank of India.
            incorporating a company under
            the Companies Act, 1956                   iv.    The investors are only required
            through                                          to notify the Regional Office
       •    Joint Ventures; or                               concerned of the Reserve Bank
       •    Wholly Owned Subsidiaries                        of India within 30 days of
                                                             receipt of inward remittances
       As an office of a foreign entity                      and file the required
       through                                               documents along with form
       •    Liaison Office / Representative                  FC-GPR with that Office
            Office                                           within 30 days of issue of
       •    Project Office                                   shares to non-resident
       •    Branch Office                                    investors.

Q. 2. How does a foreign company              Government Route
      invest in India? What are the           FDI in activities not covered under the
      regulations pertaining to issue of      automatic route requires prior Government
      shares by Indian companies to           approval and are considered by Investment
      foreign collaborators/ investors?       Promotion Board (FIPB), Ministry of
A. 2   Automatic Route                        Finance. Application can be made in Form
                                              FC-IL, which can be downloaded from http:/
       FDI up to 100% is allowed under the    /www.dipp.gov.in. Plain paper applications
       automatic route in all activities/     carrying all relevant details are also accepted.
       sectors except the following which     No fee is payable.
       require prior approval of the
       Government:                            General Permission of RBI under FEMA

       i.   Where provisions of Press         Indian companies having foreign investment
            Note 1 (2005 Series) issued by    approval through FIPB route do not require
            the Government of India are       any further clearance from Reserve Bank of
            attracted.                        India for receiving inward remittance and



                                                                                           23
READY RECKONER      FOR   OVERSEAS INDIANS



issue of shares to the non-resident investors.   Q.4.   What should be done after
The companies are required to notify the                investment is made under the
concerned Regional Office of the Reserve                Automatic Route or with
Bank of India of receipt of inward                      Government approval?
remittances within 30 days of such receipt
                                                 A.4    A two-stage reporting procedure has
and submit form FC-GPR within 30 days of
                                                        been introduced for this purpose.
issue of shares to the non-resident investors.
                                                        •    On receipt of money for
Q.3.   Which are the sectors where FDI
                                                             investment:
       is not allowed in India, under the
       Automatic Route as well as                       •    Within 30 days of receipt of
       Government Route?                                     money from the non-resident
                                                             investor, the Indian company
A.3.   FDI is prohibited under Government
                                                             will report to the Regional
       as well as Automatic Route for the
                                                             office of the Reserve Bank of
       following sectors:
                                                             India, under whose jurisdiction
       i)     Retail Trading (except single                  its Registered Office is located,
              brand product retailing)                       containing details such as:
       ii)    Atomic Energy                             •    Name and address of the
                                                             foreign investor/s
       iii)   Lottery Business
                                                        •    Date of receipt of funds and
       iv)    Gambling and Betting
                                                             their rupee equivalent
       v)     Business of Chit Fund
                                                        •    Name and address of the
       vi)    Nidhi Company                                  authorised dealer through
                                                             whom the funds have been
       vii) Agricultural or plantation
                                                             received, and
            activities (cf Notification No.
            FEMA 94/2003-RB dated                       •    Details of the Government
            June 18, 2003).                                  approval, if any.
       viii) Housing and Real Estate                    Upon issue of shares to non-resident
             business (except development               investors:
             of townships, construction of
                                                        •    Within 30 days from the date
             residential/commercial
                                                             of issue of shares, a report in
             premises, roads or bridges to
                                                             Form FC-GPR, PART A
             the extent specified in
                                                             together with the following
             Notification No. FEMA 136/
                                                             documents should be filed with
             2005-RB dated July 19, 2005)
                                                             the concerned Regional Office
       ix)    Trading in Transferable                        of the Reserve Bank of India.
              Development Rights (TDRs).
                                                        •    Certificate from the Company


24
                                                      FOREIGN DIRECT INVESTMENT



     Secretary of the company                                    OR
     accepting investment from
                                                e)   Shares have been issued under
     persons resident outside India
                                                     a scheme of merger and
     certifying that the company has
                                                     amalgamation of two or more
     complied with the procedure
                                                     Indian      companies      or
     for issue of shares as laid down
                                                     reconstruction by of demerger
     under the FDI scheme as
                                                     or otherwise of an Indian
     indicated in the Notification
                                                     company, duly approved by a
     No. FEMA 20/2000-RB dated
                                                     court in India.
     3rd May 2000 as amended
     from time to time                          •    Shares have been issued in
                                                     terms of SIA/FIPB approval
•    The proposal is within the
                                                     No.      ……dated…
     sectoral policy / cap
     permissible under the                      Certificate from Statutory Auditors
     automatic route of RBI and it              or Chartered Accountant indicating
     fulfills all the condition laid            the manner of arriving at the price
     down for investments under                 of the shares persons resident outside
     the Automatic route namely                 India.
a)   Non-resident entity/ies (other      Q.5.   What are the guidelines for
     than individuals) to whom it               transfer of existing shares from
     has issued shares does / do not            non-residents to residents or
     have any existing joint venture            residents to non-residents?
     or technology transfer or trade
                                         A.5    Transfer from Non-Residents to
     mark agreement in India in the
                                                Residents
     same field.
                                                The term ‘transfer’ is defined under
b)   The company is not investing
                                                FEMA as including “sale, purchase,
     in an SSI unit & the investment
                                                acquisition, mortgage, pledge, gift,
     limit of 24 % has been
                                                loan or any other form of transfer of
     observed/ requisite approvals
                                                right possession or lien”. (Section 2
     have been obtained.
                                                (ze) of FEMA, 1999).
c)   Shares have been issued on
                                                The FEMA Regulations give specific
     rights basis and the shares are
                                                permission covering the following
     issued to non-residents at a
                                                forms of transfer i.e. transfer by way
     price that is not lower than that
                                                of sale and gift. These permissions
     at which shares are/were issued
                                                are discussed below:
     to residents.
                                                Transfer by Way of Sale
                OR
                                                A person resident outside India can
d) Shares issued are bonus shares.
                                                freely transfer share/convertible


                                                                                   25
READY RECKONER   FOR   OVERSEAS INDIANS



     debenture by way of sale to a person                  acquirer or transferee does not
     resident in India as under                            have any previous venture or tie
                                                           up in India in the same field or
     •     Any person resident outside
                                                           sector.
          India (other than NRls/OCBs)
          can transfer by way of sale the            •     A non-resident Indian (NRI)
          shares/convertible debentures                    may transfer by way of gift, the
          to any person resident outside                   shares/convertible debentures
          India; subject to the condition                  held by him to another NRI
          that the acquirer or transferee                  only.
          does not have any previous
                                                     •     Any person resident outside
          venture or tie-up in India in the
                                                           India may transfer share/
          same field or sector.
                                                           convertible debenture to a
     •    A non-resident Indian (NRI) or                   person resident in India by way
          an erstwhile Overseas                            of gift.
          Corporate Body may transfer
          by way of sale, the shares/         TRANSFER FROM RESIDENT TO
          convertible debentures held by      NON-RESIDENT
          him to another NRI only.
                                              Transfer by Way of Sale-General
     •     Any person resident outside
                                              Permission under Regulation 10 of
          India may sell share/convertible
                                              Notification No. FEMA 20/2000-RB dated
          debenture       acquired      in
                                              May 2000.
          accordance with FEMA
          Regulations on a recognized         A person resident in India may transfer to a
          Stock Exchange in India             person resident outside India any share/
          through a registered broker.        convertible debenture of an Indian Company
                                              whose activities fall under the Automatic
     Transfer by Way of Gift
                                              Route for FDI subject to the Sectoral Limits,
     A person resident outside India can      by way of sale subject to complying with
     freely transfer share/convertible        pricing guidelines, documentation and
     debenture by way of gift to a person     reporting requirements for such transfers, as
     resident in India as under               may be specified by the Reserve Bank of
                                              India from time to time.
     •     Any person resident outside
          India, (not being a non-resident    This general permission is not available
          Indian or an erstwhile overseas     where:
          corporate body), can transfer by
                                              •    Indian Company whose shares or
          way of gift the shares/
                                                   convertible debentures are proposed to
          convertible debentures to any
                                                   be transferred is in financial service
          person resident outside India;
                                                   sector. Financial services sector means
          subject to the condition that the
                                                   service rendered by banking and non-


26
                                                                  FOREIGN DIRECT INVESTMENT



      banking companies regulated by the            Q.6.   What if the transfer from resident
      Reserve Bank, Insurance companies                    to non-resident does not fall under
      regulated by Insurance Regulatory and                the above facility?
      Development Authority (IRDA) and
                                                    A.6.   In case the transfer does not fit into
      other companies regulated by any other
                                                           any of the above, either the transferor
      financial regulator, as the case may be.
                                                           (resident) or the transferee (non-
•     The transfer falls within the provisions of          resident) can make an application for
      SEBI (Substantial Acquisition of Shares              the Reserve Bank’s permission for
      and Takeovers) Regulations, 1997                     the transfer. The application has to
                                                           be accompanied with the following
Transfer by Way of Gift
                                                           documents;
A person resident in India can transfer by
                                                           •     A copy of FIPB approval (if
way of gift shares to a person resident outside
                                                                 required).
India in the following ways:
                                                           •     Consent letter from transferor
•     A person resident in India who
                                                                 and transferee clearly
      proposes to transfer to a person
                                                                 indicating the number of
      resident outside India [other than
                                                                 shares, name of the investee
      erstwhile OCBs] any security by way
                                                                 Company and the price at
      of gift, shall make an application to
                                                                 which the transfer is proposed
      the Central Office of the Foreign
                                                                 to be effected.
      Exchange Department, Reserve Bank
      of India furnishing the following                    •     The present /post transfer
      information, namely:                                       shareholding pattern of the
                                                                 Indian investee company
•     Name and address of the transferor and
                                                                 showing        the     equity
      the proposed transferee
                                                                 participation by residents and
•     Relationship between the transferor                        non-residents category-wise.
      and the proposed transferee
                                                           •     Copies of the Reserve Bank
•     Reasons for making the gift. The gifts                     of    India’s     approvals/
      are permissible up to a limit of:                          acknowledged copies of FC-
                                                                 GPR evidencing the existing
     (i)    5% of the paid up capital of the
                                                                 holding of non-residents.
            company per donee, and
                                                           •     If the sellers/transferors are
     (ii)    Amount does not exceed
                                                                 NRls / OCBs, the copies of the
            USD 25,000 per calendar year for
                                                                 Reserve Bank of India’s
            each donor. The valuation of
                                                                 approvals evidencing the
            these shares shall be in
                                                                 shares held by them on
            accordance with pricing
                                                                 repatriation / non-repatriation
            guidelines prescribed.
                                                                 basis.


                                                                                               27
READY RECKONER    FOR   OVERSEAS INDIANS



       •    Open Offer document filed                     in case of a public limited
            with SEBI if the acquisition of               company.
            shares by non-resident is under
                                                     •    In case of listed companies,
            SEBI Takeover Regulations.
                                                          valuation shall be as per the
       •    Fair Valuation Certificate from               Reserve Bank of India /SEBI
            Chartered         Accountant                  guidelines as follows:
            indicating the value of shares
                                                     •    The issue price shall be either
            as per the following guideline.
                                                          at:
       •    In the case of unlisted shares
                                                     a)   The average of the weekly high
            the fair value is worked out as
                                                          and low of the closing prices
            per the erstwhile Controller of
                                                          of the related shares quoted on
            Capital Issue/s.
                                                          the stock exchange during the
       •    For listed shares, the price                  six months preceding the
            worked out is not less than the               relevant date or
            higher of average weekly high
                                                     b)   The average of the weekly high
            and low quotations for 6
                                                          and low of the closing prices
            months and average of daily
                                                          of the related shares quoted on
            high and low quotation or two
                                                          the stock exchange during the
            weeks preceding 30 days prior
                                                          two weeks preceding the
            to the date of making
                                                          relevant date.
            application to FIPB.
                                                     In case of unlisted companies,
Q.7.   Are the investments and profits
                                                     valuation shall be done in accordance
       earned in India repatriable?
                                                     with the guidelines issued by the
A.7.   All foreign investments are freely            erstwhile Controller of Capital
       repatriable except for the cases              Issues.
       where NRls choose to invest
                                              Q.9.   What are the regulations
       specifically under non-repatriable
                                                     pertaining to issue of ADRs/GDRs
       schemes. Dividends declared on
                                                     by Indian companies?
       foreign investments can be remitted
       freely through an Authorised Dealer.   A.9.   Indian companies are allowed to
                                                     raise capital in the international
Q.8.   What are the guidelines on issue
                                                     market through the issue of ADRs/
       and valuation of shares in case of
                                                     GDR. They can issue ADRs/GDRs
       existing companies?
                                                     without obtaining prior approval
Α.8.   •    Allotment of shares on                   from RBI if it is eligible to issue
            preferential basis shall be as           ADRs/GDRs in terms of the Scheme
            per the requirements of the              for issue of foreign currency
            Companies Act, 1956, which               Convertible Bonds and Ordinary
            will require special resolution          Shares (Through Depository Receipt


28
                                                            FOREIGN DIRECT INVESTMENT



       Mechanism) Scheme, 1993 and                    have been issued vide A.P. (DIR
       subsequent guidelines issued by                Series) Circular No.21 dated
       Ministry of Finance, Government of             February 13,2002. The Scheme
       India.                                         provides for purchase and re-
                                                      conversion of only as many shares
       After the issue of ADRs/GDRs, the
                                                      into ADRs/GDRs which are equal to
       company has to file a return in the
                                                      or less than the number of shares
       proforma given in Annexure ‘C’ to
                                                      emerging on surrender of ADRs/
       the RBI Notification No. FEMA.20/
                                                      GDRs which have been actually sold
       2000-RB dated May 3, 2000. The
                                                      in the market. Thus, it is only a
       company is also required to file a
                                                      limited two-way fungibility wherein
       quarterly return in a form specified
                                                      the headroom available for fresh
       in Annexure ‘D’ of the same
                                                      purchase of shares from domestic
       regulations.
                                                      market is restricted to the number of
       There are no end-use restrictions on           converted shares sold in the domestic
       GDR/ADR issue proceeds, except                 market by non-resident investors. So
       for an express ban on investment in            long ADRs/GDRs are quoted at
       real estate stock markets.                     discounts to the value of shares in
                                                      domestic market; an investor will
Q. 10. What is meant by Sponsored ADR
                                                      gain by converting the ADRs/GDRs
       & Two-way fungibility Scheme of
                                                      into underlying shares and selling
       ADR/GDR?
                                                      them in the domestic market. In case
A.10. Sponsored ADR/GDR: An Indian                    of ADRs/GDRs being quoted at
      company may sponsor an issue of                 premium, there will be demand for
      ADR/GDR with an overseas                        reverse fungibility i.e. purchase of
      depository against shares held by its           shares domestic market for re-
      shareholders at a price to be                   conversion into ADRs/GDRs. The
      determined by the Lead Manager.                 scheme is operationalised through
      The Operative guidelines for the                the Custodian of securities and
      same have been issued vide A.P.                 stockbrokers under SEBI.
      (DIR Series) Circular No.52 dated
                                               Q.11. Can Indian companies issue
      November 23, 2002.
                                                     Foreign Currency Convertible
       Two-way Fungibility Scheme:                   Bonds (FCCBs)?
       Under the limited Two-way
                                               A.11. FCCBs can be issued by Indian
       fungibility Scheme, a registered
                                                     companies in the overseas market in
       broker in India can purchase shares
                                                     accordance with Scheme for Issue of
       of an Indian company on behalf of a
                                                     foreign Currency Convertible Bonds
       person resident outside India for the
                                                     and Ordinary Shares (Through
       purpose of converting the shares so
                                                     Depository Receipt Mechanism)
       purchased into ADRs/GDRs. The
                                                     Scheme, 1993.
       operative guidelines for the same


                                                                                        29
READY RECKONER      FOR   OVERSEAS INDIANS



       The FCCB issue needs to conform          Q.14. Other than issue of shares under
       to External Commercial Borrowing               Automatic /Government Route,
       guidelines, issued by RBI vide                 what other general permissions
       Notification No. FEMA 3/2000                   are available under Notification
       dated May 3, 2000 as amended from              No.FEMA 20 dated 3-5-2000?
       time to time.
                                                A.14   Issue of shares under ESOP by Indian
Q.12. Can I invest through Preference                  companies to its employees or
      Shares? What are the regulations                 employees of its joint venture or
      applicable in case of such                       wholly owned subsidiary abroad
      investments?                                     who are resident outside India
                                                       directly or through a Trust up to 5%
A.12. Foreign investment through
                                                       of the paid up capital of the company.
      preference shares is treated as foreign
      direct investment. Foreign                       Issue and acquisition of shares by
      investment in preference shares is               non-residents after merger or de-
      considered as part of share capital              merger or amalgamation of Indian
      and fall outside the External                    companies.
      Commercial Borrowing (ECB)
                                                       Issue shares or preference shares or
      guidelines/cap.
                                                       convertible debentures on rights
       Preference shares to be treated as              basis by an Indian company to a
       foreign direct equity for purpose of            person resident outside India.
       sectoral caps on foreign equity,
                                                Q.15. Can I invest in unlisted shares
       where such caps are prescribed,
                                                      issued by a company in India?
       provided they carry a conversion
       option. If the preference shares are     A.15   As per the regulations/guidelines
       structured without such conversion              issued by the Reserve Bank of India/
       option, they would fall outside the             Government of India, investment can
       foreign direct equity cap.                      be made in unlisted shares of Indian
                                                       companies.
Q.13. Can shares be issued against
      Lumpsum Fee, Royalty and ECB?             Q.16. Can a foreigner set up a
                                                      partnership / proprietorship
A.13. Issue of equity shares against lump
                                                      concern in India?
      sum fee, royalty and external
      commercial borrowings (ECBs) in                  Only NRls/PIOs are allowed to set
      convertible foreign currency are                 up partnership/proprietorship
      permitted, subject to meeting all                concerns in India. Even for NRls/
      applicable tax liabilities and sector            PIOs investment is allowed on non-
      specific guidelines.                             repatriation basis.




30
                                                             FOREIGN DIRECT INVESTMENT



Q.17. Can I invest in Rights shares                          components and the landed
      issued by an Indian company at a                       cost of imported components,
      discount?                                              irrespective of the source of
                                                             procurement including ocean
A.17. There are no restrictions under
                                                             freight, insurance, custom
      FEMA for investment in Rights
                                                             duties, etc.
      shares at a discount, provided the
      rights shares so issued are being                •      RBI has delegated the powers
      offered at the same price to residents                 to ADs to make payment of
      and non-residents.                                     royalty under such agreements.
                                                             The requirement of registration
Q.18. What are the payment parameters
                                                             of the agreement with the
      for foreign technology transfer
                                                             Regional Office of Reserve
      under the Automatic Route of
                                                             Bank of India has been done
      Reserve Bank of India? How
                                                             away with.
      should royalty be calculated?
                                                Q.19. What should be done, if Automatic
A.18. Payments for foreign technology
                                                      Route of Reserve Bank of India for
      collaboration by Indian companies
                                                      technology transfer is not
      are allowed under the automatic
                                                      available?
      route subject to the following limits:
                                                A.19. Proposals, which do not satisfy the
       •     Lump sum payments not
                                                      parameters prescribed for automatic
             exceeding US$ 2 million.
                                                      route of RBI, require clearance from
       •      Royalty payable being limited           Department of Industrial Policy and
             to 5 per cent for domestic sales         Promotion, Ministry of Commerce
             and 8 per cent for exports,              and Industry, Government of India.
             without any restriction on the
                                                Q.20. What are the regulations for
             duration of the royalty
                                                      Foreign     Venture  Capital
             payments.
                                                      Investment?
       •      The royalty limits are net of
                                                A.20. A SEBI registered Foreign Venture
             taxes and are calculated
                                                      Capital Investor with general
             according to standard
                                                      permission from the Reserve Bank
             conditions.
                                                      of India can invest in a Venture
       •     The royalty will be calculated           Capital Fund or an Indian Venture
             on the basis of the net ex-              Capital Undertaking, in the manner
             factory sale price of the                and subject to the terms and
             product, exclusive of excise             conditions specified in schedule 6 of
             duties minus cost of the                 RBI Notification No. FEMA 20/
             standard          bought-out             2000-RB dated May 3, 2000 as
                                                      amended from time to time.



                                                                                         31
READY RECKONER      FOR   OVERSEAS INDIANS




           PORTFOLIO INVESTMENTS

PORTFOLIO INVESTMENTS BY NRIS                    repatriation basis has to be made by way of
                                                 inward remittance of foreign exchange
Portfolio Investment Scheme                      through normal banking channels or out of
Non-Resident Indians (NRIs) are eligible to      funds held in NRE/FCNR account
purchase shares and convertible debentures       maintained in India. If the shares are
issued by Indian companies under the             purchased on non-repatriation basis, the
Portfolio Investment Scheme (PIS).NRIs can       NRIs can also utilize their funds in NRO
approach the designated branch of any            account in addition to the above. The link
Authorized Dealer (AD) bank authorized by        office of the designated branch of an AD
RBI to administer the Portfolio Investment       bank shall furnish to the Reserve Bank, a
Scheme for permission to open a NRI/NRO          report on a daily basis on PIS transactions
account under the Scheme for routing             undertaken by it, such report can be
investments.                                     furnished on-line or on a floppy to RBI.

Investments by Non-Resident Indians              Shares Purchased by NRIs on the Stock
(NRIs)                                           Exchange Under PIS cannot be
                                                 Transferred by Way of Sale Under Private
NRIs are allowed to invest in shares of listed   Arrangement or By Way of Gift to a
Indian companies in recognized Stock             Person Resident in India or Outside India
Exchange under the PIS. NRIs can invest on       without Prior Approval of RBI.
repatriation and non-repatriation basis under
PIS route upto 5% of the paid up capital of      NRIs are allowed to invest in Exchange
the company/ paid-up value of each series        Trade Derivative Contracts approved by
of debentures of listed Indian companies.        SEBI from time to time out of Rupee funds
The aggregate paid-up value of shares/           held in India on non-repatriation basis
convertible debentures purchased by all          subject to the limits prescribed by SEBI.
NRIs cannot exceed 10% of the paid-up            Monitoring of Investment Position by RBI
capital of the company. The aggregate ceiling    Caution List
of 10% can be raised to 24%, if the General
                                                 Reserve Bank monitors the investment
Body of the Indian company passes a special
                                                 position of NRIs in listed Indian companies,
resolution to that effect.The NRI investor has
                                                 reported by Custodian Banks on a daily basis
to take delivery of the shares purchased and
                                                 in Forms LEC (NRI).When the total holdings
give delivery of shares sold.Payment for
                                                 of NRIs under the Scheme reach the trigger
purchase of shares and/or debentures on


32
                                                                    PORTFOLIO INVESTMENTS



limit, which is 2% below the applicable limit,                 Incorporated / Institutional
Reserve Bank will issue a notice to all                        Portfolio Managers or their
designated branches of Authorized Dealer                       Power of Attorney holders,
banks stating that any further purchases of                    University Funds, Endowment
shares of the particular Indian company will                   Foundations, Charitable Trusts
require prior approval of Reserve Bank. (For                   and Charitable Societies.
companies with paid-up capital of Rs. 1000
                                                           •   SEBI acts as the nodal point in
Crores and above, the trigger limit is 0.5%
                                                               the registration of FIIs. The
below the applicable limit).
                                                               Reserve Bank of India has
Ban List                                                       granted General Permission to
                                                               SEBI Registered FIIs to invest
Once the shareholding by NRIs reaches the
                                                               in India under the Portfolio
overall ceiling / sectoral cap / statutory limit,
                                                               Investment Scheme (PIS).
Reserve Bank puts the company on the Ban
List. Once a company is placed on the Ban                  •   Investment by .individual. FIIs
list, no NRI can purchase the shares of the                    cannot exceed 10% of paid up
Company under the portfolio Investment                         capital. Investment by foreign
Scheme.                                                        registered as sub accounts of
                                                               FIIs cannot exceed 5% of paid
FREQUENTLY ASKED QUESTIONS
                                                               up capital. All FIIs and their
(FAQs)
                                                               sub-accounts taken together
FOREIGN PORTFOLIO                                              cannot acquire more than 24%
INVESTMENT                                                     of the paid up capital of an
                                                               Indian Company. An Indian
Q. 1. What are the regulations                                 Company can raise the 24%
      regarding Portfolio Investments                          ceiling to the Sectoral Cap /
      by Foreign Institutional Investors                       Statutory       Ceiling,     as
      (FIIs)?                                                  applicable, by passing a
A.1.    •     Investment by FIIs is regulated                  resolution by its Board of
              under SEBI (FII) Regulations,                    Directors followed by passing
              1995 and Regulation 5(2) of                      a Special Resolution to that
              FEMA Notification No 20                          effect by their General Body.
              dated May 3, 2000. FIIs               Q.2.   What are the regulations
              include Asset Management                     regarding Portfolio Investments
              Companies, Pension Funds,                    by NRls/PIOs?
              Mutual Funds, and Investment
              Trusts as Nominee Companies,          A.2.   •   Non Resident Indian (NRls)


                                                                                           33
READY RECKONER   FOR   OVERSEAS INDIANS



          and Persons of Indian Origin       Investment in Government Securities and
          (PIOs) can purchase/sell           Corporate Debt
          shares/convertible debentures
                                             Q.3.   Can a Non-resident Indian invest
          of Indian Companies on Stock
                                                    in Government Securities/
          Exchanges under Portfolio
                                                    Treasury bills and Corporate
          Investment Scheme. For this
                                                    debt?
          purpose, the NRI/PIO has to
          apply to a designated branch of    A.3.   Under the FEMA Regulations only
          a bank, which deals in                    NRls and SEBI registered FIIs are
          Portfolio Investment. All sale/           permitted to purchase Government
          purchase transactions are to be           Securities/Treasury bills and
          routed through the designated             corporate debt. The details are as
          branch.                                   under;

     •    An NRI or a PIO can purchase              I.   A Non-resident Indian can
          shares up to 5% of the paid up                 purchase,
          capital of an Indian company.             a)   Government dated securities
          All NRls/PIOs taken together                   (other than bearer securities) or
          cannot purchase more than                      treasury bills or units of
          10% of the paid up value of the                domestic mutual funds;
          company. (This limit can be
          increased by the Indian                   b)   bonds issued by a public sector
          company to 24% by passing a                    undertaking (PSU) in India;
          General Body resolution).                 c)   Shares in Public Sector
     •    The sale proceeds of the                       Enterprises being disinvested
          repatriable investments can be                 by the Government of India.
          credited to the NRE/NRO etc.                   They can also invest, on non-
          accounts of the NRI/PIO,                       repatriation basis, in dated
          whereas the sale of non-                       Government securities (other
          repatriable investment can be                  than bearer securities), treasury
          credited only to NRO accounts.                 bills, units of domestic mutual
     The sale of shares will be subject to               funds, units of Money Market
     payment of applicable taxes.                        Mutual Funds in India, or
                                                         National         Plan/Savings




34
                                                    PORTFOLIO INVESTMENTS



      Certificates on non repatriation   b)   In case the FII is set-up as a
      basis. The guidelines for these         100% debt FII, it can invest the
      schemes are framed by the               entire corpus in dated
      concerned        Government             Government          Securities
      agencies.                               including Treasury Bills,- non-
                                              convertible debentures/bonds
II.   A SEBI registered Foreign
                                              issued by an Indian company
      Institutional Investor may
                                              subject to limits, if any,
      purchase, on repatriation basis,
                                              stipulated by SEBI in this
      dated Government securities/
                                              regard.
      treasury bills, non-convertible
      debentures/bonds issued by an      The Investment in Government
      Indian company and units of        Securities/Treasury Bills and
      domestic mutual funds either       Corporate debt is subject to a ceiling
      directly from such securities or   decided in consultation with the
      through       a     registered     Government of India. Investment
      stockbroker on a recognised        limit for the FIIs as a group in
      stock exchange in India. The       Government securities currently is
      FIIs is required to ensure that,   USD 3.2 Billion. The limit for
                                         Investment in Corporate debt is USD
a)    The FII allocation of its total
                                         1.5 billion. At present, the FIIs can
      investment between equity and
                                         also invest in Innovative instruments
      debt instruments (including
                                         such as upper tier-II capital upto a
      dated Government Securities
                                         limit of USD 500 million.
      and Treasury Bills in the Indian
      capital market) should not
      exceed the ratio of 70:30.




                                                                            35
READY RECKONER     FOR   OVERSEAS INDIANS




     ACQUSITION AND TRANSFER OF
     IMMOVABLE PROPERTY IN INDIA
                                                          Management Act, 1999 and the
ACQUISITION AND TRANSFER OF
                                                          regulations made by Reserve
IMMOVABLE PROPERTY IN INDIA
                                                          Bank Of India from time to
A person resident outside India who is a                  time.Such payment can not be
citizen of India (NRI) can acquire by way of              made either by traveller’s cheque
purchase, any immovable property in India                 or by foreign currency notes or
other than agricultural land/plantation                   by other mode than those
property/farm house. He can transfer any                  specially mentioned above.
immovable property other than agricultural     A person resident outside India who is a
or plantation property or farm house to:       person of Indian Origin (PIO) can acquire
a)   A person resident outside India who is    any immovable property in India other than
     a citizen of India or                     agricultural land / farm house / plantation
                                               property:-
b)   A person of Indian origin resident
     outside India or                          i.    By way of purchase out of funds
                                                     received by way of inward remittance
c)   A person resident in India.He may               through normal banking channels or by
     transfer agricultural land/ plantation          debit to his NRE/ FCNR(B)/ NRO
     property / farm house acquired by way           account.
     of inheritance, only to Indian citizens
     permanently residing in India.Payment     ii.   By way of gift from a person resident
     for acquisition of property can be made         in India or a NRI or a PIO.By way of
     out of:                                         inheritance from any a person resident
                                                     in India or a person resident outside
     i.    Funds received in India through           India who had acquired such property
           normal banking channels by way            in accordance with the provisions of
           of inward remittance from any             the foreign exchange law in force or
           place of India or                         FEMA regulations at the time of
     ii.   Funds held in any non-resident            acquisition of the property.
           account     maintained      in      A PIO may transfer any immoveable
           accordance with the provisions      property other than agricultural land /
           of the Foreign Exchange             Plantation property / farm house in Indiaa)


36
                               ACQUISITION & TRANSFER      OF IMMOVABLE     PROPERTY    IN INDIA




By way of sale to a person resident in India.b)   concerned person is required to file a
By way of gift to a person resident in India      declaration in the form IPI with Reserve
or a Non resident Indian or a PIO.A PIO may       Bank, within ninety days from the date of
transfer agricultural land / Plantation           such acquisition. The non-resident is eligible
property / farm house in India by way of sale     to transfer by way of mortgage the said the
or gift to person resident in India who is a      said immovable property to an AD bank as
citizen of India.                                 a security for any borrowing.

PURCHASE / SALE OF IMMOVABLE                      REPATRIATION OF SALE PROCEEDS
PROPERTY      BY     FOREIGN
EMBASSIES / DIPLOMATS /                           In the event of sale of immovable property
CONSULATE GENERAL                                 other than agricultural land / farm house /
                                                  plantation property in India by NRI / PIO,
Foreign Embassy / Consulate as well as            the authorized dealer will allow repatriation
Diplomatic personnel in India are allowed         of sale proceeds outside India provided;i.
to purchase / sell immovable property in          The immovable property was acquired by the
India other than agricultural land / plantation   seller in accordance with the provisions of
property / farm house provided (i) clearance      the foreign exchange law in force at the time
from Government of India , Ministry of            of acquisition by him or the provisions of
External Affairs is obtained for such             FEMA Regulations;ii. The amount to be
purchase / sale, and (ii) the consideration for   repatriated does not exceed (a) the amount
acquisition of immovable property in India        paid for acquisition of the immovable
is paid out of funds remitted from abroad         property in foreign exchange received
through banking channel.                          through normal banking channels or out of
                                                  fund held in Foreign currency Non-Resident
ACQUISITION OF IMMOVABLE                          Account or (b) the foreign currency
PROPERTY FOR CARRYING ON A                        equivalent as on the date of payment, of the
PERMITTED ACTIVITY                                amount paid where such payment was made
                                                  from the funds held in Non-Resident
A branch, office or other place of business,      External account for acquisition of the
(excluding a liaison office) in India of a        property.iii. In the case of residential
foreign company established with requisite        property, the repatriation of sale proceeds is
approvals wherever necessary, is eligible to      restricted to not more than two such
acquire immovable property in India which         properties.In the case of sale of immovable
is neccessary for or incidental to carrying on    property purchased out of Rupee funds, ADs
such activity provided that all applicable        may allow the facility of repatriation of funds
laws, rules, regulations or directions in force   out of balances held by NRIs/PIO in their
are duly complied with. The entity/               Non-resident Rupee (NRO) accounts upto

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READY RECKONER      FOR   OVERSEAS INDIANS



US$ 1 million per financial year subject to             can freely purchase immovable
production of undertaking by remitter and a             property in India:
certificate from the Chartered Accountant in
                                                        i)    Non-Resident Indian (NRI)-
the formats prescribed by the CBDT.
                                                              that is a citizen of India
                                                              resident outside India
PRIOR    PERMISSION    FOR
ACQUISITION OR TRANSFER OF                              ii)   Person of Indian Origin (PIO)-
IMMOVABLE PROPERTY IN INDIA                                   that is an individual (not being
BY  CITIZEN   OF   CERTAIN                                    a citizen of Pakistan or
COUNTRIES                                                     Bangladesh or Sri Lanka or
                                                              Afghanistan or China or Iran
No person being a citizen of Pakistan,                        or Nepal or Bhutan), who
Bangladesh, Sri Lanka, Afghanistan, China,
                                                        1.    at any time, held Indian
Iran, Nepal or Bhutan shall acquire or
                                                              passport, or
transfer immovable property in India, other
than lease, not exceeding five years without            2.    who or either of whose father
prior permission of Reserve Bank. Foreign                     or grandfather was a citizen of
nationals of non Indian origin resident                       India by virtue of the
outside India are not permitted to acquire any                Constitution of India or the
immovable property in India unless such                       Citizenship Act, 1955 (57 of
property is acquired by way of inheritance                    1955).
from a person who was resident in India.
                                                        The general permission, however,
Foreign Nationals of non Indian origin who
                                                        covers only purchase of residential
have acquired immovable property in India
                                                        and commercial property and not for
by way of inheritance with the specific
                                                        purchase of agricultural land /
approval of RBI can not transfer such
                                                        plantation property / farm house in
property without prior permission of RBI.
                                                        India.
FREQUENTLY ASKED QUESTIONS                       Q.2.   Whether NRI/PIO can acquire
(FAQs)                                                  agricultural land/plantation
                                                        property/farm house in India?
ACQUISITION OF IMMOVABLE
                                                 A2.    No. Since general permission is not
PROPERTY IN INDIA
                                                        available to NRI/PIO to acquire
Q.1    Who can purchase immovable                       agricultural land/ plantation property
       property in India?                               / farm house in India, such proposals
A.1    Under the general permission                     will require specific approval of
       available, the following categories              Reserve Bank and the proposals are


38
                             ACQUISITION & TRANSFER   OF IMMOVABLE    PROPERTY   IN INDIA




       considered in consultation with the           permission of or reporting to Reserve
       Government of India.                          Bank
Q.3.   Do any documents need to be filed       Q.7   Can a foreign national who is a
       with Reserve Bank of India after              person resident in India purchase
       purchase?                                     immovable property in India?
A3.    No. An NRI / PIO who has purchased      A7.   Yes, but the person concerned would
       residential/commercial property               have to obtain the approvals, and
       under general permission, is not              fulfill the requirements if any,
       required to file any documents with           prescribed by other authorities, such
       the Reserve Bank.                             as the concerned State Government,
                                                     etc However, a foreign national
Q.4.   How many residential/commercial
                                                     resident in India who is a citizen of
       properties can NRI/PIO purchase
                                                     Pakistan, Bangladesh, Sri Lanka,
       under the general permission?
                                                     Afghanistan, China, Iran, Nepal and
A4.    There are no restrictions on the              Bhutan would require prior approval
       number of residential/commercial              of Reserve Bank. Such requests are
       properties that can be purchased.             considered by Reserve Bank in
Q.5.   Can a foreign national of non-                consultation with the Government of
       Indian origin be a second holder              India.
       to immovable property purchased         Q.8   Can an office of a foreign company
       by NRI/PIO?                                   purchase immovable property in
A5.    No.                                           India?

Q.6.   Can a foreign national of non-          A8.   A foreign company which has
       Indian origin resident outside                established a Branch Office or other
       India purchase immovable                      place of business in India, in
       property in India?                            accordance with FERA / FEMA
                                                     regulations, can acquire any
A6.    No. A foreign national of non-Indian          immovable property in India, which
       origin, resident outside India cannot         is necessary for or incidental to
       purchase any immovable property in            carrying on such activity. The
       India. But, he/she may take                   payment for acquiring such a
       residential accommodation on lease            property should be made by way of
       provided the period of lease does not         foreign inward remittance through
       exceed five years. In such cases,             proper banking channel. A
       there is no requirement of taking any         declaration in form IPI should be


                                                                                       39
READY RECKONER    FOR    OVERSEAS INDIANS



      filed with Reserve Bank within                 property/ farm house in India cannot
      ninety days from the date of                   be acquired by way of gift.
      acquiring the property. Such a
                                                     (b) A foreign national of non-Indian
      property can also be mortgaged with
                                                     origin resident outside India cannot
      an Authorised Dealer as a security
                                                     acquire any immovable property in
      for other borrowings. On winding up
                                                     India through gift.
      of the business, the sale proceeds of
      such property can be repatriated only   Q.10. Whether a non-resident can
      with the prior approval of Reserve            inherit immovable property in
      Bank. Further, acquisition of                 India?
      immovable property by entities who      A.10. Yes, a person resident outside India
      had set up Branch Offices in India            i.e.
      and incorporated in Pakistan,
      Bangladesh, Sri Lanka, Afghanistan,            i)     an NRI
      China, Iran, Nepal and Bhutan would            ii)    a PIO and
      require prior approval of Reserve
      Bank to acquire such immovable                 iii)    a foreign national of l1on-
      property. However, if the foreign                     lndian origin can inherit and
      company has established a Liaison                     hold immovable property in
      Office, it can not acquire immovable                  India from a person who was
      property. In such cases, Liaison                      resident in India. However, a
      Offices can take property by way of                   citizen      of     Pakistan,
      lease not exceeding 5 years.                          Bangladesh, Sri Lanka,
                                                            Afghanistan, China, Iran,
Q.9   Whether immovable property in                         Nepal and Bhutan should seek
      India can be acquired by way of                       specific approval of Reserve
      gift?                                                 Bank.
A9.   (a) Yes, NRls and PIOs can freely       Q.11. From whom can the non-resident
      acquire immovable property by way             inherit immovable property?
      of gift either from
                                              A.11. A person resident outside India (i.e.
      i)     a person resident in India or          NRI or PIO or foreign national of
      ii)    an NRI or                              non-Indian origin) can inherit
                                                    immovable property from
      iii)   a PIO.
                                                     (a)    a person resident in India.
      However, the property can only be
      commercial or residential.                     (b)    a person resident outside India.
      Agricultural     land/plantation

40
                              ACQUISITION & TRANSFER     OF IMMOVABLE     PROPERTY   IN INDIA




      However, the person from whom the                i)     a person resident in India
      property is inherited should have
                                                       ii)    an NRI
      acquired the same in accordance with
      the foreign exchange regulations                 iii)   a PIO
      applicable at that point of time.          Q.13. Can an agricultural land/
                                                       plantation property/farm house in
TRANSFER     OF   IMMOVABLE
                                                       India owned/held by a non-
PROPERTY IN INDIA
                                                       resident be sold?
(i) TRANSFER BY SALE                             A.13. (a)    NRI/ PIO may sell agricultural
                                                              land /plantation property/farm
Q.12 Can an NRI/ PIO/foreign national                         house to a person resident in
     sell his residential / commercial                        India who is a citizen of India.
     property?
                                                       (b)    Foreign national of non-Indian
A.12. (a)    NRI can sell property in India                   origin resident outside India
             to--                                             would need prior approval of
      i)     a person resident in India or                    Reserve Bank to sell
                                                              agricultural land/plantation
      ii)    an NRI or                                        property/ farm house in India
      iii)   a PIO.
                                                 (ii) TRANSFER BY GIFT
      (b)    PIO can sell property in India
             to-                                 Q.14. Can a non-resident gift his
      i)     a person resident in India.               residential/commercial property?

      ii)    an NRI or                           A.14. Yes.

      iii)   a PIO - with the prior approval           (a)    NRI/ PIO may gift residential/
             of Reserve Bank                                  commercial property to -

      (c)    Foreign national of non-Indian            (i)    person resident in India or
             origin including a citizen of             (ii)   an NRI or
             Pakistan or Bangladesh or Sri
                                                       (iii) PIO.
             Lanka or Afghanistan or China
             or Iran or Nepal or Bhutan can            (b)    foreign national of non-Indian
             sell property in India with prior                origin needs prior approval of
             approval of Reserve Bank to                      Reserve Bank.




                                                                                            41
READY RECKONER      FOR   OVERSEAS INDIANS



Q.15. Can an NRI/PIO/Foreign national            Mode of payment for purchase
      holding an agricultural land/
                                                 Q.17. How can an NRI/PIO make
      plantation property/farm house in
                                                       payment for purchase of
      India gift the same?
                                                       residential/commercial property
A.15. (a)     NRI/PIO can gift but only to a           in India?
              person resident in India who is
                                                 A.17. Payment can be made by NRI/ PIO
              a citizen of India.
                                                       out of
        (b)   foreign national of non-Indian
                                                        (a)   funds remitted to India through
              origin needs prior approval of
                                                              normal banking channel or
              Reserve Bank
                                                        (b)   funds held in NRE/ FCNR (B)/
(iii)   TRANSFER THROUGH                                      NRO account maintained in
        MORTGAGE                                              India
                                                        No payment can be made either by
Q.16. Can residential/commercial
                                                        traveller’s cheque or by foreign
      property be mortgaged?
                                                        currency notes.
A.16. i)      NRI/ PIO can mortgage to:
                                                        No payment can be made outside
        (a) an authorised dealer/ housing               India.
            finance institution in India-
                                                 Q.18 What shall be the option if there
            -without the approval of
                                                      is refund of application money/
            Reserve Bank.
                                                      payment made by the building
        (b) a party abroad - with prior               agencies/seller because of non-
            approval of Reserve Bank.                 allotment of flat/plot/cancellation
        ii)   a foreign national of non-Indian        of bookings/ contracts?
              origin can mortgage only with      A.18. The amount of refund, together with
              prior approval of Reserve Bank           interest (net of income tax) can be
        iii) a foreign company which has               credited to NRE account. This is
             established a Branch Office or            subject to condition that the original
             other place of business in                payment was made by way of inward
             accordance with FERA/FEMA                 remittance or by debit to NRE /
             regulations has general                   FCNR (B) account.
             permission to mortgage the          Q.19. Can NRI/PIO avail of loan from
             property with an authorized               an authorised dealer for acquiring
             dealer in India.                          flat/ house in India for his own


42
                             ACQUISITION & TRANSFER   OF IMMOVABLE   PROPERTY     IN INDIA




       residential use against the security              FCNR (B)/NRO account for
       of funds held in his NRE Fixed                    acquiring the property or for
       Deposit account/ FCNR (B)                         repayment of the loan, the
       account?                                          principal amount can be
                                                         repatriated outside India.
A.19. Yes, such loans are subject to the
      terms and conditions as laid down                  For this purpose, repatriation
      in Schedules 1 and 2 to Notification               outside India means the
      No. FEMA 5/2000-RB dated May 3,                    buying or drawing of foreign
      2000 as amended from time to time.                 exchange from an authorised
      However, banks cannot grant fresh                  dealer in India and remitting it
      loans or renew existing loans in                   outside India through normal
      excess of Rupees 20 lakh against                   banking channels or crediting
      NRE and FCNR(B) deposits either                    it to an account denominated
      to the depositors or to third parties              in foreign currency or to an
      [cf. A.P. (DIR Series) Circular No.                account in Indian currency
      29 dated January 31, 2007].                        maintained with an authorised
                                                         dealer from which it can be
       Such Loans can be Repaid
                                                         converted in foreign currency
       (a)   by way of inward remittance
                                                  (b)    in case the property is acquired
             through normal banking
                                                         out of Rupee resources and/or
             channel or
                                                         the loan is repaid by close
       (b)   by debit to his NRE / FCNR                  relatives in India ( as defined
             (B) / NRO account or                        in Section 6 of the Companies
       (c)   out of rental income from such              Act, 1956), the amount can be
             property.                                   credited to the NRO account of
                                                         the NRI/PIO. The amount of
       (d)   by the borrower’s close                     capital gains, if any, arising out
             relatives, as defined in section            of sale of the property can also
             6 of the Companies Act, 1956,               be credited to the NRO
             through their account in India              account.
             by crediting the borrower’s
             loan account.                        NRI/PIO are also allowed by the
                                                  Authorised Dealers to repatriate an
       Repatriation                               amount up to USD 1 million per
       (a)   In case the amount has been          financial year out of the balance in
             received from inward                 the NRO account for all bonafide
             remittance or debit to NRE /         purposes to the satisfaction of the


                                                                                        43
READY RECKONER     FOR   OVERSEAS INDIANS



       authorised dealers, subject to tax                    by crediting the borrower’s
       compliance.                                           loan account.
Q.20. Can NRI/PIO, avail of housing             Q.21. Can NRI/PIO avail of housing
      loan in rupees from an authorised               loan in rupees from his employer
      dealer or housing finance                       in India?
      institution in India approved by
                                                A21.   Yes, subject to certain terms and
      the National Housing Bank
                                                       conditions (Please refer to
      for purchase of residential
                                                       Regulation 8A of Notification
      accommodation or for the
      purpose of repairs / renovation/                 No FEMA 4/2000-RB dated May 3,
      improvement of residential                       2000 and AP. (DIR Series) Circular
      accommodation? How can such                      No.27 dated October 10, 2003).
      loan be repaid?
                                                REPATRIATION OF SALE PROCEEDS
A.20. Yes, NRI/PIO can avail of housing         OF RESIDENTIAL/COMMERCIAL
      loan in rupees from an Authorised         PROPERTY PURCHASED BY NRI/PIO
      Dealer or housing finance institution
      subject to certain terms and              Q.22. Can NRI/PIO repatriate the sale
      conditions. (Please refer to                    proceeds of immovable property?
      Regulation 8 of Notification No.                If so, what are the terms?
      FEMA 4/2000-RB dated 3.5.2000
      and AP. (DIR) Series Circular No. 95      A.22. NRI/ PIO may repatriate the sale
      dated April 26, 2003).                          proceeds of immovable property in
                                                      India
       Such a loan can be repaid
                                                       (a)   If the property was acquired
       (a)   by way of inward remittance                     out of foreign exchange
             through normal banking                          sources i.e. remitted through
             channel or                                      normal banking channels I by
       (b)   by debit to his NRE / FCNR                      debit to ‘NRE I FCNR (B)
             (B) / NRO account or                            account

       (c)   out of rental income from such            The amount to be repatriated should
             property.                                 not exceed the amount paid for the
                                                       property:
       (d)   by the borrower’s close
             relatives, as defined in section          1.    in foreign exchange received
             6 of the Companies Act, 1956,                   through normal banking
             through their account in India                  channel or


44
                              ACQUISITION & TRANSFER     OF IMMOVABLE   PROPERTY   IN INDIA




       2.    by debit to NRE account             Q.24. If a Rupee loan was taken by NRI/
             (foreign currency equivalent,             PIO from Authorised Dealer or
             as on the date of payment) or             housing finance institution for
             debit to FCNR (B) account.                purchase of residential property
                                                       can an NRI/ PIO repatriate the
       Repatriation of sale proceeds of
                                                       sale proceeds of such property?
       residential property purchased by
       NRI/ PIO out of foreign exchange is       A.24. Yes, provided the loan has been
       restricted to not more than two such            subsequently repaid by remitting
       properties.                                     funds from abroad or by debit to
                                                       NRE/FCNR (B) accounts (Please see
       Capital gains, if any, may be credited
                                                       AP. (DIR) Series Circular No. 101
       to the NRO account from where the
                                                       dated 5.5.2003)
       NRI/PIO may repatriate an amount
       up to USD one million, per financial      Q.25. If the property was purchased
       year, as discussed below.                       from foreign inward remittance or
                                                       from NRE I FCNR (B) account,
       (b)   If the property was acquired
                                                       can the sale proceeds of property
             out of Rupee sources, NRI or
                                                       be repatriated immediately?
             PIO may remit an amount up
             to USD one million, per             A.25. Yes.
             financial year, out of the
                                                 Q.26. Is there any restriction on number
             balances held in the NRO
                                                       of residential properties in respect
             account (inclusive of sale
                                                       of which sale proceeds can be
             proceeds of assets acquired by
                                                       repatriated by NRI/ PIO?
             way of inheritance or
             settlement), for all the bonafide   A.26. Yes, sale proceeds of not more than
             purposes to the satisfaction of           two residential properties can be
             the Authorized Dealer bank                repatriated.
             and subject to tax compliance.      Q.27. If the immovable property was
Q.23. Can an NRI/PIO repatriate the                    acquired by way of gift by the NRI/
      proceeds in case the sale proceed                PIO, can he repatriate abroad the
      was deposited in NRO account?                    funds from sale?

A23.   From the NRO account, NRI/PIO             A.27. The sale proceeds of immovable
       may repatriate up to USD one million            property acquired by way of gift
       per financial year (April-March),               should be credited to NRO account
       which would also include the sale               only. From the balance in the NRO
       proceeds of immovable property.                 account, NRI/PIO may remit up to


                                                                                        45
READY RECKONER      FOR   OVERSEAS INDIANS



       USD one million, per financial year,            undertaking and the CA Certificate
       subject to the satisfaction of                  as mentioned above.
       Authorised Dealer and payment of
                                                       The general permission for
       applicable taxes.
                                                       repatriation of sale proceeds of
Q.28 If the immovable property was                     immovable property is not available
     received as inheritance by the                    to a citizen of Pakistan, Bangladesh,
     NRI/PIO can he repatriate the sale                Sri Lanka, China, Afghanistan and
     proceeds?                                         Iran and he has to seek specific
                                                       approval of Reserve Bank.
A.28. Yes, general permission is available
      to the NRls/PIO to repatriate the sale           As FEMA specifically permits
      proceeds of the immovable property               transactions only in Indian Rupees
      inherited from a person resident in              with citizens of Nepal and Bhutan,
      India. NRls/PIO may repatriate an                the question of repatriation of the
      amount not exceeding USD one                     sale proceeds in foreign exchange to
      million, per financial year, on                  Nepal and Bhutan would not arise.
      production of documentary evidence
      in support of acquisition / inheritance   PROVISIONS         FOR      FOREIGN
      of assets, an undertaking by the          E M B A S S I E S / D I P L O M AT S /
      remitter and certificate by a             CONSULATE GENERALS
      Chartered Accountant in the formats
      prescribed by the Central Board of        Q.29. Can     Foreign     Embassies/
      Direct Taxes vide their Circular No.            Diplomats/Consulate General
      10/2002 dated October 9,2002. [cf.              purchase sell immovable property
      A P. (DIR Series) Circular No.56                in India?
      dated November 26, 2002].                 A.29. Yes, Foreign Embassies / Diplomats
       In case of a foreign national, sale            / Consulate Generals can purchase
       proceeds can also be repatriated even          and sell any immovable property
       if the property is inherited from a            other than agricultural land /
       person resident outside India. But             plantation property / farm house in
       this is allowed only with prior                India with prior clearance from the
       approval of Reserve Bank. The                  Government of India, Ministry of
       foreign national has to approach               External Affairs. The payment
       Reserve Bank with documentary                  should be made by foreign inward
       evidence in support of inheritance of          remittance through normal banking
       the immovable property and the                 channel.



46
                              ACQUISITION & TRANSFER    OF IMMOVABLE    PROPERTY   IN INDIA




OTHER ISSUES                                    A.32. The sale proceeds may be credited
                                                      to NRO account.
Q.30. Can NRI/PIO rent out the                  Q.33. Can the sale proceeds of the
      residential commercial property                 immovable property referred to in
      purchased out of foreign                        Q.No.31 be remitted abroad?
      exchange/rupee funds?
                                                A.33. Yes, provided the amount to be
A.30. Yes, NRI/PIO can rent out the                   remitted does not exceed USD one
      property without the approval of the            million per financial year, for all
      Reserve Bank. Rent received can be              bonafide purposes to the satisfaction
      credited to NRO, NRE account or                 of Authorised Dealers and subject to
      remitted abroad. Powers have been               tax compliance.
      delegated to the Authorised Dealers
      to allow repatriation of current          Q.34. Can foreign nationals of non-
      income like rent, dividend, pension,            Indian origin resident in India or
      interest, etc. of NRls/PIO who do not           outside India who had earlier
      maintain an NRO account in India                acquired immovable property
      based on an appropriate certification           under FERA with specific
      by a Chartered Accountant, certifying           approval of Reserve Bank
      that the amount proposed to be                  continue to hold the same? Can
      remitted is eligible for remittance and         they transfer such property?
      that applicable taxes have been paid/     A.34. Yes, they may continue to hold the
      provided for. [cf. AP. (DIR Series)             immovable property. However, they
      Circular No. 45 dated May 14, 2002].            can transfer the property only with
Q.31. Can a person who had bought                     the prior approval of Reserve Bank.
      immovable property when he was            Q.35. Is a resident in India governed by
      a resident, continue to hold such               the provisions of Foreign Exchange
      property even after becoming an                 Management (Acquisition and
      NRI’PIO?                                        transfer of immovable property in
A.31. Yes, he can continue to hold the                India) Regulations, 2000?
      residential/commercial property /         A.35. A person resident in India who is a
      agricultural land/ plantation property          citizen of Pakistan or Bangladesh or
      / farm house in India without the               Sri Lanka or Afghanistan or China or
      approval of the Reserve Bank.                   Iran or Nepal or Bhutan is governed
Q.32. In which accounts can the sale                  by the provisions of Foreign
      proceeds of such immovable                      Exchange Management (Acquisition
      property be credited?                           and Transfer of Immovable Property

                                                                                        47
READY RECKONER     FOR   OVERSEAS INDIANS



       in India) Regulations, 2000 i.e. he             to comply with the condition of the
       would require prior approval of                 purpose / intention of stay.
       Reserve Bank for acquisition and        Q.38. What is meant by a person
       transfer of immovable property in             resident outside India?
       India even though he is resident in
                                               A.38. The Act defines a ‘a person resident
       India. Such requests are considered
                                                     outside India’ as a person who is not
       by Reserve Bank in consultation with
                                                     a person resident in India’ (As
       the Government in India.
                                                     defined in Q.No. 37 above)
DEFINITIONS                                    Q.39. Who can determine whether a
Q.36. Where are the terms a ‘person                  person is resident in India or not?
      resident in India’ and a ‘person         A.39. Reserve Bank does not determine the
      resident outside India’ defined?               residential status. Under FEMA,
A.36. Section 2 (v) and Section 2 (w) of             residential status is determined by
      the FEMA, 1999 defines ‘person                 operation of law. The onus is on an
      resident in India’ and a ‘person               individual to prove his / her residential
      resident outside India’ respectively.          status, if questioned by any authority.
Q.37. What is meant by a person                Q.40. If a foreign national is a person
      resident in India?                             resident in India as per the
                                                     provisions of Section 2 (v) (i)B of
A.37. Under FEMA, a person resident in
                                                     the FEMA, 1999, does he require
      India is defined as a person residing
                                                     approval of Reserve Bank to
      in India for more than one hundred
                                                     purchase any immovable property
      and eighty-two days during the
                                                     in India?
      course of the preceding financial year
      (April-March) and who has come to        A.40    A foreign national resident in India
      or stays in India either for taking up           does not require approval from
      employment, carrying on business or              Reserve Bank from FEMA angle, but
      vocation in India or for any other               approvals if any required in terms of
      purpose, that would indicate his                 regulations prescribed by other
      intention to stay in India for an                authorities such as the concerned
      uncertain period. In other words, to             State Government etc. will have to be
      be treated as ‘a person resident in              obtained by him / her. However, a
      India’ under FEMA, a person has not              foreign national resident in India who
      only to satisfy the condition of the             is a citizen of Pakistan, Bangladesh,
      period of stay (being more than 182              Sri Lanka, Afghanistan, China, Iran,
      days during the course of the                    Nepal and Bhutan requires specific
      preceding financial year) but has also           prior approval of Reserve Bank.


48
                              ESTABLISHMENT        OF   BRANCH/LIAISON/PROJECT OFFICE        IN   INDIA




      ESTABLISHMENT OF BRANCH/
      LIAISON/PROJECT OFFICES IN
                INDIA

                                                        outside India. The role of such offices is,
APPLICATION TO RBI
                                                        therefore, limited to collecting information
Companies incorporated outside India,                   about possible market opportunities and
desirous of opening a Liaison/Branch office             providing information about the company
in India have to make an application in form            and its products to the prospective Indian
FNC-1 to the Reserve Bank of India, along               customers. Permission to set up such offices
with the following documents:                           is initially granted for a period of 3 years
                                                        and this may be extended from time to time
English version of the certificate of                   by the Regional Office of RBI under whose
incorporation / Registration or                         jurisdiction the office is set up. A Liaison
Memorandum & Articles of Association                    Office can undertake the following activities
attested by Indian Embassy/ Notary Public               in India:
in the country of Registration.Latest Audited
Balance Sheet of the applicant entity.                  1)   Representing in India the parent
                                                             company/group companies.
LIAISON OFFICES                                         2)   Promoting export import from/to India.

Companies which are incorporated outside                3)   Promoting       technical/financial
India can establish liaison office in India with             collaborations Between Parent/group
the specific approval of the Reserve Bank.                   companies and companies in India.
A Liaison Office (also known as                         4)   Acting as a communication channel
Representative office) can undertake only                    between the Parent company and
liaison activities, i.e. it can act as a channel             Indian companies.
of communication between Head Office
abroad and parties in India. It is not allowed          Liaison/representative offices have to file an
to undertake any business activity in India             Annual Activity Certificate from a Chartered
and cannot earn any income in India.                    Accountant to the Regional Office of RBI.
Expenses of such offices are to be met                  The Certificate is obtained to ensure that the
entirely through inward remittances of                  Liaison Office has undertaken only those
foreign exchange from the Head Office                   activities that have been approved by RBI.


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LIAISON OFFICE OF FOREIGN                              Technology and development of
INSURANCE COMPANIES                                    software in India.
                                                 (7)   Rendering technical support to the
Foreign Insurance companies can establish              products Supplied by parent/group
Liaison Offices in India after obtaining               companies.
approval from the Insurance Regulatory and
Development Authority. Such Insurance            (8)   Foreign airline / shipping Company.
companies have been given general                *Retail trading activities of any nature is not
permission under FEMA for establishing           allowed for a Branch Office in India.
Liaison Offices in India.
                                                 A branch office is not allowed to carry out
BRANCH OFFICES                                   manufacturing, processing activities in India,
                                                 directly or indirectly. Branch Offices have
Companies incorporated outside India and         to submit Annual Activity Certificate from
engaged in manufacturing or trading              a chartered Accountant to RBI. The branch
activities are allowed to set up Branch          offices are permitted to acquire property for
Offices in India with specific approval of the   their own use and to carry out the permitted/
Reserve Bank. Such Branch Offices are            incidental activities but not for leasing or
permitted to represent the parent/group          renting out the property. However, entities
companies and undertaking the following          from Pakistan, Bangladesh, Sri Lanka,
activities in India:                             Afghanistan, Iran or China are not allowed
                                                 acquire immovable property in India even
(1)   Export/import of goods*                    for a Branch Office. These entities are
(2)   Rendering professional or consultancy      allowed to take such property on lease basis
      Services.                                  only. Entities from Nepal are allowed to
                                                 establish only Liaison Offices in India.
(3)   Carrying out research work, in which
                                                 Profits earned by the Branch Offices are
      the Parent company is engaged.
                                                 freely remittable from India, subject to
(4)   Promoting technical or financial           payment of applicable taxes.
      collaborations between Indian
      companies and parent or overseas           BRANCH OFFICE IN SEZS
      group company.
                                                 RBI has given general permission to foreign
(5)   Representing the parent company in         companies for establishing branch/unit in
      India and acting as buying/selling         Special Economic Zones (SEZs) to
      agent in India.                            undertake manufacturing and service
(6)   Rendering services in Information          activities. The general permission is subject
                                                 to the following conditions:

50
                             ESTABLISHMENT       OF   BRANCH/LIAISON/PROJECT OFFICE        IN   INDIA



1)    such units are functioning in those             (c)   the project has been cleared by an
      sectors where 100 Per cent FDI is                     appropriate authority; or
      permitted,
                                                      (d)   a company or entity in India awarding
2)    such units comply with part XI of the                 the contract has been granted Term
      companies Act (Section 592 to 602),                   Loan by a Public Financial Institution
                                                            or a bank in India for the project.
3)    Such units function on a stand-alone
      basis,                                          However, if the above criteria are not met,
                                                      the foreign entity has to approach RBI to
4)    In the event of winding-up of business
                                                      obtain approval.
      and for remittance of winding-up
      proceeds, the branch shall approach an          Opening of Foreign Currency Account
      Authorized Dealer in Foreign
                                                      ADs can open non-interest bearing Foreign
      Exchange with the documents
                                                      Currency Account for Project Office in India
      mentioned in the paragraph below—
                                                      subject to the following:
      ”Closure of Office”—except the copy
      of RBI approval.                                a)    The Project Office has been
                                                            established in India, with the general/
BRANCHES OF BANKS                                           specific permission of Reserve Bank,
                                                            having the requisite approval from the
Foreign Banks do not require approval form                  concerned project Sanctioning
RBI under FEMA, if such Bank has obtained                   Authority,
necessary approval under the provisions of
                                                      b)    The contract under which the project
the Banking Regulation Act,1949
                                                            has been sanctioned, specifically
PROJECT OFFICES                                             provides for payment in foreign
                                                            currency,
Reserve Bank has granted general                      c)    Each Project has only one Foreign
permission to foreign companies to establish                Currency Account,
Project Offices in India, provided they have
secured a contract form an Indian company             d)    The permissible debits to the account
to execute a project in India, and                          shall be payment of project related
                                                            expenditure and credits shall be foreign
(a)   the project is funded directly by inward              currency receipts from the Project
      remittance from abroad; or                            Sanctioning Authority, and remittances
(b)   the project is funded by bilateral or                 from parent/group company Abroad or
      multilateral International Financing                  bilateral/multilateral international
      Agency; or                                            financing agency.



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READY RECKONER      FOR   OVERSEAS INDIANS



e)   The responsibility of ensuring that only         Regional Office of the Reserve Bank
     the approved debits and credits are              under whose jurisdiction the Project
     allowed in the Foreign Currency                  Office is situated.
     Account shall rest solely with the
                                                 General Conditions
     concerned branch of the AD. Further,
     the account shall be subject to 100 per     Partnership/Proprietary concerns set up
     cent scrutiny by the Concurrent             abroad are not allowed to establish Branch/
     Auditor of the respective AD banks.         Liaison Office in RBI.

f)   The Foreign Currency Account has to         Branch/Liaison/Project Offices are allowed
     be closed at the completion of the          to open non-interest bearing current accounts
     Project.                                    in RBI. Such Offices are required to
                                                 approach their Authorised Dealers for
Intermittent Remittances by Project
                                                 opening the accounts.Transfer of assets of
Offices in India
                                                 Liaison/Branch Office to subsidiaries or
                                                 other Liaison/Branch Offices is allowed with
AD branch can permit intermittent
                                                 specific approval of the Central Office of
remittances by Project Offices pending
                                                 RBI.
winding up/completion of the project
provided they are satisfied with the bonafides   Closure of Officers
of the transaction and subject to the
                                                 At the time of winding up of the Liaison
following:
                                                 Offices, the company has to approach the
a)   The Project Office submits an               respective Regional Office with documents
     Auditors/Chartered Accountants              such as:
     Certificate to the effect that sufficient
                                                 •    Copy of the Reserve Bank’s
     provisions have been made to meet the
                                                      permission for establishing the Office
     liabilities in India including Income-
                                                      in India
     Tax etc.
                                                 •    Auditor’s certificate-Indicating the
b)   An undertaking from the Project
                                                      manner in which remittable amount
     Offices that the remittance will not, in
                                                      has been arrived and supported by a
     any way, affect the completion of the
                                                      statement of assets and liabilities of the
     project in India and that any shortfall
                                                      applicant, and indicating the manner
     of funds for meeting any liability in
                                                      of disposal of assets.
     India will be met by inward remittance
     from abroad.                                     Confirming that all liabilities in India
                                                      including arrears of gratuity and other
     Inter Project transfer of funds requires         benefits to employees etc. of the
     prior permission of the concerned

52
                              ESTABLISHMENT       OF   BRANCH/LIAISON/PROJECT OFFICE         IN   INDIA



       branch/office have either fully met or                 Project Offices in India subject to
       adequately provided for;                               certain conditions.
       Confirming that no income accruing              Q.2.   What is the procedure to be
       from sources outside India (including                  followed for obtaining Reserve
       proceeds of exports) has remained                      Bank’s approval for opening
       unrepatriated to India;                                Liaison Office/ Representative
                                                              Office?
       •      No-objection or Tax clearance
              certificate from Income tax              A.2    A Liaison office can carry on only
              authority for the remittance; and               liaison activities, i.e. it can act as a
                                                              channel of communication between
       •      Confirmation from the applicant
                                                              Head Office abroad and parties in
              that no legal proceedings in any
                                                              India. It is not allowed to undertake
              Court in India are pending and
                                                              any business activity in India and
              there is no legal impediment to
                                                              cannot earn any income in India.
              the remittance.
                                                              Expenses of such offices are to be
       Once Regional Office’s approval is                     met entirely through inward
       obtained, Authorised Dealers can                       remittances of foreign exchange
       allow remittance of surplus.                           from the Head Office abroad. The
       At the time of closure of Branch                       role of such office is therefore,
       Offices, the entities have to approach                 limited to collecting information
       the Central Office for approval, with                  about possible market opportunities
       the same set of documents as                           and providing information about the
       mentioned above.                                       Company and its products to the
                                                              prospective Indian customers.
FREQUENTLY ASKED QUESTIONS                                    The companies desirous of opening
(FAQs)                                                        a liaison office in India may make
                                                              an application in form FNC-1 along
Q.1.       How can foreign companies open                     with the documents mentioned
           Liaison/Project/Branch office in                   therein to Foreign Investment
           India?                                             Division, Foreign Exchange
A.1.       Foreign company can set up Liaison/                Department, Reserve Bank of India,
           Branch Offices in India after                      Central office Mumbai. This form is
           obtaining approval from Reserve                    available at www.rbi.org.in
           Bank of India. Reserve Bank of India               Permission to set up such offices is
           has given general permission to                    initially granted for a period of 3
           foreign companies to establish

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READY RECKONER     FOR   OVERSEAS INDIANS



       years and this may be extended from              •     the project has been cleared by
       time to time by the Regional Office                    an appropriate authority; or
       in whose jurisdiction the office is set
                                                        •     a company or entity in India
       up. Liaison/Representative offices
                                                              awarding the contract has been
       have to file an Activity Certificate on
                                                              granted Term Loan by a Public
       an annual basis from a Chartered
                                                              Financial Institution or bank in
       Accountant to the concerned
                                                              India for the project.
       Regional Office of the Reserve Bank
       of India, stating that the Liaison               •     However, if the above criteria
       office has undertaken only those                       are not met, or if the parent
       activities permitted by Reserve Bank                   entity is established in
       of India.                                              Pakistan, Bangladesh, Sri
                                                              Lanka, Afghanistan, lran or
Q.3.   What is the procedure for setting
                                                              China, such applications have
       up Project Office?
                                                              to be forwarded to Central
Α.3    •     Foreign companies are granted                    Office of the Foreign Exchange
             projects in India by Indian                      Department of the Reserve
             entities. General Permission                     Bank at Mumbai for approval.
             has been granted by Reserve
                                                 Q.4. What is the procedure for setting up
             Bank of India Vide
                                                      Branch office?
             Notification No. FEMA 95/
             2003-RB dated July 2, 2003 to       Reserve Bank permits companies engaged
             foreign companies to open           in manufacturing and trading activities
             Project Office/s in India           abroad to set up Branch Office in India for
             provided they have secured          the following purposes:
             from an Indian company, a           •    To represent the parent company/other
             contract to execute a project in         foreign companies in various matters
             India, and                               in India e.g. acting as buying/selling
       •     the project is funded directly by        agents in India.
             inward remittance from              •    To conduct research work in the area
             abroad; or                               in which the parent company is
       •     the project is funded by a               engaged.
             bilateral or multilateral           •    To undertake export and import
             International    Financing               activities and trading on wholesale
             Agency; or                               basis



54
                           ESTABLISHMENT        OF   BRANCH/LIAISON/PROJECT OFFICE       IN   INDIA



•   To promote possible technical and                    Retail Trading activities of any nature
    financial collaborations between the                 in India. Branch Offices have to submit
    Indian companies and overseas                        Activity Certificate from chartered
    companies                                            Accountant on an annual basis to the
                                                         Central Office of FED. For annual
•   Rendering professional or consultancy
                                                         remittance of profit Branch office may
    services
                                                         submit required documents to an
•   Rendering services in Information                    authorised dealer.
    technology and development of
                                                     •   Permission for setting up branch
    software in India
                                                         offices is granted by the Reserve Bank
•   Rendering technical support to the                   of India. Reserve Bank of India
    products supplied by the parent/Group                considers the track record of the
    companies.       .                                   Applicant Company, existing trade
•   A branch office is not allowed to carry              relations with India, the activity of the
    out manufacturing, processing                        company proposing to set up office in
    activities directly/ indirectly. A Branch            India as well as financial position of
    office is also not allowed to undertake              the company while scrutinising the
                                                         application.




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       INVESTMENT IN PARTNERSHIP
       FIRM / PROPRIETARY CONCERN

INVESTMENT IN PARTNERSHIP                         will be decided in consultation with the
FIRM/PROPRIETARY CONCERN                          Government of India.

A non-resident Indian or a person of Indian       INVESTMENT BY NON-RESIDENTS
origin resident outside India can invest by       OTHER THAN NRIS/PIO
way of contribution to the capital of a firm
of a proprietary concern in India on non-         A person resident outside India other than
repatriation basis provided                       NRIs/PIO may make an application and seek
                                                  prior approval of Reserve bank for making
i)     Amount is invested by inward               investment by way of contribution to the
       remittance or out of NRE/ FCNR/            capital of a firm or a proprietorship concern
       NRO account maintained with AD             or any association of persons in India. The
       bank.                                      application will be decided in consultation
ii)    The firm or proprietary concern is not     with the Government of India.
       engaged in any agricultural/plantation
       or real estate business (i.e. dealing in   RESTRICTIONS
       land and immovable property with a
                                                  An NRI or PIO is not allowed to invest in a
       view to earning profit or earning
                                                  firm or proprietorship concern engaged in
       income there from) or print media
                                                  any agricultural/plantation activity or real
       sector.
                                                  estate business i.e. dealing in land and
iii)   Amount invested shall not be eligible      immovable property with a view to earning
       for repatriation outside India.            profit or earning income therefrom or
                                                  engaged in Print Media.
INVESTMENTS WITH
REPATRIATION BENEFITS

NRIs/PIO may seek prior permission of
Reserve Bank for investment in sole
proprietorship concerned/partnership firm
with repatriation benefits. The application



56
                           REMITTANCE FACILITY   FOR   NRIS / PIOS / FOREIGN NATIONALS




 REMITTANCE FACILITY FOR NRIs/
    PIOs/FOREIGN NATIONALS
REMITTANCE            OF      CURRENT          support of acquisition /inheritance of assets,
INCOME                                         an undertaking by the remitter and certificate
                                               by a Chartered Accountant in the formats
Remittance of current income like rent,
                                               prescribed by the Central Board of Direct
dividend, pension, interest etc. of NRIs/PIO
                                               Taxes vide their Circular NO.10/2002 dated
even those who do not maintain NRO
                                               October 9, 2002.
account is freely allowed, on the basis of
appropriate certification by a Chartered       These remittance facilities are not available
Accountant certifying that the amount          to citizen of Nepal and Bhutan.
proposed to be remitted is eligible for
remittance and that applicable taxes have      REMITTANCE OF ASSETS BY NRO/
been paid / provided for.                      PIO

NRIs/PIO have the option to credit the         A Non-Resident Indian (NRI) or a Person of
current income to their Non-Resident           Indian Origin (PIO) may remit an amount
(External) Rupee account, provided the         up to USD one million, per financial year,
authorized dealer bank is satisfied that the   out of the balances held in his Non-
credit represents current income of the non-   Resident(Ordinary) Rupee(NRO) account /
resident account holder and income tax         sale proceeds of assets (inclusive of assets
thereon has been deducted / provided for.      acquired by way of inheritance of
                                               settlement), for all bonafide purposes, to the
REMITTANCE OF ASSETS BY A                      satisfaction of the authorized dealer bank,
FOREIGN NATIONAL OF NON-                       on production of an undertaking by the
INDIAN ORIGIN                                  remitter and certificate by a Chartered
                                               Accountant in the formats prescribed by the
A foreign national of non-Indian origin who
                                               Central Board of Direct Taxes vide their
has retired from employment in India or who
                                               Circular NO.10/2002 dated October 9, 2002.
has inherited assets from a person resident
in India or who is a widow of an Indian        NRI/PIO may remit sale proceed of
citizen who was resident in India, may remit   immovable property purchased by him out
an amount not exceeding USD one million,       of Rupee funds or as a person resident in
per financial year(April-March), on            India as indicated above without any lock-
production of documentary evidence in          in-period.


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In respect of remittance of sale proceed of     channels. The facility is restricted to not
assets acquired by way of inheritance of        more than two such properties.
legacy or settlement for which there is no
                                                Authorized dealer banks may permit
lock-in-period, NRI/PIO may submit
                                                repatriation of amounts representing the
documentary evidence in support of
                                                refund of application / earnest money/
inheritance or legacy of assets, an
                                                purchase consideration made by the house
undertaking by the remitter and certificate
                                                building / seller on account of non-allotment
by Chartered Accountant in the prescribed
                                                of flat/ plot/ cancellation of booking/ deals
formats. Settlement is also a mode of
                                                for purchase of residential/ commercial
inheritance from the parent, the only
                                                property, together with interest, if any (net
difference being that the property under the
                                                of income tax payable thereon), provided the
settlement passes to the beneficiary on the
                                                original payment was made out of NRE/
death of owner/parent without any legal
                                                FCNR (B) account of the holder, or
procedures/hassles and helps in avoiding
                                                remittance from outside India through
delay and inconvenience in applying probate,
                                                normal banking channels and the authorized
etc.
                                                dealer bank is satisfied about the genuineness
The remittance facility in respect of sale      of the transaction. Such funds may also be
proceeds of immovable property is not           credited to the NRE/FCNR (B) account of
available to citizen of Pakistan, Bangladesh,   the NRI/PIO, if they so desire.
Sri Lanka, China, Afghanistan, Iran, Nepal
                                                Authorized dealer banks may allow
and Bhutan.
                                                repatriation of sale proceeds of residential
The facility of remittance of sale proceeds     accommodation purchased by NRIs/PIO out
of other financial assets is not available to   of funds raised by way of loans from the
citizen of Pakistan, Bangladesh, Nepal and      authorized dealer banks/housing finance
Bhutan.                                         institutions to the extent of such loans repaid
                                                by them out of foreign inward remittances
REPATRIATION OF SALE PROCEEDS                   received through normal banking channel or
OF RESIDENTIAL PROPERTY                         by debit to their NRE/FCNR (B) accounts.
PURCHASED BY NRIS/PIO OUT OF
FOREIGN EXCHANGE                                FACILITIES FOR STUDENTS

Repatriation of sale proceeds of residential    Students going abroad for studies are treated
property purchased by NRI/PIO is permitted      asNon-Resident Indians (NRIs) and are
to the extent of the amount paid for            eligible for allthe facilities available to NRIs
acquisition of immovable property in foreign    under FEMA.
exchange received through banking


58
                            REMITTANCE FACILITY   FOR   NRIS / PIOS / FOREIGN NATIONALS



As Non-Residents, they will be eligible to       INTERNATIONAL CREDIT CARDS
receive remittances from India
(i)    up to USD100,000 from close relatives     Authorized dealer banks have been
       in India on self declaration towards      permitted to issue International Credit Cards
       maintenance, which could include          to NRIs/PIO, without prior approval of
       remittances towards their studies also    Reserve Bank. Such transactions may be
       and                                       settled by inward remittance or out of
                                                 balances held in the cardholder’s FCNR (B)
(ii)   up to USD 1 million per financial year,   /NRE /NRO accounts.
       out of sale proceeds of assets/balances
       in their account maintained with an AD
       bank in India.
All other facilities available to NRIs under
FEMA are equally applicable to the students.
Educational and other loans availed of by
them as residents in India will continue to
be available as per FEMA regulations.

INCOME-TAX CLEARANCE

The remittances will be allowed to be made
by the authorized dealer banks on production
of an undertaking by the remitter and a
Certificate from a Chartered Accountant in
the formats prescribed by the Central Board
of Direct Taxes, Ministry of Finance,
Government of India in their Circular No.10/
2002 dated October 9, 2002. [cf. A.P.(DIR
Series) Circular] No.56 dated November 26,
2002.




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                       BANK ACCOUNTS

NON RESIDENT ORDINARY RUPEE                           made thereunder.
(NRO) ACCOUNT SCHEME                             b)   Opening of accounts by individuals/
                                                      entities of Bangladesh /Pakistan
1. Definitions                                        nationality /ownership requires prior
Non-Resident Indian (NRI): NRI for this               approval of Reserve Bank.
purpose is defined in Regulation 2 of FEMA       3.   Types of Accounts
Notification No. 5 dated May 3, 2000. In
terms of this Notification, an NRI is a person   NRO accounts may be opened/maintained
resident outside India who is a citizen of       in the form of current, saving, recurring or
India or is a person of Indian origin.           fixed deposit accounts. Rate of interest
                                                 applicable to these accounts and guidelines
Person of Indian Origin (PIO): PIO for this      for opening, operating and maintenance of
purpose is defined in Regulation 2 of FEMA       such accounts shall be in accordance with
ibid as a citizen of any country other than      directives/instructions issued by Reserve
Bangladesh or Pakistan, if (a) he at any time    Bank from time to time.
held Indian passport; or (b) he or either of
his parents or any of his grand parents was a    4.   Joint Accounts with Residents /Non
citizen of India by virtue of the Constitution        Residents
of India or the Citizenship Act, 1955 (57 of     The accounts may be held jointly with
1955); or (C) the person is a spouse of an       residents and /or with non-residents.
Indian citizen or a person is a spouse of an
                                                 5.   Permissible Credits/ Debits
Indian citizen or a person referred to in sub
clause (a) or (b).                               A.   Credits
2.   Eligibility                                 1.   Proceeds of remittances from outside
                                                      India through normal banking channels
a)   Any person resident outside India (as
                                                      received in foreign currency, which is
     per Regulation 2 of FEMA), may open
                                                      freely convertible.
     NRO account with an authorised
     dealer or an authorised bank for the        2.   Any foreign currency, which is, freely
     purpose of putting through bonafide              convertible tendered by the account
     transactions denominated in Rupees,              holder during his temporary visit to
     not involving any violation of the               India. Foreign currency exceeding
     provision of FEMA rules, Regulation              USD 5000/-or equivalent in form of


60
                                                                             BANK ACCOUNTS



      cash should be supported by Currency        Origin, who has retired from an employment
      Declaration Form. Rupee funds should        in India, or has inherited the assets from a
      be supported by Encashment                  person referred to in sub section (5) of
      Certificate, if they represent funds        section 6 of the FEMA; or is a widow
      brought from outside India.                 resident outside India and has inherited
                                                  assets of her deceased husband who was an
3.    Transfers from rupee accounts of non-
                                                  Indian citizen resident in India, may remit
      resident banks.
                                                  an amount, not exceeding USD 1,000,000
4.    Legitimate dues in India of the account     (US Dollar One Million only) per financial
      holder. This includes current income        year on production of, documentary evidence
      like rent, dividend, pension, interest,     in support of acquisition, inheritance or
      etc. as also sale proceeds of assets        legacy of assets by the remitter and an
      including immovable property                undertaking by the remitter and certificate
      acquired out of rupee/foreign currency      by Chartered Accountant in the formats
      funds or by way of legacy/inheritance.      prescribed by the Central Board of Direct
B.    Debit                                       Taxes vide their Circular No 10/2002 dated
                                                  October 9, 2002.
1.    All local payments in rupees including
      payments for investments in India           6.2   Remittance of Assets by an NRI/PIO
      subject to compliance with the relevant     a)    NRI/PIO may remit an amount, not
      regulations made by the Reserve Bank.             exceeding USD 1,000,000 permitted
2.    Remittance outside India of current               financial year, out of the balances held
      income like rent, dividend, pension,              in NRO accounts/sale proceeds of
      interest, etc. in India of the account            assets /the assets in India acquired by
      holder.                                           him by way of inheritance /legacy, on
                                                        production of documentary evidence
3.    Remittance upto USD One million                   in support of acquisition, inheritance
      permitted financial year (April –                 or legacy of assets by the remitter, and
      March), for all bonafide purposes, to             an undertaking by the remitter and
      the satisfaction of the authorised dealer         certificate by a Chartered Accountant
      bank.                                             in the formats prescribed by the Central
6.    Remittance of assets                              Board of Direct Taxes vide their
                                                        Circular No 10/2002 dated October
6.1. Remittance of assets by a foreign                  9,2002.
     national of non Indian origin
                                                  b)    NRI/PIO may within the overall limit
A citizen of foreign state, not being a citizen         of USD 1 million as stated above, remit
of Nepal or Bhutan or a Person of Indian                sale proceeds of assets acquired under


                                                                                             61
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      a deed of settlement made by either of      from, outside India through banking channel
      his parents or a close relative (as         or by sale of foreign exchange brought by
      defined in section 6 of the Companies       him to India. The balance in the NRO
      Act, 1956) and the settlement taking        account may be converted by the authorised
      effect on the death of the settler, on      dealer/bank into foreign currency for
      production of the original deed of          payment to the account holder at the time of
      settlement and an undertaking by the        his departure from India provided the
      remitter and certificate by a Chartered     account has been maintained for a period not
      Accountant in the formats prescribed        exceeding six months and the account has
      by the Central Board of Direct Taxes        not been credited with any local funds, other
      vide their Circular No. 10/2002 dated       than interest accrued thereon.
      October 9, 2002.
                                                  8.   Grant of Loans / Overdrafts by
6.3   Assets Acquired in India Out of                  Authorised Dealer / Bank to
      Rupee Funds                                      Account Holders and Third Parties
NRI/PIO may remit sale proceeds of                a)   Loans to non resident account holders
immovable property purchased by him                    and to third parties may be granted in
association a resident or out of Rupee funds           Rupees by authorised dealer/bank
as NRI/PIO, without any lock –in-period,               against the security of fixed deposits
subject to the above limit of USD 1 million            subject to the following terms and
permitted financial year.                              conditions:
6.4   Restrictions                                     (i)    The loans shall be utilised only
a)    The remittance facility in respect of                   for meeting borrower’s
      sale proceeds of immovable property                     personal requirements and /or
      is not available to citizens of Pakistan,               business purpose and not for
      Bangladesh, Sri Lanka, China,                           carrying on agricultural /
      Afghanistan, Iran, Nepal and Bhutan.                    plantation activities or real estate
                                                              business or for re lending.
b)    The facility of remittance of sale
      proceeds of other financial assets is not        (ii)   Regulations relating to margin
      available to citizens of Pakistan,                      and rate of interest as stipulated
      Bangladesh, Nepal and Bhutan.                           by Reserve Bank from time to
7.    Foreign Nationals of Non-Indian                         time shall be complied with.
      Origin on a Visit to India                       (iii) The usual norms and
NRO account (current /saving) can be                         considerations as applicable in
opened by a Foreign national of non-Indian                   the case of advances to trade/
origin visiting India, with funds remitted                   industry shall be applicable for


62
                                                                               BANK ACCOUNTS



            such loans /facilities granted to     period. Where the account holder is only on
            third parties                         a temporary visit to India, the account should
                                                  continue to be treated as non-resident during
b)    Authorised dealer /bank may permit
                                                  such visit.
      overdraft in the account of the account
      holder subject to his commercial            10.   Treatment of Loans/Overdraft in
      judgment and compliance with the                  the Event of Change in the Resident
      interest rate etc. directives.                    Status of the Borrower
9.    Change of Residential Status of                   In case of person who had availed of
      Account Holder                                    loan or overdraft facilities while
                                                        resident in India and who subsequently
(a)   From Resident to Non-resident
                                                        become a person resident outside India,
When a person resident in India leaves India            the authorised dealer / bank may at
for a country (other than Nepal or Bhutan)              their discretion and commercial
for taking up employment or for carrying on             judgment allow continuance of the
business or vocation outside India or for any           loan / overdraft facilities. In such cases,
other purpose indicating his intention to stay          payment of interest and repayment of
outside India for an uncertain period, his              loan may be made by inward
existing account should be designated as a              remittance or out of legitimate
Non Resident (Ordinary) Account.                        resources in India of the person
When a person resident in India leaves for              concerned.
Nepal or Bhutan for taking up employment          11.   Payment of funds to Non–Resident
or for carrying on business or vocation or              / Resident Nominee
for any other purpose indicating his intention
                                                  The amount due /payable to non-resident
to stay in Nepal or Bhutan for an uncertain
                                                  nominee from the NRO account of a
period, his existing account will continue as
                                                  deceased account holder shall be credited to
a resident account. Such account should not
                                                  NRO account of the nominee with an
be designated as a Non-Resident (Ordinary)
                                                  authorised dealer/bank in India. The amount
Account (NRO).
                                                  payable to resident nominee from the NRO
(b)   From Non Resident to Resident               account of a deceased account holder shall
NRO accounts may be re-designated as              be credited to resident account of the
resident rupee accounts on the return of the      nominee with a bank in India.
account holder to India for taking up             12.   Operation of NRO Account by
employment, or for carrying on business or              Power of Attorney Holder.
vocation or for any other purpose indicating
                                                  Powers have been delegated to the
his intention to stay in India for an uncertain
                                                  authorised dealers /banks to allow operations

                                                                                                63
READY RECKONER        FOR   OVERSEAS INDIANS



on an NRO account by Power of Attorney               15.   Income – Tax
granted in favour of a resident by the non-
                                                     The remittances (net of applicable taxes) will
resident individual account holder provided
                                                     be allowed to be made by the authorised
such operations are restricted to (i) all local
                                                     dealer banks on production of an undertaking
payments in rupees including payments for
                                                     by the remitter and a Certificate from a
eligible investments subject to compliance
                                                     Chartered Accountant in the formats
with relevant regulations made by the
                                                     prescribed by the Central Board of Direct
Reserve Bank; and (ii) remittance outside
                                                     Taxes, Ministry of Finance, Government of
India of current income in India of the non
                                                     India in their Circular No. 10/2002 dated
resident individual account holder, net of
                                                     October 9, 2002 [cf’ A.P.(DIR Series )
applicable taxes.
                                                     Circular No. 56 dated November 26, 2002.}
The resident Power of Attorney holder is not
permitted to repatriate outside India funds          REPATRIABLE ACCOUNTS
held in the account other than to the non
resident individual account holder nor to            NON-RESIDENT      (EXTERNAL)
make payment by way of gift to a resident            RUPEE ACCOUNT (SAVINGS,
on behalf of the non resident account holder         CURRENT AND TIME DEPOSIT) (NRE
or transfer funds from the account to another        ACCOUNTS)
NRO account.                                         Opening of an Account
13.   Facilities to a Person Going Abroad            Persons of Indian nationality or origin
      for Studies                                    resident abroad may open, with authorised
Persons going abroad for studies are treated         banks in India, Non-resident (External)
as Non Resident Indians (NRIs) and are               Accounts (NRE Accounts), designated in
eligible for all the facilities available to NRIs.   rupees. These accounts can be maintained
Educational and other loans availed of by            in the form of savings, current or term
them as permitted FEMA regulations.                  deposit accounts. Opening of NRE Accounts
                                                     jointly in the names of two or more non-
14.   International Credit Cards
                                                     residents is permitted, provided all the
Authorised dealer banks have been permitted          account holders are persons of Indian
to issue International Credit Cards to NRI /         nationality or origin. For opening these
PIO, without prior approval of Reserve               accounts, the funds are required to be
Bank. Such transactions may be settled by            remitted to India through any bank from the
inward remittance or out of balances held in         country of residence of the prospective
the cardholder’s FCNR/NRE/NRO                        account holder.
Accounts.
                                                     The account holder has to furnish an


64
                                                                          BANK ACCOUNTS



undertaking on the account opening form        5.     The entire credit balance (inclusive of
that he would promptly send an intimation            interest earned thereon) can be
to his bank if and when he returns to India          repatriated outside India at any time
for permanent residence.                             without reference to Reserve Bank.
Prior to 16th September, 2003 OCBs were        6.    Local disbursement from these
allowed to open and maintain NRE bank                accounts can be made freely.
account in India. However, it may be noted
                                               7.    Purchase of Units of Unit Trust of India
that vide Circular No. 14 dated. 16-9-2003
                                                     (UTI), Mutual Funds, Central and State
read with Notification No.101/2003-RB
                                                     Government securities and National
dated. 3/10/2003, OCBs are not permitted
                                                     Savings Certificates can be made freely
to open or maintain NRE accounts in India.
                                                     from the balances in these accounts.
Advantages
                                               8.    Sale proceeds/maturity proceeds/
Non-residents can enjoy the following                repurchase price of Units of UTI,
advantages by maintaining NRE Accounts:              securities or certificates originally
                                                     purchased out of the funds in the
1.   Term deposits for one year and above
                                                     accounts can be freely credited to these
     made by non-residents carry interest at
                                                     accounts by banks, without reference
     rates higher than those available to
                                                     to Reserve Bank
     residents in India.
2.   The interest on deposits and any other    9.    Account holders are supplied a special
     income accruing on the balances in the          series of cheque leaves for operation
     accounts are free of Indian Income-tax.         on these accounts.

3.   The balances in the accounts are free     10.   Account holders can avail of loans/
     of Wealth-tax as well.                          overdrafts from banks against security
4.    Gifts out of NRE account to close              of fixed deposits from out of their NRE
     relatives are exempt. However, gifts to         accounts.
     persons other than relatives over and     Types of Account
     above Rs. 50,000 in a year would be
     taxable in the hands of the recipient.    All types of accounts, viz. current, savings
     Exemptions are provided for gifts on      and term deposit, etc., can be opened under
     occasion of marriage, or in               Non-Resident (External) Accounts Scheme.
     contemplation of death or under a will    A Non-resident can open a joint account with
     or by way of inheritance.                 other non-residents provided all the account
                                               holders are persons of Indian nationality or



                                                                                          65
READY RECKONER      FOR   OVERSEAS INDIANS



origin. Opening of a joint account by a non-      The initial deposit in NR(E) account can be
resident with a person resident in India          made in an of the following ways:-
permitted under NR (E) Scheme.
                                                  •    By proceeds of foreign exchange
Non-resident account holders can grant                 remittances from abroad through
power of attorney (POA) or such other                  banking channels in an approved
authority to residents in India for operating          manner.
their NR(E) accounts in India. Such authority
is however, restricted to withdrawals for         •    By proceeds of foreign currency notes
local payments and remittance to the account           and traveller cheques brought into
holder himself. In cases where the account             India by non-resident while on a
holder or a bank designated by him is eligible         temporary visit to India.
to make investments in India, the Power of        •    By transfer from an existing Non-
Attorney holder is permitted by the AD/bank            Resident (External) FCNR account of
to operate the account to facilitate such              the same person.
investment. RBI has permitted banks/
authorised dealers to allow remittance            Operation of Accounts
abroad to the non-resident account holder by
                                                  There are certain restrictions on operation
his constituted attorney under a specific
                                                  of NR(E) accounts and Form A2/A4 are to
power in this regard. The resident power of
                                                  be completed for a few transactions. These
attorney holder can not repatriate Funds held
                                                  forms may be completed either by the
in accounts outside India under any
                                                  resident party to the transaction or by the
circumstances (other than to the account
                                                  bank after obtaining necessary information
holder himself) or make payment of gifts on
                                                  from the resident party account holder.
behalf of the account holder, or transfer funds
from the said account to another NRE              Credits in the Account, i.e. Amounts that
account.                                          can be Deposited into the Account
                                                  Transaction where Form A4 is not to be
Such account can also be opened by an
                                                  Completed.
eligible non resident Indian during his
temporary visit to India, against tender of       1    Proceeds of remittances to India in any
foreign currency traveller cheques/currency            permitted currency.
notes, provided the bank is satisfied that the
prospective account holder has not ceased         2    Transfer from FCNR accounts of the
to be a non-resident. The amount so tendered           same account holder.
would be endorsed on the Currency
                                                  3    Interest accruing on balances in Non-
Declaration Form (CDF) where applicable ,
                                                       resident (External) or FCNR accounts
before crediting the rupee equivalent thereto.
                                                       of the account holder.

66
                                                                            BANK ACCOUNTS



Transactions where Form A4 is to be                    currency notes/bank notes made in
Completed.                                             terms of 2 and 3 above should be
                                                       endorsed on the reverse of Currency
1.   Proceeds of foreign exchange
                                                       Declaration Form (CDF) wherever
     remittances, drafts, personal cheques,
                                                       applicable. A photocopy of CDF
     etc., in the name of the account holder.
                                                       should be kept on record by authorised
2.    Proceeds of foreign currency travellers          dealer.
     cheques, drafts and personal cheques
                                                   •   Foreign currency notes/bank notes and
     drawn by account holder on a foreign
                                                       travellers’ cheques tendered by Power
     currency account maintained abroad by
                                                       of Attorney holder of any person other
     him (including instruments expressed
                                                       than account holder should not be
     in Indian rupees for which
                                                       credited to NRE Account.
     reimbursement will be received in
     foreign currency or in rupees from the        •   Form A4 is to be completed only for
     account of a non-resident bank)                   transactions of Rs. 1,00,000 and above.
     deposited by account holder during his
                                                   Other Credits
     temporary visit to India; provided
     authorised dealer is satisfied that the       •   Refund       of    share/debenture
     account holder is still ordinarily                subscriptions to new issues of Indian
     resident abroad, the travellers’                  companies or portion thereof, if the
     cheques/drafts are standing in the name           amount of subscription was paid from
     of account holder and have not been               the same account or from other NRE/
     endorsed in his favour and in the case            FCNR account of the account holder
     of travellers’ cheques, they are                  or by remittances from outside India
     discharged by the account holder in the           through normal banking channels.
     presence of the bank officials.               •   Refund of application/earnest money/
3.   Proceeds of foreign currency/bank                 purchase consideration made by the
     notes tendered by account holder                  house building agencies/ seller on
     during his temporary visits to India,             account of non-allotment of flat/plot/
     provided these are tendered to                    cancellation of booking/deals for
     authorised dealer in person by account            purchase of residential/commercial
     holder himself and the authorised                 property together with interest, if any
     dealer is satisfied that account holder           (net of Income-tax payable thereon),
     is still ordinarily resident outside India.       provided the original payment was
                                                       made out of NRE/FCNR account or
Notes
                                                       remittance from outside India through
•    Purchases of travellers cheques/                  normal banking channels.


                                                                                           67
READY RECKONER     FOR   OVERSEAS INDIANS



•    Current Income like rent/dividend,         Note
     pension, interest, etc., of NRI can be
                                                Form A4 is required to be filled in and
     credited to NRE Account by authorised
                                                retained for scrutiny by auditors of banks.
     dealer, if the credit represents current
     income of the NRI account holder and       Transaction Required to be Reported on
     income tax thereon has been deducted/      Form A2
     paid/provided for, as the case may be.     •      Remittances abroad.
     If NRI/PIOs do not have a taxable
     income in India, then a simple             •      Sale of foreign currency, traveller
     declaration, in duplicate, from the               cheques etc. to account holder himself
     NRls/PIOs to the effect that he/She is            or his representative provided that they
     not a tax-payer in India, is to be                hold a ticket showing journey date
     submitted to the authorised dealer.               which shall not be later than thirty days
                                                       from the date of sale.
Debits in the Account, i.e. Amounts that
can be Withdrawn from the Account.              All other transactions of credit/debit to these
                                                accounts not covered under the above
Transactions where Form A4 is not to be         provisions require prior approval of Reserve
Completed are as Follows.                       Bank. Form A4 is to be completed in
•    All local payments except for purposes     duplicate in such cases and forwarded to
     of investment.                             Reserve Bank through the bank with whom
                                                the account is maintained. The transaction
•    Transfer to any other NR(E) or FCNR
                                                can be put through the account only after a
     account of the same person.
                                                copy thereto duly approved by Reserve Bank
•    Transfer to NR(E) accounts of persons      is received by bank.
     other than the account holder for bona
                                                Interest Rates on Deposits
     fide personal purposes.
                                                Interest Rate on NRE Term Deposit
Transactions where Form A4 is Required
                                                Accounts
to be Completed are as Follows:
                                                The Interest rates on NRE Term Deposit for
•    Payments for permissible investments
                                                one to three years, w.e.f. April 18, 2004
     by the account holder.
                                                should not exceed the LlBOR/ SWAP rates
•    Payments towards purchase price of         for US Dollars of corresponding maturity.
     immovable property by account holder.      The interest rates as determined above for
                                                three-year deposits would also be applicable
•    Any other transaction if covered under
                                                in case the maturity period exceeds three
     general or special permission granted
                                                years. The changes in interest rates will also
     by Reserve Bank.


68
                                                                              BANK ACCOUNTS



apply to NRE deposits renewed after their               also be repaid out of local rupee
present maturity period.                                resources in the NRO account of the
                                                        borrower. The interest on such loans
Interest Rate on NRE Savings Deposit
                                                        shall be in accordance with directives
Accounts
                                                        issued by Reserve Bank from time to
The interest rates on NRE savings deposits              time;
should not exceed the LIBOR/SWAP rate for
                                                 ii.    The purpose of making direct
six months maturity on US dollar deposits
                                                        investment in India on non-repatriation
and may be fixed quarterly on the basis of
                                                        basis by way of contributions to the
the LIBOR/SWAP rate of US dollar on the
                                                        capital of Indian firms/ companies
last working day of the preceding quarter.
                                                        subject to compliance with the
For the quarter April-June 2005, the US
                                                        provisions of the Foreign Exchange
dollar LIBOR/SWAP rate as on the last
                                                        Management (Transfer of Indian
working day of March 2005 would be
                                                        security by a person resident outside
applicable.
                                                        India) Regulations, 2000 and Foreign
Loans against Security of Funds Held in                 Exchange Management (Investment in
the Account                                             Proprietary or a Partnership Firm)
To Account Holder                                       Regulation, 2000.

Authorised dealers and banks maintaining         iii.   The purpose of acquisition of flat/
such accounts are permitted to grant loans              house in India for own residential use.
in India to the account holder for- :-           To Third Parties
i.   Personal purposes or for carrying on        Authorised dealers banks may grant any type
     business activities except for the          of fund based and or non-fund based
     purpose of relending or carrying on         facilities to resident individuals/firms/
     agricultural/plantation activities or for   companies in India against the collateral of
     investment in real estate business. The     fixed deposits held in NRE account subject
     authorised dealer/bank should ensure        to the following conditions:-
     that the advances are fully secured by
                                                 i.     There should be no direct or indirect
     the fixed deposited and regulations
                                                        foreign exchange consideration for the
     relating to normal margin, interest rate,
                                                        non-resident depositor agreeing to
     etc. are complied with. Repayment
                                                        pledge his deposits to enable the
     shall be made whether by adjustment
                                                        resident individual/firm/company to
     of the deposit or by fresh inward
                                                        obtain such facilities.
     remittances from outside India through
     normal banking channels. The loan can       ii.    Regulations relating to margin, interest
                                                        rate, purpose of loan, etc. as stipulated

                                                                                              69
READY RECKONER        FOR   OVERSEAS INDIANS



       by Reserve Bank from time to time            held in fixed deposits in NR(E) Accounts,
       should be complied with.                     interest will be payable at the rate originally
                                                    fixed, provided the deposit is held for the
iii.   The loan should be utilised for
                                                    full term, even after conversion into resident
       personal purpose or for carrying on
                                                    account.
       business activities other than
       agricultural/plantation activities or real   International Credit Cards
       estate business. The loan should not
                                                    NRI/PIOs can be issued international credit
       be utilised for relending.
                                                    cards provided the charges for the use of the
iv.    The usual norms and considerations as        card are by way of inward remittances from
       applicable in the case of advances to        balances in NRO/NRE/FCNR (B) Accounts.
       trade/ industry shall be applicable to
                                                    Disadvantages of NR(E) Accounts
       such credit facilities as well.
                                                    •     NR(E) accounts are opened in Indian
Loans Outside India
                                                          rupees and all foreign exchange
Authorised dealers may allow their branches/              remittances received for credit of these
correspondents outside India to grant any                 accounts are first converted into Indian
type of fund based and/or non-fund based                  rupees at buying rates by banks. Any
facilities to or in favour of non-resident                withdrawal in foreign currency will be
depositor or to third parties at the request of           permitted by bank by converting Indian
depositor for bona fide purpose against the               rupees in the account into foreign
security of funds held in the NRE accounts                currency at selling rate, at the cost/loss
in India and also agree to remittance of the              of account holder.
funds from India, if necessary, for liquidation
                                                    •     Exchange rates are subject to
of the outstanding.
                                                          fluctuation on day-to-day basis and
Change of Status from Non-Resident to                     Indian rupee had depreciated against
Resident                                                  all major foreign currencies in recent
                                                          past. Balances held in Indian rupees in
Immediately upon return of account holder
                                                          NR(E) accounts are thus exposed to
to India and on his becoming resident in
                                                          exchange fluctuation risk.
India, NR(E) account will be redesignated
as resident rupee account or converted to
                                                    Foreign Currency (Non-Resident)
RFC account at the option of the account
                                                    Account Bank Scheme (FCNRB)
holder. However, if the account holder is only
on a short visit to India, the account will         Introduction
continue to be treated as NR(E) account even
during his stay in India. In respect of funds       Deposits under FCNR scheme were accepted
                                                    by banks for maturities from 6 months to 3

70
                                                                             BANK ACCOUNTS



years. Acceptance of deposits for shorter          Types of Accounts
maturities was discontinued, in a phased
                                                   1.   FCNR(B) account can only be opened
manner and with effect from 15th February,
                                                        in the form of term deposits. The
1994, deposits under FCNR scheme can be
                                                        deposits are accepted for terms
accepted only for a maturity period of 3
                                                        exceeding one year but less than three
years. However, to enable the NRI depositors
                                                        years.
to continue with foreign currency deposits
of shorter maturities, a new scheme known          2.   A non-resident can open a joint
as Foreign Currency (Non-resident)                      account with the other non-resident
Accounts (Banks) Scheme [FCNR (Banks)]                  provided all the account holders are
was introduced, with effect from 15th May,              persons of Indian nationality or origin.
1993. There is basically no difference             3.   Opening of a joint account by a non-
between these two schemes except for the                resident with a person resident in India
period of deposits.                                     is not permitted.
For the banks accepting deposits under this        Opening of Accounts
scheme, there are a few changes. Exchange
risk cover from Reserve Bank will not be           1.   Accounts can be opened with funds
available and will have to be borne by the              remitted from outside India through
banks themselves. There will be no                      normal banking channels or funds
obligation under the ‘Statutory Liquidity               received in rupees by debit to account
Ratio’ or priority sector lending. There is also        of a non-resident bank maintained with
no obligation for Cash Reserve Ratio.                   authorised dealer in India or funds
Resources mobilised under the scheme can                which are of repatriable nature in terms
be invested by the banks without any interest           of regulations made by Reserve Bank.
rate stipulation, though, non-resident             2.   Accounts can also be opened by
depositors are not affected by such                     transfer of funds from existing NRE/
provisions.                                             FCNR accounts.
Eligibility                                        3.   Remittances from outside India for
NRIs are eligible to open and maintain these            opening of or crediting to these
accounts with authorised dealer. However,               accounts should be made in the
opening of FCNR(B) accounts in names of                 designated currency in which the
NRls of Bangladesh/Pakistan nationality/                account is desired to be opened/
ownership require approval of Reserve                   maintained.
Bank.                                                   Without prejudice to the foregoing, if
                                                        the remittance is made in a currency



                                                                                             71
READY RECKONER       FOR   OVERSEAS INDIANS



      other than designated currency               (ii)   Credits in Account
      (including funds received in rupees by
                                                   a.     All the credits as are permissible under
      debit to account of a non-resident
                                                          NRE Account scheme are also
      bank), it should be converted into the
                                                          permissible from this account.
      latter currency by authorised dealer at
      the risk and cost of the remitter and        b.     The maturity proceeds of NRNR
      account should be opened/credited in                deposits credited to NRE Account can
      designated currency only.                           also be subsequently transferred to
                                                          FCNR(B) Account.
4.    In case depositor with any convertible
      currency other than designated               c.     Non-Resident Indians/Persons of
      currency desires to place a deposit in              Indian Origin can credit refund of
      these accounts, authorised dealers may              application/earnest money/purchase
      undertake with the depositor a fully                consideration made by the housing
      covered swap in that currency against               building agencies/seller on account of
      the desired designated currency, such               non-allotment of flat/plot/cancellation
      a swap being possible between any two               of bookings/deals for purchase of
      designated currencies.                              residential, commercial property,
                                                          together with interest, if any (net of
5.    Where the funds are received in Indian
                                                          income tax payable thereon), to NRE/
      rupees for opening these accounts shall
                                                          FCNR account, provided, original
      be converted by authorised dealer into
                                                          payment was made out of NRE/FCNR
      designated foreign currency at clean
                                                          account of account holder or
      T.T. selling rate for that currency ruling
                                                          remittance from outside India through
      on date of conversion.
                                                          normal banking channels and
Designated Currencies                                     authorised dealer is satisfied about
                                                          genuineness of the transaction.
Deposit of funds in accounts may be
accepted in Pound Sterling, US Dollar,             (iii) Maturity proceeds of deposit
Japanese Yen, Euro and such other
                                                   Principal Amount and Interest will be
currencies as may be designated by Reserve
                                                   payable in the same designated currency. The
Bank from time to time.
                                                   depositor, thus, will not be exposed to any
Operations of Accounts                             exchange risk fluctuation. The depositor will
                                                   have option to convert the foreign currency
(i)   Debits in Accounts
                                                   amount of designated currency into any other
All debits as are permissible under NRE            convertible currency at appropriate rate of
Account scheme , are also permissible from         exchange. For the purpose of payment in
this account.                                      rupees, the amount shall be converted at


72
                                                                            BANK ACCOUNTS



clean T.T buying rate ruling on the date of      Loans/Overdrafts against Security of
withdrawal.                                      Funds Held in Account
(iv) Interest                                    a.   The terms and conditions as applicable
                                                      to NRE deposits in respect of loans and
Interest is payable either half-yearly or on
                                                      overdrafts in India to depositor and to
annual basis at option of the depositor.
                                                      third parties as also loans outside India
Interest can be either credited to a new
                                                      against security of deposits, shall apply
FCNR(B) Account or his existing/new NRE/
                                                      mutatis mutandis to FCNR(B) deposits
NRO Account.
                                                      as well.
Rate of Interest
                                                 b.   Authorised dealers are permitted to
a)   In respect of deposits of one year and           grant foreign currency loans against the
     above, interest shall be paid within the         security of funds held in FCNR(B)
     ceiling rate of LIBOR/SWAP rates                 deposit account only to the account
     for the respective currency/                     holder.
     corresponding maturities minus 25
                                                 The margin requirement shall be notionally
     basis points. On floating rate deposits,
                                                 calculated on the rupee equivalent of
     interest shall be paid within the ceiling
                                                 deposits.
     of SWAP rates for the respective
     currency/maturity minus 25 basis            Change of Resident Status of Account
     points. For floating rate deposits, the     Holder
     interest reset period shall be six
                                                 On change of residential status from resident
     months. However, in respect of Yen          to non--resident, balances held in EEFC and
     deposits, banks have the freedom to set     RFC (D) Accounts are allowed to be credited
     the FCNR (B) deposit rates, which may       to FCNR(B) Account at the option/request
     be equal or less than LIBOR.                of the account holder. When an account
b)    The LIBOR/SWAP rates as on the last        holder becomes a person resident in India,
                                                 deposits may be allowed to continue till
     working day of the preceding week
                                                 maturity at contracted rate of interest, if so
     would form the base for fixing ceiling
                                                 desired by him. However, except for the
     rates for the interest rates that would
                                                 provisions relating to rate of interest and
     be offered effective the following          reserve requirements as applicable to
     week.                                       FCNR(B) deposits; for all other purposes,
c)   Banks would have the option to choose       such deposits shall be treated as resident
     the current SWAP rates quoted on any        deposits from the date of return of the
                                                 account holder to India. Authorised dealers
     online screen based information
                                                 should convert the FCNR(B) deposits on
     systems while offering FCNR(B)
                                                 maturity into resident rupee deposit accounts
     deposits.
                                                 or RFC account (if the depositor is eligible

                                                                                            73
READY RECKONER      FOR   OVERSEAS INDIANS



to open RFC account), at the option of the               Reserve Bank of India subject to the
account holder and interest on the new                   conditions that the charges for the use
deposit (rupee account or RFC account) shall             of ICC are paid out of inward
be payable at the relevant rates applicable              remittances of balances in their NRE
for such deposits.                                       Accounts/Foreign Currency Non-
Miscellaneous                                            Resident Accounts.
The terms and conditions as applicable to
                                                  •      However, the Reserve Bank has made
NRE accounts in respect of joint accounts,
                                                         further relaxation vide Circular No. 59
repatriation of funds, opening of accounts
during temporary visit, operation by power               dated December 9, 2002 where by
of attorney holder, loans/overdrafts against             the NRI/PIOs are allowed to settle/
security of funds held in accounts, shall apply          debt the charges/expenses through
mutatis mutandis to FCNR(B) accounts.                    credit card up to the limit of the
                                                         card out of funds held in NRO account
International Credit Cards (ICC) to NRIs
                                                         as well. The debits shall also be
/PIOs
                                                         subject to the conditions for use of
•     NRI/PIOs can obtain International                  the International Credit Cards by
      Credit Cards without prior approval of             residents.
     FEATURES OF VARIOUS DEPOSIT SCHEMES AVAILABLE TO NON-
                     RESIDENT INDIANS (NRIS)
Particulars         Foreign Currency          Non-Resident              Non-Resident
                    (Non-Resident)            (External) Rupee          Ordinary Rupee
                    Account (Banks)           Account Scheme            Account Scheme
                    Scheme [FCNR(B)           (NRE Account)             (NRO) Account
                    Account]

Who can open        NRIs                      NRIs                      Any person resident
an account          (individual/entities of   (individual/entities of   outside India other
                    Bangladesh/ Pakistan      Bangladesh/ Pakistan      than a person resident
                    nationality/ownership     nationality/ ownership    Nepal and Bhutan
                    require prior approval    require prior approval    (individual/entities of
                    of RBI)                   of RBI)                   Bangladesh/ Pakistan
                                                                        nationality/ ownership
                                                                        as well as erstwhile
                                                                        OCBs require prior
                                                                        approval of RBI)

Joint account       In the names of two       In the names of two or    May be held jointly
                    or more non-resident      more non-resident         with residents
                    individuals               individuals




74
                                                                             BANK ACCOUNTS




Particulars         Foreign Currency        Non-Resident               Non-Resident
                    (Non-Resident)          (External) Rupee           Ordinary Rupee
                    Account (Banks)         Account Scheme             Account Scheme
                    Scheme [FCNR(B)         (NRE Account)              (NRO) Account
                    Account]

Nomination          Permitted               Permitted                  Permitted

Currency in which   Pound Sterling, US      Indian Rupees              Indian Rupees
account is          Dollar, Jap Yen,
denominated         Euro, Canadian
                    and Australian Dollar

Repatriable         Repatriable             Repatriable                Not repatriable except
                                                                       for the following in
                                                                       account –1) Current
                                                                       income 2) Upto USD 1
                                                                       million per financial
                                                                       year (April-March), for
                                                                       any bonafide purpose
                                                                       out of the balances in
                                                                       NRO account /sale
                                                                       proceeds of assets in
                                                                        India acquired by way
                                                                       of inheritance /legacy
                                                                       inclusive of assets
                                                                       acquired out of
                                                                       settlement subject to
                                                                       certain conditions

Type of Account     Term deposit only       Saving, Current,           Saving, Current,
                                            Recurring, Fixed           Recurring, Fixed
                                            Deposit                    Deposit

Period for fixed    For terms not less      At the discretion of       As applicable to
deposit             than 1 year and not     the bank                   resident accounts.
                    more than 5 years.

Rate of interest    Subject to cap:         Subject to cap:            Banks are free to
                    LIBOR /SWAP rates       Fixed Deposits:            determine interest rates
                    for the respective      LIBOR /SWAP rates,         for term deposits.
                    currency/               as on the last working
                    corresponding           day of the previous
                    maturities minus 25     month, for US dollar
                    basis points            of corresponding
                                            maturities plus 50 basis
                                            points with effect from



                                                                                             75
READY RECKONER        FOR   OVERSEAS INDIANS



Particulars           Foreign Currency        Non-Resident                Non-Resident
                      (Non-Resident)          (External) Rupee            Ordinary Rupee
                      Account (Banks)         Account Scheme              Account Scheme
                      Scheme [FCNR(B)         (NRE Account)               (NRO) Account
                      Account]

                                              close of business on
                                              January 31, 2007.
                                              Saving Bank Account
                                              Interest rate shall be at
                                              the rate applicable to
                                              domestic savings
                                              account with effect
                                              from close of business
                                              in India on 17-1-2005.

Operations by         Operations on the       Operations on the
Power of              account in terms of     account in terms of
Attorney in           Power of Attorney is    Power of Attorney is
favour of a           restricted to           restricted to
resident by the       withdrawals for         withdrawals for
non-resident          permissible local       permissible local
account holder        payments or             payments or remittance
                      remittance to the       to the account holder
                      account holder          himself through normal
                      himself through         banking channels.
                      normal banking
                      channels.

Loans
a. In India
   To the Account Permitted upto Rs. 20       Permitted upto Rs. 20       Permitted
   holder         lakhs                       lakhs

To Third Parties      Permitted upto Rs. 20   Permitted upto Rs. 20       Permitted
                      lakhs                   lakhs

b.   Abroad

     To the Account Permitted upto Rs. 20     Permitted upto Rs. 20       Not Permitted
     holder         lakhs                     lakhs

To Third Parties      Permitted upto Rs. 20   Permitted upto Rs. 20       Not permitted
                      lakhs                   lakhs

c.   Foreign
     Currency
     Loans in India




76
                                                                                      BANK ACCOUNTS




Particulars          Foreign Currency            Non-Resident                  Non-Resident
                     (Non-Resident)              (External) Rupee              Ordinary Rupee
                     Account (Banks)             Account Scheme                Account Scheme
                     Scheme [FCNR(B)             (NRE Account)                 (NRO) Account
                     Account]

To the Account       Not permitted               Not permitted                 Not permitted
holder

To Third Parties     Not permitted               Not permitted                 Not permitted

Purpose of Loan
a. In India          i.    Personal purpose      i.     Personal purpose       *Personal requirement
To the Account             or for carrying on           or for carrying on     and/ or business
holder                     business activities.*        business               purpose.*
                                                        activities.*

                     ii.   Direct investment     ii.    Direct investment in
                           in India on non-             India on non-
                           repatriation basis           repatriation basis
                           by way of                    by way of
                           contribution to              contribution to the
                           the capital of               capital of Indian
                           Indian firms/                firms/ companies.
                           companies.

                     iii. Acquisition of flat    iii.   Acquisition of flat
                          /house in India for           /house in India for
                          his own residential           his own residential
                          use.                          use.

To Third Party       Fund based and /or          Fund based and /or            Personal requirement
                     non-fund based              non-fund based facilities     and/ or business
                     facilities for personal     for personal purposes         purpose. *
                     purposes or for             or for carrying on
                     carrying on business        business activities*          activities*

b. Abroad
To the account       Fund based and /or          Fund based and /or            Not permitted
holder and third     non-fund based              non-fund based
party                facilities for bonafide     facilities for bonafide
                     purposes.                   purposes.

* The loans cannot be utilised for the purpose if Regulation-lending or for carrying on agriculture
or plantation activities or for investment in real estate business.




                                                                                                      77
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Note:
a)      When a person resident in India leaves India for Nepal and Bhutan for taking up employment or for carrying on
        business or vocation or for any other purpose indicating his intention to stay in Nepal and Bhutan for an uncertain
        period, his existing account will continue as a resident Rupee account. Such account should not be designated as
        Non-Resident (Ordinary) Account (NRO).
b)      ADs may open and maintain NRE/FCNR (B) Accounts of the persons resident in Nepal and Bhutan who are
        citizens of India or of Indian Origin, provided the funds for opening these accounts are remitted in free foreign
        exchange. Interest earned in NRE/FCNR ( B) accounts can be remitted only in Indian rupees to NRIs and PIO
        resident in Nepal and Bhutan.
c)      In terms of Regulation 4(4) of the Notification No FEMA 5/2000-RB dated May 3,2000, ADs may open and
        maintain rupee accounts for a person resident in Nepal /Bhutan.




78
                                                  MISCELLANEOUS REMITTANCES         FROM INDIA




      MISCELLANEOUS REMITTANCES
              FROM INDIA
RELEASE OF FOREIGN EXCHANGE                             release of foreign exchange up to the
BY AUTHORISED DEALERS                                   threshold values specified in Schedule
                                                        III stands delegated to Authorised
A.1 General
                                                        Dealers. All applications for release of
1.1   For release of foreign exchange to                exchange as prescribed in Schedule III
      persons resident in India for various             to the Rules should be referred to the
      current account transactions,                     Regional office of the Foreign
      authorized dealers are to be guided by            Exchange Department of the Reserve
      the Rules made by the Government of               Bank, under whose jurisdiction the
      India under Section 5 of Foreign                  applicant is functioning/residing.
      Exchange Management Act, 1999
                                                  1.2   “Drawal” of foreign exchange includes
      which are detailed in the Foreign
                                                        use of International Credit Cards
      Exchange Management (Current
                                                        (ICC), includes International Debit
      Account Transactions) Rules, 2000
                                                        Cards (IDC), ATM cards, etc.
      (Annexure I) notified by the
                                                        “Currency”, inter alia, includes ICC,
      Government of India vide Notification
                                                        IDC, and ATM Cards. Accordingly, all
      No. G.S.R.381 (E) dated 3 rd May 2000
                                                        Rules, Regulation made and directions
      (Rules). In terms of the said Rules,
                                                        issued under the Act apply to the use
      drawal of exchange for certain
                                                        of ICC, IDC, and ATM Cards.
      categories of transactions as listed in
      Schedule I is expressly prohibited.         1.3   In order to provide adequate foreign
      Exchange facilities for transactions              exchange facilities and efficient
      included in Schedule II to the Rules              customer service, the Reserve Bank
      may be permitted by the authorised                has decided to grant licences to certain
      dealers provided the applicant has                entities by authorizing them as
      secured the approval from the                     Authorised Dealer- Category – II to
      Ministry/Department of Government                 undertake a range of miscellaneous
      of India as specified therein. In respect         non-trade current account transactions.
      of transactions included in Schedule              Accordingly, Authorised Dealer-
      III, prior approval of the Reserve Bank           Category – II are authorised to release/
      would be required for remittance                  remit foreign exchange for the
      exceeding specified values. The                   following non trade current account

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READY RECKONER       FOR   OVERSEAS INDIANS



     transactions:                                   o)    Visa fees,
     a)   Private visits,                            p)    Processing fees for registration
                                                           of documents as required by the
     b)   Remittance by tour operators /
                                                           Portuguese /other Governments,
          travel agents to overseas agents/
                                                           Registration /Subscription/
          principals/hotels,
                                                           Membership fees to International
     c)   Business travel,                                 Organisations.
     d)   Fee for participation in             1.4   Release of foreign exchange is not
          international          events/             admissible for travel to and transaction
          competitions (towards training,            with residents of Nepal and Bhutan.
          sponsorship and prize money),              (cf. Clause (b) of rule 3 of the Rules.)
     e)   Fee for participation in global      A.2 Sale of Exchange
          conferences and specialized
                                               2.1   Where approvals have been granted by
          training,
                                                     the Reserve Bank /Government of
     f)   Film shooting,                             India, foreign exchange may be sold
     g)   Medical treatment abroad,                  within the period of validity stated in
                                                     the approval and the details of the sale
     h)   Disbursement of crew wages,                should be endorsed on the reverse of
     i)   Overseas Education,                        the original approval.

     j)   Remittance under educational tie     2.2   On the basis of a declaration given by
          up     arrangements       with             the traveller regarding the amount of
          universities abroad,                       foreign exchange availed of during a
                                                     calendar year; authorised dealers may
     k)   Remittance towards fees for                release foreign exchange for travel and
          examinations held in India and             private purposes.
          abroad and additional score
          sheets for GRE, TOEFL etc.           2.3   Incase of issue of travellers cheques,
                                                     the traveller should sign the cheques
     l)   Employment and processing,                 in the presence of an authorised official
          assessment fees for overseas job           and the purchaser’s acknowledgement
          applications,                              for receipt of the travellers cheques
     m)   Emigration and Emigration                  should be held on record.
          Consultancy Fees,                    2.4   Out of the overall foreign exchange
     n)   Skills /credential assessment fees         being sold to a traveller, exchange in
          for intending migrants,                    the form of foreign currency notes and


80
                                                 MISCELLANEOUS REMITTANCES         FROM INDIA




      coins may be sold upto the limit                 correct details in the application will
      indicated below:                                 remain with the applicant who has
                                                       certified the details relating to the
      a)   Travellers proceeding to
                                                       purpose of such remittance.
           countries other than Iraq, Libya,
           Islamic Republic of Iran, Russian     A.3 Medical Treatment
           Federation and other Republics
                                                 3.1   With a view to enable residents to avail
           of     Commonwealth            of
                                                       of foreign exchange for medical
           Independent       States      not
                                                       treatment abroad without any hassles
           exceeding USD 2000 or its
                                                       and any loss of time, authorised dealers
           equivalent.
                                                       may release foreign exchange upto an
      b)   Travellers proceeding to Iraq or            amount of USD 1,00,000 or its
           Libya, not exceeding USD 5000               equivalent, on the basis of self
           or its equivalent.                          declaration that the applicant is buying
                                                       exchange for medical treatment
      c)   Travellers proceeding to Islamic
                                                       outside India without insisting on any
           Republic of Iran, Russian
                                                       estimate from a hospital/doctor.
           Federation and other Republics
           of     Commonwealth           of      3.2   For amount exceeding the above limit,
           Independent States.         Full            estimate from the doctor in India or
           exchange may be released.                   hospital/ doctor abroad, is required to
                                                       be submitted to the authorised dealers.
2.5   The form A2 relating to sale of foreign
      exchange should be retained for a          3.3   A person who has fallen sick after
      period of one year by the authorised             proceeding abroad may also be
      dealers, together with the related               released foreign exchange by an
      documents, for the purpose of                    authorised dealer for medical treatment
      verification by their Internal Auditors.         outside India.
      However, in respect of remittance
                                                 A.4 Cultural Tours
      applications for miscellaneous non-
      trade current account transactions of      Dance troupes, artistes, etc., who wish to
      value less than USD 5,000 authorised       undertake tours abroad for cultural purposes
      dealers may obtain simplified              should apply to the Ministry of Human
      Application cum Declaration Form           Resources Development (Department of
      (Form A2).                                 Education and Culture), Government of
                                                 India, for their foreign exchange
2.6   In cases where the remittances are
                                                 requirements. Authorised dealers may
      allowed on the basis of self-
                                                 release foreign exchange, on the strength of
      declaration, the onus of furnishing the
                                                 the sanction from the concerned Ministry,

                                                                                            81
READY RECKONER       FOR   OVERSEAS INDIANS



to the extent and subject to conditions           on surrender requirement shall remain
indicated therein.                                unchanged. (cf Notification No. FEMA 9/
                                                  2000-RB dated May 3rd 2000, as amended
A.5 Private Visits
                                                  from time to time).
Foreign exchange for private visit can also
                                                  A.8 Unspent Foreign Exchange
be released to persons who are availing of
foreign exchange for travel outside India for     8.1   As stated above, unspent foreign
any purpose upto the limit specified in                 exchange brought back to India by a
Schedule III to the Rules.                              resident individual should be
                                                        surrendered to an authorised person
A.6 Business Visits
                                                        within 180 days from the date of return
Foreign exchange for undertaking business               of the traveller. Exchange so brought
travel or attending a conference or                     back can be utilised by the individual
specialised training or for maintenance                 for his /her subsequent visit abroad.
expenses of a patient going abroad for
                                                  8.2   However, a returning traveller is also
medical treatment or check up abroad or for
                                                        permitted to retain with him, foreign
accompanying as attendant to a patient going
                                                        currency travellers cheques and
abroad for medical treatment /check up to
                                                        currency notes upto an aggregate
the limits specified in Specified in Schedule
                                                        amount of USD 2000 and foreign coins
III to the Rules.
                                                        without any ceiling (cf Notification
A.7 Period of surrender of foreign                      No. FEMA 9/2000-RB dated May 3rd
    exchange                                            2000). Foreign exchange so retained,
In case foreign exchange purchased for a                can be utilised by the traveller for his
specific purpose is not utilized for that               subsequent visit abroad.
purpose, it could be utilized for any other       8.3   A person resident in India can open,
eligible purpose for which drawal of foreign            hold and maintain with an authorised
exchange is permitted under the relevant                dealer in India, a Resident Foreign
Regulation.                                             Currency (Domestic) Account, out of
General permission is available to any                  foreign exchange acquired in the form
resident individual to surrender received /             of currency notes, bank notes and
realized / unspent / unused foreign exchange            travellers cheques from any of the
to an authorised person within a period of              sources like, payment for services
180 days from the date of receipt /realization          rendered abroad, as honorarium, gift,
/purchase /acquisition / date of return of the          services rendered or in settlement of
traveller, as the case may be.                          any lawful obligation from any person
                                                        not resident in India.
In all other cases, the regulations /directions

82
                                                MISCELLANEOUS REMITTANCES         FROM INDIA




8.4   The account may also be opened /          merely on the ground that the prescribed
      credited with foreign exchange earned     period has expired.
      abroad, including proceeds of export
                                                A.9 Remittances for Tour arrangements,
      of goods and /or services, royalty,
                                                    etc.
      honorarium, etc and /or gifts received
      from close relatives (as defined in the   9.1   Authorised dealers may remit foreign
      Companies Act) and repatriated to               exchange upto a reasonable limit, at
      India through normal banking channels           the request of a traveller towards his
      by resident individuals.                        hotel     accommodation,         tour
                                                      arrangement, etc. in the countries
8.5   The eligible credits to the Resident
                                                      proposed to be visited by him,
      Foreign Currency (Domestic) Account,
                                                      provided it is out of the foreign
      out of foreign exchange acquired in the
                                                      exchange purchased by the traveller
      form of currency notes, bank notes and
                                                      from an authorised person (including
      travellers cheques, are as under:
                                                      exchange drawn for private travel
      a)   Acquired by him, from an                   abroad) in accordance with the Rules,
           authorised person for travel               Regulations and Directions in force.
           abroad and represents the
                                                9.2 Authorised dealers may effect
           unspent amount thereof, or
                                                    remittances at the request of agents in
      b)   Acquired by him, while on a visit        India who have tie up arrangements
           to any place outside India, by           with hotels / agents, etc abroad for
           way of payment for services not          providing hotel accommodation or
           arising from any business in or          making other tour arrangement for
           anything done in India and by            travellers from India, provided the
           way of honorarium or gift, or            authorised dealer is satisfied that the
                                                    remittance is being made out of the
      c)   Acquired by him, from any
                                                    foreign exchange purchased by the
           person not resident in India, and
                                                    concerned traveller from an authorised
           who is on a visit to India, as
                                                    person (including exchange drawn for
           honorarium, gift, for services
                                                    private travel abroad) in accordance
           rendered or in settlement of any
                                                    with the Rules, Regulations and
           lawful obligation.
                                                    Directions in force.
Note: Where a person approaches an
                                                9.3   Authorised dealer may open foreign
authorised person for surrender of unspent /
                                                      currency accounts in the name of agents
unutilised foreign exchange after the
                                                      in India who have tie up arrangements
prescribed period, authorised person should
                                                      with hotels/agents etc. abroad providing
not refuse to purchase the foreign exchange


                                                                                           83
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      hotel accommodation or making other                advance payments/reimbursement
      tour arrangements for travellers from              through an authorised dealer, part of
      India provided:                                    the foreign exchange received in India
                                                         against such consolidated tour
      a)    The credits to the account are by
                                                         arrangement, may require to be
            way of depositing
                                                         remitted from India to these
      i.    Collection made in foreign                   neighbouring countries for services
            exchange from travellers and                 rendered by travel agent and hoteliers
      ii.   Refunds received from outside                in these countries. Authorised dealers
            India on account of cancellation             may allow such remittances after
            of bookings /tour arrangements               verifying that the amount being
            etc. and                                     remitted to the neighbouring countries
                                                         (inclusive of remittances, if any,
      b)    The debits in foreign exchange               already made against the tour) does not
            are for making payments towards              exceed the amount actually remitted to
            hotel accommodation, tour                    India and the country of residence of
            arrangements, etc. outside India,            the beneficiary is not Pakistan.
            in accordance with 8.2 above
                                                  A.10 Payment in Rupees
9.4   Authorised dealer may allow tour
      operators to remit the cost of rail/road/   Authorised dealers may accept payment in
      water transportation charges outside        cash upto Rs.50,000 only against sale of
      India without any prior approval from       foreign exchange for travel abroad (for
      the Reserve Bank, net of commission         private visit or for any other purpose).
      /mark up due to the agent. The sale of      Wherever the sale of foreign exchange
      passes/ticket in India can be made          exceeds the amount equivalent to Rs.50,000
      either against the payment in Indian        the payment must be received only by a
      Rupees or in foreign exchange released      i.     Crossed Cheque drawn on the
      for visits abroad. The cost of passes/             applicant’s bank account, or
      tickets collected in Indian Rupees need
                                                  ii.    Crossed Cheque drawn on the bank
      not be adjusted in the travellers’
                                                         account of the firm/company
      entitlement of foreign exchange for
                                                         sponsoring the visit of the applicant,
      private visit.
                                                         or
9.5   In respect of consolidated tours
                                                  iii.   Banker’s Cheque /Pay Order / Demand
      arranged by travel agents in India for
                                                         Draft.
      foreign tourists visiting India and
      neighbouring countries like Nepal,          Note: Where the rupee equivalent of foreign
      Bangladesh, Sri Lanka, etc. against

84
                                                  MISCELLANEOUS REMITTANCES         FROM INDIA




exchange drawn exceeds Rs.50,000 either                c)    Authorised dealer ensures
for any single drawal or more than one                       submission of documentary
drawal reckoned together for a single                        evidence for import of services
journey/visit, it should be paid by cheque or                in the normal course; and
draft.
                                                       d)    The guarantee is to secure a
A.11 Advance Remittance-Import of                            direct contractual liability arising
    Services                                                 out of contract between a
                                                             resident and a non-resident.
Authorised dealers may allow advance
remittance for providing services under                Incase of invocation of the guarantee,
current account transaction for which the              the authorised dealer is required to
release of foreign exchange is admissible.             submit to the Chief General manager,
However, where the amount exceeds USD                  Foreign Exchange Department,
1,00,000 or its equivalent, a guarantee from           Foreign investments Division (EPD),
a bank of International repute situated                Reserve Bank of India, Central office,
outside India or a guarantee from an                   Mumbai-400001 a report on the
authorised dealer in India, if such a guarantee        circumstances leading to the
is issued against the counter-guarantee of a           invocation of the guarantee.
bank of International repute situated outside
                                                  A.13 Liberalised Remittance Scheme of
India, should be obtained from the overseas
                                                       USD 2,00,000
beneficiary. The authorised dealer should
also follow up to ensure that the beneficiary     13.1 Under this scheme, authorised dealer
of the advance remittance has fulfilled his            may freely allow remittances by
obligations under the contract or agreement            individuals upto USD 2,00,000 per
with the remitter in India.                            financial year (April- March) for any
                                                       permitted current or capital account
A.12 Issue of Guarantee-Import of
                                                       transactions or a combination of both.
     Service
                                                  13.2 The limit of USD 2,00,000 under the
Authorised dealer may issue guarantee on
                                                       Scheme would also include
behalf of their customers importing services,
                                                       remittances towards gift and donation
provided:
                                                       by a resident individual.
      a)    The guarantee amount does not
                                                  13.3 Remittances under the scheme are
            exceed USD 100,000;
                                                       allowed only in respect of permissible
      b)    Authorised dealer is satisfied             current or capital account transactions
            about the bonafides of the                 or combination of both. All other
            transaction;                               transactions Which are otherwise not


                                                                                              85
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     permissible under FEMA and those in              may use the Application –cum-
     the nature of remittance for margins or          Declaration Form.
     margin calls to overseas exchanges/
                                                 A.14 Documentation
     overseas counterparty are not allowed
     under the scheme.                           14.1 The Reserve Bank will not, generally,
                                                      prescribe the documents, which should
13.4 Resident individuals are free to acquire
                                                      be verified by the authorised dealers
     and hold immovable property or shares
                                                      while releasing foreign exchange. In
     or any other assets outside India
                                                      this connection, attention of authorised
     without prior approval of the Reserve
                                                      dealers is drawn to sub-section (5) of
     Bank.
                                                      Section 10 of the FEMA, 1999 which
13.5 Individuals can also open, maintain              provides that an authorised person
     and hold foreign currency accounts               shall require any person wanting to
     with a bank outside India for making             transact in foreign exchange to make
     remittances under the scheme without             such a declaration and to give such a
     prior approval of the Reserve Bank.              information as will reasonably satisfy
     The foreign currency accounts may be             him that the transaction will not
     used for putting through all                     involve and is not designed for the
     transactions connected with or arising           purpose of any contravention or
     from remittances eligible under this             evasion of the provision of the FEMA
     scheme.                                          or any rule, regulation, notification,
                                                      direction or order issued thereunder.
13.6 Banks should not extend any kind of
     credit facilities to resident individuals   14.2 Authorised dealers are also require to
     to facilitate remittances under the              keep on record any information /
     Scheme.                                          documentation, on the basis of which
                                                      the transaction was undertaken, for
13.7 Liberalised Remittance Scheme is not
                                                      verification by Reserve Bank. In case
     available for remittance to countries
                                                      the applicant refuses to comply with
     identified by Financial Action Task
                                                      any such requirement or makes
     Force (FATF) as non co-operative
                                                      unsatisfactory compliance therewith,
     countries and territories as available on
                                                      the authorised dealer shall refuse, in
     FATF website www.fatf-gafi.org or as
                                                      writing to undertake the transaction
     notified by the Reserve Bank.
                                                      and shall, if he has reasons to believe
13.8 For understanding transactions under             that any contravention /evasion is
     the Liberalised Remittance Scheme of             contemplated by the person, report the
     USD 2,00,000 resident individuals                matter to Reserve Bank.



86
                                                 MISCELLANEOUS REMITTANCES         FROM INDIA




14.3 Further the authorised dealers have              under EXIM Policy.
     specifically been advised that they may
                                                 16.3 ICCs cannot be used on internet or
     release foreign exchange upto USD
                                                      otherwise for purchase of prohibited
     1,00,000 each for employment,
                                                      items like lottery tickets, banned or
     emigration, maintenance of close
                                                      prescribed magazines, participation in
     relative, education and medical
                                                      sweepstakes, payment for call-back
     treatment abroad without insisting on
                                                      services, etc. since no drawal of foreign
     any supporting documents but on the
                                                      exchange is permitted for such items /
     basis of self declaration incorporating
                                                      activities.
     certain basic details of the transactions
     and submission of Form A2.                  16.4 There is no aggregate monetary ceiling
                                                      separately prescribed for use of ICCs
A.15 Endorsement on Passport
                                                      through internet.
     It is not mandatory for authorised
                                                 16.5 Resident individuals maintaining
     dealers to endorse the amount of
                                                      foreign currency accounts with an
     foreign exchange sold for travel abroad
                                                      authorised dealer in India or a bank
     on the passport of the traveler.
                                                      abroad, as permissible under Foreign
     However, if requested by the traveler,
                                                      Exchange Regulations, are free to
     they may record under their stamp, and
                                                      obtain ICCs issued by overseas banks
     signature, details of foreign exchange
                                                      and other reputed agencies. The
     sold for travel.
                                                      charges incurred against the card either
A.16 International Credit Cards                       in India, or abroad, can be met out of
                                                      funds held in such foreign currency
16.1 The restrictions contained in Rule 5 of
                                                      account/s of the card holder or through
     the Foreign Exchange Management
                                                      remittances, if any, from India only
     (Current Account Transactions) Rules,
                                                      through a bank where the card holder
     2000 will not be applicable for use of
                                                      has current or saving account. The
     International Credit Cards (ICCs) by
                                                      remittance for this purpose should also
     residents for making payment towards
                                                      be made directly to the card-issuing
     expenses, while on a visit outside
                                                      agency abroad and not to a third party.
     India.
                                                 16.6 The applicable credit limit will be the
16.2 Residents can use ICCs on internet for
                                                      limit fixed by the card issuing banks.
     any purpose for which exchange can
                                                      There is no monetary ceiling fixed by
     be purchased from an authorised dealer
                                                      the Reserve Bank for remittances, if,
     in India, e.g. for import of books,
                                                      any, under this facility.
     purchase of downloadable softwares or
     import of any other item permissible


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A.17 International Debit Cards                  making payments at overseas merchant
                                                establishments and also for drawing cash
17.1 Banks authorize to deal in foreign
                                                from ATM terminals. No prior permission
     exchange (AD Banks) are issuing
                                                from Reserve Bank is required for issue of
     International Debit Cards (IDCs)
                                                such cards. However, the use of such cards
     which can be used by a resident for
                                                is limited to permissible current account
     drawing cash or making payment to
                                                transactions and subject to the prescribed
     establishment overseas during his visit
                                                limits under the Rules, as amended from time
     abroad. It is clarified that IDCs can be
                                                to time.
     used only for permissible current
     account transaction and the item wise      A.19 Acquisition of Foreign Securities
     limits as mentioned in the schedules            Under Employees Stock Option Plan
     to Rules as amended from time to time,          (ESOP)
     are equally applicable to payments
                                                Resident individuals who are either
     made through use of these cards.
                                                employees or director of an Indian office or
17.2 The IDCs cannot be used on internet        a branch of a foreign company in which
     for purchase of prohibited items like      foreign holding is not less than 51% are
     lottery tickets, banned or prescribed      permitted to acquire foreign securities under
     magazines,        participation     in     ESOP Scheme without any monetary limit.
     sweepstakes, payment for call-back         They are also permitted to freely sell the
     services, etc i.e. for such items/         shares provided the proceeds thereof are
     activities for which drawal of foreign     repatriated to India.
     exchange is not permitted.
                                                A.20 Income–Tax Clearance
A.18 Store Value Cards/Charge Cards/
                                                Remittances to non-residents will be allowed
     Smart Cards etc.
                                                to be made by the authorised dealers on
Certain authorised dealer banks are also        production of an undertaking by the remitter
issuing Store Value Card /Charge Card/          and a Certificate from Chartered Accountant
Smart Card to residents traveling on private/   in the formats prescribed by the Central
business visit abroad which are used for        Board of Direct Taxes.




88
                                                MISCELLANEOUS REMITTANCES        FROM INDIA




                                     ANNEXURE-1
             FOREIGN EXCHANGE MANAGEMENT
        (CURRENT ACCOUNT TRANSACTIONS) RULES, 2000

Prohibition on Drawal of Foreign                Prior Approval of Reserve Bank
Exchange
                                                No person shall draw foreign exchange for
Drawal of foreign exchange by any person        a transaction included in the Schedule III
for the following purpose is prohibited,        without prior approval of Reserve Bank;
namely;
a.   a transaction specified in the schedule
                                                Provided this rule shall not apply where the
     I; or
                                                payment is made out of funds held in
b.   a travel to Nepal and/or Bhutan; or        Resident Foreign Currency (RFC) account
                                                of the remitter.
c.   a transaction with a person resident in
     Nepal or Bhutan                            Prior approval of Government of India and
                                                Reserve Bank is not required for drawal
Provided that the prohibition in clause (c)
                                                made out of funds held in Exchange Earners’
may be exempted by RBI subject to such
                                                Foreign Currency (EEFC) account of the
terms and conditions as it may necessary to
                                                remitter.
stipulate by special or general order.
                                                Use of International Credit Card while
Prior Approval of Govt. of India
                                                Outside India
No person shall draw foreign exchange for
                                                Prior approval of Reserve Bank for a
a transaction included in the Schedule II
                                                transaction included in Schedule III is not
without prior approval of the Government
                                                required for use of International Credit card
of India;
                                                for making payment by a person towards
Provided that this rule shall not apply where   meeting expenses while such person is on a
the payment is made out of funds held in        visit outside India.
Resident Foreign Currency (RFC) Account
of the remitter.




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                                    SCHEDULE I
              TRANSACTION WHICH ARE PROHIBITED
                                    (SEE RULE 3)


1.   Remittance out of lottery winning.      5.   Remittance of dividend by any
                                                  company to which the requirement of
2.   Remittance of income from racing/
                                                  dividend balancing is applicable.
     riding etc. or any other hobby.
                                             6.    Payment of commission on exports
3.   Remittance for purchase of lottery
                                                  under Rupee State Credit Route,
     tickets, banned/prescribed magazines,
                                                  except commission upto 10% of
     football pools, sweepstakes, etc.
                                                  invoice value of export of tea and
4.   Payment of commission on exports             tobacco.
     made towards equity investment in
                                             7.   Payment related to “Call Back
     Joint Ventures/ Wholly owned
                                                  Services” of telephones.
     Subsidiaries abroad of Indian
     companies.                              8.   Remittance of interest income on funds
                                                  held in Non-Resident Special Rupee
                                                  (Account) Scheme.




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                                           MISCELLANEOUS REMITTANCES      FROM INDIA




                                 SCHEDULE II
     TRANSACTIONS WHICH REQUIRE PRIOR APPROVAL OF
               THE CENTRAL GOVERNMENT
                                 (SEE RULE 4)
       Purpose of Remittance                 Ministry/Department of Govt. of
                                            India whose approval is required

1.   Cultural Tours                        Ministry of Human Resources
                                           Development, (Department of
                                           Education and Culture)

2.   Advertisement in foreign print        Ministry of Finance, (Department of
     media for the purposes other than     Economic Affairs)
     promotion of tourism, foreign
     investments and international
     bidding (exceeding USD 10,000)
     by a State Government and its
     Public Sector Undertakings

3.   Remittance of freight of vessel       Ministry of Surface          Transport,
     chartered by a PSU                    (Chartering Wing)

4.   Payment of import by a Govt.          Ministry of Surface          Transport,
     Department or a PSU on c.i.f. basis   (Chartering Wing)
     (i.e. other than f.o.b. and f.a.s.
     basis)

5.   Multi-modal transport operators       Registration Certificate from the Director
     making remittance to their agents     General of Shipping
     abroad

6.   Remittance of hiring charges of       Ministry   of      Information       and
     transponders by                       Broadcasting
     (a) TV Channels
     (b) Internet Service providers        Ministry of Communication and
                                           Information Technology

7.   Remittance of container detention     Ministry of Surface Transport (Director
     charges exceeding the rate            General of shipping)
     prescribed by Director General of
     Shipping

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       Purpose of Remittance                  Ministry/Department of Govt. of India
                                              whose approval is required

8.   Remittances under technical              Ministry of Industry and Commerce
     collaboration agreements where
     payment of royalty exceeds 5% on
     local sales and 8% on exports and
     lump-sum payment exceeds USD
     2 million

9.   Remittance of prize money/               Ministry of Human Resources
     sponsorship of sports activity           Development (Department of Youth
     abroad by a person other than            Affairs and Sports)
     International / national / state Level
     sports bodies, if the amount
     involved exceeds USD 100,000.

10. Remittance for membership of P&           Ministry of Finance, (Insurance Division)
    I Club




92
                                                MISCELLANEOUS REMITTANCES          FROM INDIA




                                       Schedule III
                                        (See Rule 5)



1.   Release of exchange exceeding USD                 (b)   is a citizen of India, who is on
     10,000 or its equivalent in one calendar                deputation to the office or branch
     year, for one or more private visits to                 or subsidiary or joint venture in
     any country (except Nepal and                           India of such foreign company.
     Bhutan).
                                                       ii.   Exceeding USD 100,000 per
2.   Gift remittance exceeding USD 5,000                     year, per recipient, in all other
     per remitter/donor per annum.                           cases.
3.   Donation exceeding USD 5,000 per                  Explanation : For the purpose of this
     remitter/donor per annum and                      item, a person resident in India on
     remittances exceeding 1% of the                   account of his employment or
     foreign exchange earnings during the              deputation of a specified duration
     previous three financial years or USD             (irrespective of length thereof) or for
     5 million whichever is less for                   a specific job or assignment; the
     specified purposes.                               duration of which does not exceed
                                                       three years, is a resident but not
4.   Exchange facilities exceeding USD
                                                       permanently resident.
     100,000 for persons going abroad for
     employment.                                7.     Release of foreign exchange,
                                                       exceeding USD 25,000 to a person,
5.   Exchange facilities for emigration
                                                       irrespective of period of stay, or
     exceeding USD 100,000 or amount
                                                       attending a conference or specialised
     prescribed by country of emigration.
                                                       training or for maintenance expenses
6.   Remittance for maintenance of close               of a patient going abroad for medical
     relatives abroad,                                 treatment or check-up abroad, or for
     i.    Exceeding net salary (after                 accompanying as attendant to a patient
           deduction of taxes, contribution            going abroad for medical treatment/
           to provident fund and other                 check-up.
           deductions) of a person who is       8.     Release of exchange for meeting
           resident but not permanently                expenses for medical treatment abroad
           resident in India and -                     exceeding the estimate from the doctor
     (a)   is a citizen of a foreign State             in India or hospital/doctor abroad.
           other than Pakistan; or

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9.    Release of exchange for studies abroad          per project, for any consultancy service
      exceeding the estimate from the                 procured from outside India. For
      institution abroad or USD 100,000 per           infrastructure projects, this limit is
      academic year, whichever is higher.             USD 10,000,000.
10.   Commission, per transaction, to agents    12.   Remittance exceeding USD 100,000 or
      abroad for sale of residential flats or         5% of the investment brought into
      commercial plots in India exceeding             India whichever is higher on the basis
      USD 25,000 or 5% of the inward                  of certification from the statutory
      remittance whichever is more.                   auditor by an entity in India by way of
                                                      reimbursement of pre-incorporation
11.   Remittance exceeding USD 1,000,000
                                                      expenses.




94
                                                 MISCELLANEOUS REMITTANCES        FROM INDIA




                                                              for any other purpose, in such
FREQUENTLY ASKED                                              circumstances as would
QUESTIONS                                                     indicate his intention to stay in
                                                              India for an uncertain period;
GUIDELINES ON TRAVEL RELATED
                                                              any person or body corporate
MATTERS
                                                              registered or incorporated in
                                                              India,
Q.1.   Who is a resident?
                                                              an office, branch or agency in
A.1.   A ‘person resident in India’ is defined                India owned or controlled by a
       in Section 2(v) of FEMA, 1999 as:                      person resident outside India,
       A person residing in India for more                    an office, branch or agency
       than one hundred and eighty-two                        outside India owned or
       days during the course of the                          controlled by a person resident
       preceding financial year but does not                  in India;
       include -                                        That is to qualify as a resident the
       A)    a person who has gone out of               person concerned will have to fulfill
             India or who stays outside                 the criterion regarding (a) the
             India, in either case-                     duration of stay and (b) the purpose
                                                        of stay.
             for or on taking up
             employment outside India, or               The term Person Resident Outside
                                                        India is defined in the Act as a person
             for carrying on outside India a            who is not a person resident in India.
             business or vocation outside
             India, or                           Q.2.   From where one can buy foreign
                                                        exchange ?
             for any other purpose, in such
             circumstances as would              A.2.   Foreign exchange can be purchased
             indicate his intention to stay             from any authorised dealer. Besides
             outside India for an uncertain             authorised dealers, Full-Fledged
             period;                                    money changers are also permitted
       (B) a person who has come to or                  to release exchange for busienss and
           stays in India, in either case,              private visits.
           otherwise than - for or on
           taking up employment in India,        Q.3.   Who is an Authorised Dealer?
           or                                           An Authorised Dealer is normally a
             for carrying on in India a                 bank specifically authorised by the
             business or vocation in India,             Reserve Bank under Section 10(1)
             or                                         of FEMA, 1999, to deal in foreign


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       exchange or foreign securities (List             foreign exchange upto USD 100,000
       available on www.fedai.orgjn).                   or its equivalent to resident Indians
                                                        for medical treatment abroad on self
Q.4.   How much exchange is available
                                                        declaration basis of essential details,
       for a business trip?
                                                        without insisting on any estimate
A.4.   Authorised Dealers can release                   from a hospital/doctor in India/
       foreign exchange up to USD 25,000                abroad. A person visiting abroad for
       for a business trip to any country               medical treatment can obtain foreign
       other than Nepal and Bhutan.                     exchange exceeding the above limit,
       Release of foreign exchange                      provided the request is supported by
       exceeding USD 25,000 for a travel                an estimate from a hospital/doctor in
       abroad (other than Nepal and                     India/abroad. This exchange is to
       Bhutan) for business purposes,                   meet the expenses involved in
       irrespective of period of stay,                  treatment. In addition to the amount
       requires prior permission from                   referred to in Answer to Question
       Reserve Bank. Visits in connection               No.4 above may also be availed.
       with attending of an international
                                                 Q.6.   How much exchange is available
       conference, seminar, specialised
                                                        for studies outside India?
       training, study tour, apprentice
       training, etc., are treated as business   A.6.   ADs may release an amount of USD
       visits. Maintenance expense of a                 100,000 per academic year or the
       patient going abroad for medical                 estimate received from the institution
       treatment and/or check up or for                 abroad, whichever is higher.
       accompanying as assistant to the
                                                        Students going abroad for studies are
       patient going abroad for medical
                                                        treated as Non-Resident Indians
       treatment / check-up also falls within
                                                        (NRls) and are eligible for all the
       this category.
                                                        facilities available to NRls under
       Incidentally, no release of foreign              FEMA. In addition, they can receive
       exchange is admissible for any kind              remittances up to USD 100,000 from
       of travel to Nepal and Bhutan or for             close relatives (as defined in Section
       any transaction with persons resident            6 of the Companies Act, 1956) from
       in Nepal and Bhutan.                             India on self-declaration, towards
                                                        maintenance, which could include
Q.5.   Can one obtain foreign exchange
                                                        remittances towards their studies
       for medical treatment outside
                                                        also. Educational and other loans
       India?
                                                        availed of by students as resident in
A.5.   Authorised Dealers may release                   India can be allowed to continue.


96
                                                MISCELLANEOUS REMITTANCES       FROM INDIA




       There is no dilution in the existing            can draw foreign exchange up-to
       remittance facilities to students in            USD100,000 from any authorised
       regard to their academic pursuits.              dealer in India on the basis of self-
                                                       declaration.
Q.7.   How much foreign exchange can
       one buy when traveling abroad on         Q.9.   How much foreign exchange is
       private visits to a country outside             available to a person going abroad
       India?                                          on emigration?
A.7.   In connection with private visits        A.9.   Person going abroad on emigration
       abroad, viz., for tourism purposes,             can draw foreign exchange upto
       etc., foreign exchange up to                    USD100,000 on self- declaration
       USD10,000, in any financial year                basis from an authorised dealer in
       may be obtained from an authorised              India or the amount prescribed by the
       dealer on a self- declaration basis.            country of emigration. This amount
       The ceiling of USD10,000 is                     is only to meet the incidental
       applicable in aggregate and foreign             expenses in the country of
       exchange may be obtained for one                emigration. No amount of foreign
       or more than one visit provided the             exchange can. be remitted outside
       aggregate foreign exchange availed              India to become eligible or for
       of in one financial year does not               earning points or credits for
       exceed the prescribed ceiling of                immigration. All such remittances
       USD10,000 {The facility was earlier             require prior permission of the
       called B.T.Q or F.T.S.}. This limit of          Reserve Bank.
       USD10,000 per financial year can be
                                                Q.10. Is there any category of visit which
       availed of by a person along with
                                                      requires prior approval from the
       foreign exchange for travel abroad
                                                      Reserve Bank or Govt. of India?
       for any purpose, including for
       employment or immigration or             A.10. Dance troupes, artistes, etc., who
       studies. However, no foreign                   wish to undertake cultural tours
       exchange is available for visit to             abroad, are required to obtain prior
       Nepal and/or Bhutan for any                    approval from the Ministry of
       purpose.                                       Human Resources Development,
                                                      Government of India, New Delhi.
Q.8.   How much foreign exchange is
       available to a person going abroad       Q.11. How much foreign exchange can
       on employment?                                 be purchased in foreign currency
                                                      notes while buying exchange for
A.8.   Person going abroad for employment
                                                      travel abroad?


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A.11   Travellers are allowed to purchase              should be surrendered to an
       foreign currency notes/coins only up            authorised dealer.
       to USD 2000. Balance amount can
                                                Q.14. Can one pay by cash full rupee
       be taken in the form of travellers
                                                      equivalent of foreign exchange
       cheque or banker’s draft. Exceptions
                                                      being purchased for travel
       to this are (a) travellers proceeding
                                                      abroad?
       to Iraq and Libya can draw foreign
       exchange in the form of foreign          A.14. Foreign exchange for travel abroad
       currency notes and coins not                   can be purchased from authorized
       exceeding USD 5000 or its                      banks against rupee payment in cash
       equivalent; (b) travellers proceeding          up to Rs.50,000/-. However, if the
       to the Islamic Republic of Iran,               rupee equivalent exceeds Rs.50,000/
       Russian Federation and other                   -, the entire payment should be made
       Republics of Commonwealth of                   by way of a crossed cheque/banker’s
       Independent States can draw entire             cheque/pay order/demand draft only.
       foreign exchange released in the         Q.15. IS there any time frame for a
       form of foreign currency notes or              traveller for surrender of foreign
       coins.                                         exchange on his return to India?
Q.12. Do same Rules apply to persons            A.15. On his return to India, the traveller
      going for studies abroad?                       is required to surrender the unspent
A.12. For the purpose of studies abroad,              foreign exchange, whether in the
      exchange for maintenance expenses               form of currency notes or travellers
      is released in the form of (i) currency         cheques, within 180 days from the
      notes up to USD 2,000, (ii) the                 date of return. However, a traveller
      balance foreign exchange may be                 can retain up to USD 2000 or its
      taken in the form of travellers                 equivalent, either in the form of
      cheques or bank draft payable                   currency notes or travellers cheques,
      overseas.                                       for future use. Further, the traveller
                                                      also has the facility of retaining the
Q.13. How much in advance one can buy
                                                      entire unspent foreign exchange in
      foreign exchange for travel
                                                      his Resident Foreign Currency
      abroad?
                                                      (Domestic) Account. In this regard
A.13. The foreign exchange acquired for               please see Question 29 (c) below.
      any purpose has to be used within
                                                Q.16. On return to India can one retain
      60 days of purchase. In case it is not
                                                      foreign exchange?
      possible to use the foreign exchange
      within the period of 60 days, it          A.16. Yes. Resident travellers, on return to

98
                                               MISCELLANEOUS REMITTANCES         FROM INDIA




       India, can retain unspent foreign       Q.18. How much foreign exchange can
       exchange up to USD 2,000 or its               a resident individual send as gift I
       equivalent, either in the form of             donation to a person resident
       currency notes or travellers cheques.         outside India?
       The traveller can also credit the
                                               A.18. Limit of USD 200,000 per financial
       foreign currency amount to their
                                                     year under the Liberalised
       RFC (Domestic) Account, without
                                                     Remittance Scheme would also
       any limit, where the foreign
                                                     include remittances towards gift and
       exchange has been acquired by the
                                                     donation by a resident individual.
       traveller by any of the following
                                                     Accordingly, under the Scheme, any
       modes: (Please see Question 29 (c)
                                                     resident individual, if he so desires,
       below)
                                                     may remit the entire limit of USD
       a.   while on a visit abroad as               200,000 in one financial year as gift
            payment for services not                 to a person residing outside India or
            arising from any business in or          as donation to a charitable/
            anything done in India; or               educational/ religious/cultural
                                                     organization outside India.
       b.   as honorarium or gift or for
                                                     Remittances exceeding the limit will
            services rendered or in
                                                     require prior permission from the
            settlement of any lawful
                                                     Reserve Bank.
            obligation from any person
            who is not resident in India and   Q.19. How much foreign exchange can
            who is on a visit to India; or           other residents send as gift I
                                                     donation to a person resident
       c.   as honorarium or gift while on
                                                     outside India?
            a visit to any place outside
            India; or                          A.19. Other residents like corporates,
                                                     partnership firms, trusts etc., are free
       d.   from an authorised person for
                                                     to remit up to USD 5000 per annum
            travel abroad and represents
                                                     per donor/remitter each as gift and
            the unspent amount thereof.
                                                     donation. Remittances exceeding the
Q.17. Is one required to surrender                   limit will require prior permission
      foreign coins also to an authorised            from the Reserve Bank.
      dealer?
                                               Q.20. Is one permitted to use
A.17. There is no restriction on residents           International Credit Card (ICC)
      holding foreign coins.                         for undertaking foreign exchange
                                                     transactions?


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A.20. Use of the International Credit Cards    Q.22. While going abroad how much
      (ICCs) / ATMs/ Debit Cards can be              foreign exchange, in cash, can a
      made for making personal payments              person carry?
      like subscription to foreign journals,
                                               A.22. Residents are free to carry the foreign
      internet subscription, etc., and for
                                                     exchange purchased from an
      travel abroad in connection with
                                                     authorised dealer or full fledged
      various purposes. The entitlement of
                                                     money changer in accordance with
      foreign exchange on International
                                                     the Rules. They are, however,
      Credit Cards (ICCs) is limited by the
                                                     allowed to carry foreign exchange in
      credit limit fixed by the card issuing
                                                     the form of currency notes/coins up
      authority only. With ICCs one can (i)
                                                     to USD 2,000 or its equivalent only.
      meet expenses/make purchases
                                                     Balance amount can be carried in the
      while abroad (ii) make payments in
                                                     form of travellers cheque or banker/
      foreign exchange for purchase of
                                                     s draft. (In this connection please see
      books and other items through
                                                     item No.11).
      internet in India. If the person has a
      foreign currency account in India or     Q.23. While going abroad how much
      with a bank overseas, he/she can               Indian currency, in cash, can a
      even obtain ICCs of overseas banks             person carry?
      and reputed agencies.                    A.23. Residents are free to take outside
       Use of these instruments for payment          India (other than to Nepal and
       in foreign exchange in Nepal and              Bhutan) currency notes of
       Bhutan is not permitted.                      Government of India and Reserve
                                                     Bank of India notes up to an amount
Q.21. While coming into India how
                                                     not exceeding Rs. 5,000/ - per
      much Indian currency can be
                                                     person. They may take or send
      brought in?
                                                     outside India (other than to Nepal
A.21. A person coming into India from                and Bhutan) commemorative coins
      abroad can bring in with him Indian            not exceeding two coins each.
      currency notes within the limits
                                                      Explanation: ‘Commemorative
      given below:
                                                      Coin’ includes coin issued by
       a.    up to Rs. 5,000 from any                 Government of India Mint to
             country other than Nepal or              commemorate any specific occasion
             Bhutan, and                              or event and expressed in Indian
                                                      currency.
       b.    any amount in denomination
             not exceeding Rs.100 from                A person can take or send out of India
             Nepal or Bhutan.
100
                                                MISCELLANEOUS REMITTANCES       FROM INDIA




       to Nepal or Bhutan, currency notes              framed under Foreign Trade Policy
       of Government of India and Reserve              by the Government of India. No
       Bank of India notes (other than notes           approval of Reserve Bank is required
       of denominations of above Rs. 100);             in this case.
Q.24. While coming into India how               Q.27. Can a resident extend local
      much foreign exchange can be                    hospitality to a non-resident?
      brought in?
                                                A.27. A person resident in India is, free to
A.24. A person coming into India from                 make any payment in Indian Rupees
      abroad can bring with him foreign               towards meeting expenses on
      exchange without any limit.                     account of boarding, lodging and
      However, if the aggregate value of              services related thereto or travel to
      the foreign exchange in the form of             and from and within India of a person
      currency notes, bank notes or                   resident outside India who is on a
      travellers cheques brought in                   visit to India.
      exceeds USD 10,000/- or its
                                                Q.28. Can residents purchase air tickets
      equivalent and/or the value of
                                                      in India for their travel not
      foreign currency exceeds USD
                                                      touching India?
      5,000/- or its equivalent, it should be
      declared to the Customs Authorities       A.28. Residents may book their tickets in
      at the Airport in the Currency                  India for their visit to any third
      Declaration Form (CDF), on arrival              country. That is, residents can book
      in India.                                       their tickets for travel, for instance
                                                      from London to New York, through
Q.25. Is one required to follow complete
                                                      domestic/foreign airlines in India
      export procedure when a gift
                                                      itself.
      parcel is sent outside India?
                                                Q.29. Can a resident open a foreign
A.25. A person resident in India is free to
                                                      currency denominated account in
      send (export) any gift article of value
                                                      India?
      not exceeding Rs. 5,00,000 provided
      export of that item is not prohibited     A.29. Persons resident in India are
      under the extant Foreign Trade                  permitted to maintain foreign
      Policy.                                         currency accounts in India under the
                                                      following three Schemes:
Q.26. How much jewellery one can carry
      while going abroad?                              a.   Exchange Earners’ Foreign
                                                            Currency (EEFC) Accounts:-
A.26. Taking personal jewellery out of
      India is governed by Baggage Rules                     All categories of resident

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READY RECKONER    FOR   OVERSEAS INDIANS



           foreign exchange earners can              or inheritance from a person
           credit up to 100 per cent of their        referred to sub-section (4) of
           foreign exchange earnings, as             section 6 of FEMA,1999 or (ii)
           specified in the paragraph 1 (A)          referred to in clause (c) of
           of the Schedule to Notification           section 9 of the Act or acquired
           No. FEMA.10/2000-RB dated                 as gift or inheritance therefrom
           3rd May, 2000 and as amended              may also be credited to this
           from time to time, to their               account or (iii) received as the
           EEFC Account with an                      proceeds of life insurance
           authorised dealer in India.               policy        claims/maturity/
           Funds held in EEFC account                surrender values settled in
           can be utilised for all                   foreign currency from an
           permissible current account               insurance company in India
           transactions and also for                 permitted to undertake life
           approved capital account                  insurance business by the
           transactions as specified by the          Insurance Regulatory and
           extant Rules/Regulations/                 Development Authority.
           Notifications/ Directives issued
                                                      The funds in RFC account are
           by the Government/RBI from
                                                     free from all restrictions
           time to time.
                                                     regarding utilisation of foreign
      b.    Resident Foreign Currency                currency balances including
           (RFC) Accounts :-                         any restriction on investment
                                                     outside India.
            Returning Indians, i.e., those
           Indians, who were non-               c.   RFC (Domestic) Account:-
           residents earlier, and are
                                                      A person resident in India can
           returning now for permanent
                                                     open, hold and maintain with
           stay; are permitted to open, hold
                                                     an authorized dealer in India, a
           and maintain with an authorised
                                                     Resident Foreign Currency
           dealer in India a Resident
                                                     (Domestic) Account, out of
           Foreign Currency (RFC)
                                                     foreign exchange acquired in
           Account to keep their foreign
                                                     the form of currency notes,
           currency assets. Assets held
                                                     Bank notes and travellers
           outside India at the time of
                                                     cheques from any of the sources
           return can be credited to such
                                                     like, payment for services
           accounts. The foreign exchange
                                                     rendered       abroad,       as
           (i) received or acquired as gift
                                                     honorarium, gift, services


102
                                                MISCELLANEOUS REMITTANCES        FROM INDIA




             rendered or in settlement of any   LIBERALISED REMITTANCE
             lawful obligation from any         SCHEME OF USD 200,000
             person not resident in India.
             The account may also be            LIBERALISED REMITTANCE
             credited with/opened out of        SCHEME
             foreign exchange earned like
             proceeds of export of goods        Q.31. What is the Liberalised
             and/or services, royalty,                Remittance Scheme of USD
             honorarium, etc., and/or gifts           200,000?
             received from close relatives
                                                A.31. This is a facility extended to all
             (as defined in the Companies
                                                      resident individuals under which,
             Act) and repatriated to India
                                                      they may freely remit upto USD
             through normal banking
                                                      200,000 per financial year for any
             channels       by     resident
                                                      permissible current or capital
             individuals. The account shall
                                                      account transaction or a combination
             be maintained in the form of
                                                      of both.
             Current Account and shall not
             bear any interest. There is no     Q.32. Who is eligible to avail of this
             ceiling on the balances in the           Liberalised Remittance Facility?
             account.
                                                A.32. The facility is available to resident
Q.30. Can a person resident in India                  individuals only.
      hold assets outside India?
                                                Q.33. Is there any frequency for the
A.30. In terms of sub-section 4, of Section           remittance?
      (6) of the Foreign Exchange
                                                A.33. There is no restriction on the
      Management Act, 1999, a person
                                                      frequency. However, the total
      resident in India is free to hold, own,
                                                      amount of foreign exchange
      transfer or invest in foreign currency,
                                                      purchased from or remitted through,
      foreign security or any immovable
                                                      all sources in India during the current
      property situated outside India if
                                                      financial year should be within the
      such currency, security or property
                                                      limit of USD 200,000/-.
      was acquired, held or owned by such
      person when he was resident outside       Q.34. What are the purpose’s for which
      India or inherited from a person who            remittance can be made under the
      was resident outside India. (Please             Scheme?
      also refer to the Liberalised
                                                A.34. This facility is available for making
      Remittance Scheme of USD 200,000
                                                      remittance/s for any permissible
      discussed below).

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       current or capital account transaction          Account Transactions) Rules,
       or a combination of both. It is not             2000?
       available for purposes specifically
                                                A.27. The facility under the Scheme is in
       prohibited (Schedule I) or regulated
                                                      addition to those already available
       by the Government of India
                                                      under       Foreign      Exchange
       (Schedule II) of Foreign Exchange
                                                      Management (Current Account
       Management (Current Account
                                                      Transactions) Rules, 2000.
       Transactions) Rules, 2000.
                                                Q.38. Can an individual send remittance
Q.35. Can residents avail of this facility
                                                      under the Scheme to any country?
      for acquiring immovable property
      and other assets abroad?                  A.38. Remittance cannot be made directly
                                                      or indirectly to Bhutan, Nepal,
A.35. Yes. Individuals are free to use this
                                                      Mauritius or Pakistan. The facility is
      Scheme to acquire and hold
                                                      also not available for making
      immovable property, shares or any
                                                      remittances directly or indirectly to
      other asset outside India without
                                                      countries identified by the Financial
      prior approval of Reserve Bank.
                                                      Action Task Force (FATF) as ‘non-
Q.36. Can individuals open foreign                    co-operative Countries or Territories,
      currency account abroad for                     from time to time.
      making remittance under the
                                                       For the current list of such countries/
      Scheme?
                                                       territories please visit www.fatf-
A.36. Yes. Individuals are free to open,               gafi.org.
      hold and maintain foreign currency
                                                       Further, remittance under the facility
      accounts with a bank outside India
                                                       cannot be made to individuals and
      for making remittances under the
                                                       entities identified as posing
      Scheme without the prior approval
                                                       significant risk or committing acts of
      of Reserve Bank. The account can
                                                       terrorism as advised to banks by
      be used for putting through any
                                                       Reserve Bank from time to time.
      transaction connected with or arising
      from remittances under the Scheme.        Q.39. What are the requirements to be
                                                      complied with by the remitter?
Q.37. What is the impact of the Scheme
      on the existing facilities for            A.39. The individual will have to designate
      private/business travel, studies,               a branch of an AD through which all
      medical treatment etc./items                    the remittances under the Scheme will
      covered in Schedule III of Foreign              be made. The applicants should have
      Exchange Management (Current                    maintained the bank account with the


104
                                               MISCELLANEOUS REMITTANCES      FROM INDIA




       bank for a minimum period of one               listed on a recognised stock
       year prior to the remittance. He has           exchange abroad and which has
       to furnish an application--cum-                the shareholding of at least 10 per
       declaration in the specified format            cent in an Indian company listed
       regarding the purpose of the                   on a recognised stock exchange in
       remittance and declare that the funds          India. Does this condition still
       belong to him and will not be used             exist?
       for purposes prohibited or regulated
                                               A.43. Investment by resident individual in
       under the Scheme.
                                                     overseas companies is subsumed
Q.40. If an investment of USD 200,000 rises          under the Scheme of USD 200,000.
      in value within the year, can one book         The requirement of 10 per cent
      profits and invest abroad again?               reciprocal shareholding in the listed
                                                     Indian companies by such overseas
A.40. The investor is free to book profit or
                                                     companies has since been dispensed
      loss abroad and to invest abroad
                                                     with.
      again. He is under no obligation to
      repatriate the funds remitted abroad.
                                               GUIDELINES FOR FINANCIAL
Q.41. Can an individual, who has               INTERMEDIARIES OFFERING
      repatriated the amount remitted          SPECIAL SCHEMES, PROTECTION
      during the financial year, avail of      UNDER THE SCHEME.
      the facility once again?
                                               Q.44. Are intermediaries expected to
A.41. Once a remittance is made for an
                                                     seek specific approval for making
      amount upto USD 200,000 during
                                                     overseas investments available to
      the financial year, he would not be
                                                     clients?
      eligible to make any further
      remittances under this route, even if    A.44   Banks including those not having
      the proceeds of the investments have            operational presence in India are
      been brought back into the country.             required to obtain prior approval
                                                      from Reserve Bank for soliciting
Q.42. Can remittances be made only in
                                                      deposits for their foreign/overseas
      US Dollars?
                                                      branches or for acting as agents for
A.42. The remittances can be in any                   overseas mutual funds or any other
      currency equivalent to USD 200,000              foreign financial services company.
      in a financial year.
                                               Q.45. Are there any restrictions on the
Q.43. Last year, resident individuals                kind/quality of debt or equity
      could invest in overseas companies             instruments an individual can
                                                     invest in?
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A.45. No ratings or guidelines have been              be permissible against security of
      prescribed under the Liberalised                such deposits?
      Remittance Scheme of USD 200,000
                                               A.47. No. The Scheme does not envisage
      on the quality of the investment an
                                                     extension of credit facility against the
      individual can make. However, the
                                                     security of the deposits.
      individual investor is expected to
      exercise due diligence while taking      Q.48. Can bankers open foreign
      a decision regarding the investments           currency accounts in India for
      which he or she proposes to make.              residents under the Scheme?

Q.46. Whether       minor       resident       A.48. No. Banks in India can not open
      individuals would be permitted to              foreign currency accounts in India for
      open, maintain and hold such                   residents under the Scheme.
      foreign currency accounts, if the        Q.49. Can an Offshore Banking Unit
      same is permissible as per local law           (OBU) in India be treated on par
      in the country of the overseas                 with a branch of the bank outside
      branch?                                        India for the purpose of opening
A.46. Banks may take necessary steps in              of foreign currency accounts by
      the matter based on the settled legal          residents under the Scheme?
      position regarding enforcement of        A.49. No. For the purpose of the Scheme,
      the declaration in case the remittance         an OBU in India is not treated as an
      is made on behalf of a minor.                  overseas branch of a bank in India.
Q.47. Whether credit facilities in Indian
      Rupees or foreign currency would




106
        TAX PROVISIONS   AND   OVERSEAS INDIANS




   PART - II
 Tax Provisions
      and
Overseas Indians




                                            107
READY RECKONER       FOR   OVERSEAS INDIANS




  TAX PROVISIONS AND OVERSEAS
            INDIANS
RESIDENTIAL STATUS FOR TAX                        citizens and foreign citizens of Indian origin,
PURPOSES                                          the period of 60 days referred to in Clause
                                                  (b) above, will be extended to 182 days in
In India, as in many other countries, the         two cases: (i) where an Indian citizen leaves
charge of income tax and the scope of taxable     India in any year for employment outside
income varies with the factor of residence.       India; and (ii) where an Indian citizen or a
There are two categories of taxable entities      foreign citizen of Indian origin (NRI), who
viz. (1) residents and (2) non-residents.         is outside India, comes on a visit to India.
Residents are further classified into two sub-
                                                  In the above context, an individual visiting
categories (i) resident and ordinarily resident
                                                  India several times during the relevant
and (ii) resident but not ordinarily resident.
                                                  “previous year” should note that judicial
The law prescribes two alternative technical
                                                  authorities in India have held that both the
tests of residence for individual taxpayers.
                                                  days of entry and exit are counted while
Each of the two tests relate to the physical
                                                  calculating the number of days stay in India,
presence of the taxpayer in India in the
                                                  irrespective of however short the time spent
course of the “previous year” which would
                                                  in India on those two days may be.
be the twelve months from April 1 to March
31.                                               A “non-resident” is merely defined as a
                                                  person who is not a “resident” i.e. one who
A person is said to be “resident” in India in
                                                  does not satisfy either of the two prescribed
any previous year if he
                                                  tests of residence.
(a)   is in India in that year for an aggregate
                                                  An individual, who is defined as Resident
      period of 182 days or more; or
                                                  in a given financial year is said to be “not
(b)   having within the four years preceding      ordinarily resident” in any previous year if
      that year been in India for a period of     he has been a non-resident in India 9 out of
      365 days or more, is in India in that       the 10 preceding previous years or he has
      year for an aggregate period of 60 days     during the 7 preceding previous years been
      or more.                                    in India for a period of, or periods amounting
The above provisions are applicable to all        in all to, 729 days or less.
individuals irrespective of their nationality.    Till 31st March 2003, “not ordinarily
However, as a special concession for Indian       resident” was defined as a person who has


108
                                                   TAX PROVISIONS     AND   OVERSEAS INDIANS



not been resident in India in 9 out of 10              in relation to that year as if for the
preceding previous years or he has not during          words “sixty days”, occurring therein,
the 7 preceding previous years been in India           the words “one hundred and eighty-
for a period of, or periods amounting in all           two days” had been substituted
to, 730 days or more.
                                                 (b)   being a citizen of India, or a person of
Section 6 of the Income-tax Act, 1961,                 Indian origin within the meaning of
prescribes the tests for determining the               Explanation to clause (e) of section
residential status of a person. Section 6, as          115C, who, being outside India, comes
amended, reads as follows:-                            on a visit to India in any previous year,
                                                       the provisions of sub-clause (c) shall
For the purposes of this Act,-
                                                       apply in relation to that year as if for
(1)   An individual is said to be resident in          the words “sixty days”, occurring
      India in any previous year, if he-               therein, the words “one hundred and
      a) is in India in that year for a period         eighty-two days” had been substituted.
         or periods amounting in all to one      (2)   A Hindu undivided family, firm or other
         hundred and eighty-two days or                association of persons is said to be
         more; or                                      resident in India in any previous year in
      b) [* * *]                                       every case except where during that year
                                                       the control and management of its affairs
      c) having within the four years                  is situated wholly outside India.
         preceding that year been in India
         for a period or periods amounting       (3)   A company is said to be resident in
         in all to three hundred and sixty             India in any previous year, if-
         five days or more, is in India for a          a.    it is an Indian company; or
         period or periods amounting in all
                                                       b.    during that year, the control and
         to sixty days or more in that year.
                                                             management of its affairs is
Explanation.- In the case of an individual,--                situated wholly in India.
(a)   being a citizen of India, who leaves       (4)   Every other person is said to be
      India in any previous year [as a                 resident in India in any previous year
      member of the crew of an Indian ship             in every case, except where during that
      as defined in clause (18) of section 3           year the control and management of his
      of the Merchant Shipping Act, 1958               affairs is situated wholly outside India.
      (44 of 1958), or] for the purpose of
                                                 (5)   If a person is resident in India in a
      employment outside India, the
                                                       previous year relevant to an assessment
      provisions of sub-clause (c) shall apply
                                                       year in respect of any source of income,


                                                                                            109
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                 Determination of Residential Status of An
                    Assessee Under the Income Tax Act
The Tests for determining the Residential status of an assessee under the Income Tax Act
               can be explained with the help of Flow Charts as follows:


           Key to Abbreviation used                      INDIVIDUAL
 IC          =   Indian Citizen
 RPY         =   Relevant Previous Year
 PPY         =   Preceding Previous Year
 R           =   Resident
                                                             STAYED
 NR          =   Non Resident                                                YES
                                                             IN INDIA                NR
 R & NOR     =   Resident butNot Ordinarily
                                                            < 60 DAYS
                 Resident
 ROR         =   Resident & ordinarily Resident
 HUF         =   Hindu Undivided Family                            NO
 AOP         =   Association of Persons
                                                             STAYED
                                                  YES
                                                           > 182 DAYS
                       RESIDENT                                RPY

                                                                   NO


      R & YES               NR                             IC LEFT FOR
      NOR              9 PPY / 10 PPY                    EMPLOYMENT OR       YES
                                                         CREW MEMEBR OF
                                                           INDIAN SHIP

                                   NO
                                                                    NO

        YES               STAYED                           INDIAN CITIZEN
                        < 729 DAYS /                                         YES
                                                         OR INDIAN ORIGIN
                           7 PPY                         VISITED INDIA RPY


                                 NO                                 NO

                             ROR                              STAYED
                                                  YES                           NO
                                                        > 60 DAYS/RPY AND
                                                           > 365 D/4 PPY




110
                                   TAX PROVISIONS   AND   OVERSEAS INDIANS



      Determination of Residential Status of
           HUF Firm AOP Company

    HUF/FIRM/AOP



CONTROL & MANAGEMENT                                COMPANY



      WHOLLY OR        NO                YES
    PARTLY IN INDIA          NR      R         INDIAN COMPANY


              YES
                                                           NO
          R
                                               OTHER COMPANY

    RESIDENT HUF


                                                     CONTROL &
                                         YES        MANAGEMENT
                                                     WHOLLY IN
       KARTA           YES                             INDIA
   NR 9 PPY/10 PPY            RNOR
                                                           NO


              NO                                          NR



       KARTA                 YES
    STAYED < 729D/
        7 PPY


               NO



      HUF - ROR




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      he shall be deemed to be resident in             1st April of the next year. However, in
      India in the previous year relevant to           case of a person leaving India for
      the assessment year in respect of each           taking up a business or profession, the
      of his other sources of income.                  criteria of 60 days will apply, as defined
                                                       earlier.
(6)   A person is said to be “not ordinarily
      resident” in India in any previous year     2.   An NRI individual, whose total stay
      if such person is                                in India in 4 preceding years exceeds
                                                       364 days, will not lose his non-resident
      (a)   an individual who has not been
                                                       status in the following year(s) if his
            a non-resident in India in nine out
                                                       total stay in India in that year (from
            of the ten previous years
                                                       April 1 to March 31) does not exceed-
            preceding that year, or has not
            during the seven previous years            (a)   181 days, if he is on a “visit” to
            preceding that year been in India                India; or
            for a period of, or periods
                                                       (b)   59 days, if he comes to India on
            amounting in all to, seven
                                                             “transfer of residence”.
            hundred and twenty-nine days or
            less; or                              3.   An NRI who has returned to India for
                                                       settlement, whose total stay in India for
      (b)   a Hindu undivided family whose
                                                       4 preceding years does not exceed 364
            manager has not been non-
                                                       days will not lose his non-resident
            resident in India in nine out of
                                                       status in the following year(s) if his
            the ten previous years preceding
                                                       total stay in India in such year(s) (from
            that year, or has not during the
                                                       April 1 to March 31) does not exceed
            seven previous years preceding
                                                       181 days.
            that year been in India for a
            period of, or periods amounting       4.   A new-comer to India would be treated
            in all to, seven hundred and               as “not ordinarily resident” for the first
            twenty-nine days or less.                  two years of his stay in India or if
                                                       treated as Non Resident in the year of
An analysis of the above provisions would
                                                       arrival then for the second and third
indicate that -
                                                       year of his stay in India. An individual
1.    To become a non-resident for income-             (whether Indian or foreign citizen) who
      tax purposes, an Indian citizen leaving          has left India and remains non-resident
      India for the first time to take up              for at least nine years preceding his
      employment abroad should be out of               return to India or whose stay in 7 years
      the country latest by 28th September             preceding the year of return has not
      and should not return to India before            exceeded 729 days would, upon his


112
                                                      TAX PROVISIONS    AND   OVERSEAS INDIANS



      return, be treated as “non-resident” or     (f)    Both the day of entry and the day of
      “not ordinarily resident” depending                departure should be treated as the day
      upon the number of days stay in India              of stay in India [Petition No.7 of 1995
      in the year of return. The status of “not          225 ITR 462 (AAR)]
      ordinarily resident” will remain            (g)    Presence in territorial waters in India
      effective for 2 years including or                 would also be regarded as stay in India.
      following the year of return as the case
      may be.                                     (h)    A person is said to be of Indian Origin
                                                         if he or either of his parents or any of
Important Points to be Borne in Mind                     his grand parents was born in
while Determining the Residential Status                 undivided India [Section 115C]
of an Individual
                                                  (i)    Official tours abroad in connection
(a)   Residential status is always determined            with employment in India shall not be
      for the Previous Year because the                  regarded as employment outside India.
      assessee has to determine the total
                                                  (j)    A person may be resident of more than
      income of the Previous Year only. In
                                                         one country for any Previous Year.
      other words, as the tax is on the income
      of a particular Previous Year, the          (k)    Citizenship of a country and residential
      enquiry and determination of the                   status of that country are two separate
      residence qualification must confine to            concepts. A person may be an Indian
      the facts obtaining in that Previous               national/Citizen but may not be a
      Year.                                              resident in India and vice versa.

(b)   If a person is resident in India in a       Points to be Considered by NRIs
      Previous Year in respect of any source      •      Previous Year is period of 12 months
      of income, he shall be deemed to be                from 1st April to 31st March. Number
      resident in India in the Previous Year             of days stay in India is to be counted
      relevant to the Assessment Year in                 during this period.
      respect of each of his other sources of
                                                  •      Both the Day of Arrival into India and
      Income. [Section 6(5)]
                                                         the Day of Departure from India are
(c)   Relevant Previous Year means, the                  counted as the days of stay in India (i.e.
      Previous Year for which residential                2 days stay in India).
      status is to be determined
                                                  •      Dates stamped on Passport are
(d)   It is not necessary that the stay should           normally considered as proof of dates
      be for a continuous period.                        of departure from and arrival in India.
(e)   It is not necessary that the stay should
                                                  •      It is advisable to keep several
      be at one place in India.

                                                                                               113
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      photocopies of the relevant passport         above and in this context it would be
      pages for present and future use.            important to note the following:
•     Ensure that date stamped on the              1.    The concepts and rules for determining
      passport is legible.                               the residential status income-tax laws
                                                         and FEMA are quite different and it
•     Keep track of no. of days in India from
                                                         would be possible to be a resident
      year to year and check the same before
                                                         under one law and non-resident under
      making the next trip to India. It is
                                                         the other.
      advisable to maintain a chart for the
      number of days stay in the current and       2.    For exemption of income tax in respect
      in the preceding seven (7) previous                of NRE and FCNR deposits investor
      years.                                             should be non-resident under FEMA.

•     In the 1st year of leaving India for         3.    The special tax rate concessions on
      employment outside India, ensure that              income and long-term capital gains on
      you leave before 29th September.                   specified assets, purchased in
      Otherwise total income of the financial            convertible foreign exchange are
      year (including the foreign income)                available to non-residents under the
      will be taxable in India if it exceeds             Income-tax Act.
      the basic exemption limit.                   CHARGEABLE INCOME
•     During the last year of stay abroad, on      Section 5 of the Income-tax Act lays down
      transfer of residence to India, ensure to    the scope of total income of any previous
      come back on or after Feb 1st (or Feb        year of any person. The Section reads as
      2nd in case of a leap year). Since arrival   follows:
      before this date will result in stay in      (1)   Subject to the provisions of this Act,
      India exceeding 59 days. However, a                the total income of any previous year
      person whose stay in India in preceding            of a person who is a resident includes
      four (4) previous years does not exceed            all income from whatever source
      365 days, he may return after September            derived which-
      30th of the relevant year without loss
      of non-resident status.                            (a)   is received or is deemed to be
                                                               received in India in such year by
Implications of Residential Status for                         or on behalf of such person ;or
NRIs/PIOs
                                                         (b)   accrues or arises or is deemed to
The complexities of determining the                            accrue or arise to him in India
residential status for individual NRI/PIO                      during such year; or
under various statutes and regulations will
be obvious from the provisions outlined                  (c)   accrues or arises to him outside
                                                               India during such year:
114
                                                  TAX PROVISIONS       AND   OVERSEAS INDIANS



      Provided that, in the case of a person     Explanation I.-Income accruing or arising
      not ordinarily resident in India within    outside India shall not be deemed to be
      the meaning of sub-section (6) of          received in India within the meaning of this
      Section 6, the income which accrues        section by reason only of the fact that it is
      or arises to him outside India shall not   taken into account in a balance sheet
      be so included unless it is derived from   prepared in India.
      a business controlled in or a profession   Explanation 2.-For the removal of doubts,
      set up in India.                           it is hereby declared that income which has
(2)   Subject to the provisions of this Act,     been included in the total income of a person
      the total income of any previous year      on the basis that it has accrued or arisen or
      of a person who is a non-resident          is deemed to have accrued or arisen to him
      includes all income from whatever          shall not again be so included on the basis
      source derived which                       that it is received or deemed to be received
      (a)   is received or is deemed to be       by him in India.”
            received in India in such year by    Thus, it is clear from the above that
            or on behalf of such person; or      the incidence of tax depends upon a
      (b)   accrues or arises or is deemed to    person’s Residential Status and also upon the
            accrue or arise to him in India      place and time of accrual and receipt of
            during such year.                    income.

 In tabular form, the above may be stated as under:-
 Sources of Income           R & OR                 R & NOR                  NR
 Indian Income
 Income received or
 deemed to be received       Taxable in India       Taxable in India         Taxable in India
 in India during the
 current financial year.
 Income accruing or
 arising or deemed to
 accrue or arise in India    Taxable in India       Taxable in India         Taxable in India
 during the current
 financial year.
 Income accruing or
 arising or deemed to
 accrue or arise outside     Taxable in India       Taxable in India         Taxable in India
 India, but first receipt
 is in India during the
 current financial year


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Sources of Income          R & OR                  R & NOR                 NR
Foreign Income
Income accruing or
arising or deemed to
accrue or arise outside Taxable in India           Taxable in India        Not Taxable in
India and received                                                         India
outside India, during the
current financial year.
Income accruing or
arising outside India
from a Business/           Taxable in India        Taxable in India        Not Taxable in
Profession controlled                                                      India
in/from India during the
current financial year.
Income accruing or
arising outside India
from any source other      Taxable in India        Taxable in India        Not Taxable in
than Business                                                              India
Profession controlled
from India.

As stated earlier, the charge of income tax varies with the factor of residence in the previous
year and the general position with regard to the three categories of taxpayers can be
summarised as follows:
1.    Taxpayers in all categories are chargeable on income, from whatever source derived,
      which is received or is deemed to be received in India by or on behalf of them or
      which accrues or arises or is deemed to accrue or arise to them in India other than
      income specified as exempt income.
      In the above context, it may be noted that the 'receipt' of income refers to the first
      occasion when the recipient gets the money under his own control and it is the first
      receipt that determines the year and place of receipt for the purposes of taxation. If
      the income is already received outside India, no tax liability will arise when the whole
      or any part of such income is remitted to India.
2.    A "resident and ordinarily resident" pays tax in India on his entire
      world income, wherever accrued or received.
3.    A "non-resident" pays tax only on his taxable Indian income and his foreign income
      (earned and received outside India) is totally exempt from Indian taxes.



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                                                  TAX PROVISIONS     AND   OVERSEAS INDIANS



4.   A "not ordinarily resident" pays tax on     rate of 20%. No deductions are, however,
     taxable Indian income and on foreign        allowed and tax is levied on gross income.
     income derived from a business              The basic exemption, below which income
     controlled in or a profession set up in     is not taxed in India, is also not allowed.
     India.
                                                 Under these special concessions a reduced
5.   An individual upon acquiring the status     rate of 10% is applied to the long-term
     of "not ordinarily resident" would not      capital gains on transfer of any foreign
     pay tax, for a period of two years, on      exchange asset held by the NRI/PIO. In order
     the interest on :                           to qualify for long-term capital gains, the
                                                 minimum holding period for shares held in
     (a)   the continued Foreign Currency
                                                 a company or any other security listed in a
           Non-Resident (FCNR) account;
                                                 recognised Stock Exchange in India or units
     (b)    the Resident Foreign Currency        of Unit Trust of India or of a specified
           (RFC) account; and                    Mutual Fund is 12 months and for other
     (c)    on income earned from foreign        assets it is 36 months. Long-term capital
           sources unless such income is         gains on foreign exchange assets are,
           directly received in India or is      however, exempted from tax if the net
           earned from a business controlled     proceeds realized on transfer are re-invested,
           in or a profession set up in India.   within six months of such transfer, in any
                                                 specified securities and the new assets are
SPECIAL PROVISIONS RELATING                      retained for at least three years.
TO CERTAIN INCOME OF NRIS
                                                 The Finance Act, 2003 has withdrawn the
Some of the special tax concessions              taxing provision in respect of dividend
for NRIs/PIO investing in India were             received by the shareholders on shares held
introduced in the Finance Act, 1983, which       in Indian companies. Accordingly, dividend
became effective on June 1, 1983. The tax        received by the shareholders of Indian
provisions were further liberalised by           companies will be exempt from tax. The
subsequent Finance Acts and other amending       income received from units of Unit Trust of
laws.                                            India and of specified mutual funds will also
Special Concessions                              be exempt.

Investment income from 'foreign exchange         Finance Act 2004 has:
assets' comprising shares and debenture of       (a)   granted tax exemption as regards long
and deposits with Indian companies and                 term capital gains arising from transfer
central government securities, subscribed to           of equity shares in a company and/or
or purchased in convertible foreign                    units of equity oriented schemes of
exchange, is charged to income tax at a flat

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      Mutual Funds, which are subject to          PIO making such gain.
      securities transaction tax; and
                                                  Capital gain from transfer of shares or
(b)   fixed at 10% the tax on short-term          debentures of Indian companies will be
      capital gains arising from such shares      computed by converting the cost of
      and! or units.                              acquisition, expenses incurred in connection
                                                  with such transfer and the sale price of the
The tax concessions in respect of investment
                                                  capital asset into the same foreign currency
income (and not long term capital gain) will
                                                  as was initially used in the purchase of these
continue to apply even after the NRI/PIO
                                                  assets and the capital gain so computed in
returns to India but such exemption would
                                                  such foreign currency will be reconverted
be available only in respect of foreign
                                                  into Indian currency. This computation
exchange assets other than shares in Indian
                                                  effectively gives the NRI/PIO the benefit of
companies and the exemption will continue
                                                  claiming exchange loss, if any, on all capital
until such time as the assets are transferred
                                                  gains arising from sale of shares or
or converted into money. However, as
                                                  debentures of Indian companies, whether
dividend is exempt income from 1st April
                                                  these are long term or short term. It may be
2003, exclusion of shares from said
                                                  noted that the aforesaid benefit is available
provision is redundant.
                                                  only if the investment is made from
In the circumstances where the income of          convertible foreign exchange. In respect of
NRI/PIO from such foreign exchange assets         investment made from funds other than
is below the taxable limit or the average level   convertible foreign exchange, and if the asset
of tax is below 20%, he may elect not to be       is a long-term capital asset benefit of
governed by the special tax concessions           indexation can be availed. However,
referred to above. He would then have to          indexation is not available in respect of
furnish a Return of Income in the normal          debentures.
course together with a declaration of such
election and he would be entitled to claim a      TAX EXEMPTIONS FROM INCOME
refund of the whole or a part of the tax          TAX
deducted at source, as may be appropriate.
                                                  Income from the following investments
As mentioned above, short-term capital
                                                  made by NRIs/PIO out of convertible foreign
gains arising from transfer of equity shares
                                                  exchange is totally exempt from tax.
and/or units of equity-oriented schemes of
Mutual Funds, which are subject to securities     (a)   Deposits in under mentioned bank
transaction tax, are taxed at 10%. Other                accounts :
Short-term capital gain is taxable at normal            (i)   Non Resident External Rupee
slab rates as applicable to residents, and the                Account (NRE)
return of income has to be filed by the NRI/

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                                                 TAX PROVISIONS    AND   OVERSEAS INDIANS



      (ii)   Foreign Currency Non-resident     The above exemption may not have much
             Account (FCNR)                    relevance now since the Finance Act 1992
                                               has considerably reduced the scope of
(b)   Units of Unit Trust of India and
                                               Wealth-tax. With effect from 1st April, 1993,
      specified mutual funds, other specific
                                               Wealth-tax is being levied only on non-
      securities, bonds and savings
                                               productive assets like urban land, buildings
      certificates (subject to conditions
                                               (except one house property), jewellery,
      prescribed limits under the Income-tax
                                               bullion and vehicles, cash over Rs.50,000/-
      laws and regulations).
                                               etc. The current rate of Wealth-tax is 1 % on
(c)   Dividend declared by Indian company.     the aggregate market value of chargeable
(d)   Long term capital gains arising from     assets as on 31st March every year in excess
      transfer of equity shares in a company   of Rs.1.5 million.
      and/or equity oriented schemes of        However, it may be noted that NRIs are also
      Mutual Funds, which are subject to       liable to pay wealth tax if the market value
      securities transaction tax.              of taxable assets as on 31st March exceeds
It should be noted that the tax exemptions     Rs.l.5 million.
relating to NRE bank deposits will cease
                                               TAX EXEMPTIONS FROM GIFT TAX
immediately upon the NRI/PIO becoming a
resident in India whereas the interest on
                                               Gift Tax Act, 1958 has been repealed with
FCNR bank deposits will continue to be tax
                                               effect from 1st October, 1998 and as such,
free as long as the NRI maintains the status
                                               Gift Tax is not chargeable on any gifts made
of Resident but Not Ordinarily Resident or
                                               on or after that date.
until maturity, whichever is earlier.
                                               With regard to gifts of foreign exchange or
TAX EXEMPTIONS FROM WEALTH                     specified assets made by NRIs to their
TAX                                            relatives in India, it should be noted that
                                               1.   Gifts made by an NRI/PIO to his or
Where an NRI/PIO returns to India for
                                                    her spouse, minor children or son's
permanent residence, moneys and the value
                                                    wife will involve clubbing of income
of assets brought by him into India and the
                                                    and wealth in the hands of the donor-
value of assets acquired by him out of such
                                                    NRI/ PIO.
moneys within one year immediately
preceding the date of his return and at any    2.   In the case of gifts to minor children
time thereafter are totally exempt from             the clubbing of income, as above, will
Wealth-tax for a period of seven years after        cease upon such children attaining the
return to India.                                    age of 18 years.



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3.    The clubbing provisions will apply, in            Rs.50,000       received      without
      case of gift to spouse or son's wife in           consideration (i.e., gift) by an
      India, only to the' first-stage of income         individual or Hindu undivided Family
      from the original gift. Second-stage              from any person on or after 1st April,
      income arising from investment of the             2006 the whole of such sum will be
      income from the original gift is not              chargeable to income-tax in the
      clubbed and this will constitute the              assessment of recipient (i.e., donee)
      separate wealth/income of the donee               under that head "Income from other
      spouse.                                           sources" for and from assessment year
                                                        2007-08 and onwards. Any sum of
Generally, the income of minor children,
                                                        money exceeding Rs. 25,000 received
from any source (including income from
                                                        without consideration (i.e. gift) by an
gifts from parents) is clubbed with the
                                                        individual or Hindu undivided family
income of the parent whose total chargeable
                                                        from any person on or after September
income is greater.
                                                        1, 2004 but before April 1, 2006, the
Other matters to be noted regarding gifts are           whole of sum will be chargeable to
1.    All gifts received by residents from              income tax.
      NRIs/PIO may be subject to the tax          However, the above provisions will not apply
      authorities requiring the recipient to      to any sum of money /gift received:
      provide evidence as regards the
                                                  (a)   from any relative; or
      identity and financial capacity of the
      donor and genuineness of the gift.          (b)   on the occasion of the marriage of the
                                                        individual; or
2.    Under the Foreign Exchange
      Management Act, 1999 no approval            (c)   under a will or by way of inheritance;
      from Reserve Bank of India (RBI) is               or
      necessary for the resident donee to hold
                                                  (d)   in contemplation of death of the payer;
      gifted immovable property outside
                                                        or
      India provided the said property is
      gifted by a person resident outside         (e)   from a local authority; or
      India. General permission, subject to       (f)   from any fund, foundation, university,
      certain conditions, is granted by RBI             other educational institution, hospital,
      for the resident donees to hold foreign           medical institution, any trust or
      moveable properties such as shares and            institution referred to in section 10
      securities gifted by NRI/PIO donors.              (23C); or
3.    The Income Tax Act has provided that        (g)   from a charitable institute registered
      any sum of money exceeding                        under section 12AA.

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                                                       TAX PROVISIONS   AND   OVERSEAS INDIANS



The term "relative" is defined as:                        anniversary and other social occasions,
                                                          religious ceremonies etc., would be
(1)   spouse of the individual;
                                                          taxable as income. Gifts received on
(2)   brother or sister of the individual;                the occasion of the marriage of the
(3)   brother or sister of the spouse of the              individual, irrespective of any limit,
      individual;                                         (but within reasonable limits) would
                                                          not constitute income.
(4)   brother or sister of either of the parents
      of the individual;                           l      The receipts should be in the form of
                                                          money. Accordingly, any gift in kind
(5)   any lineal ascendant or descendant of               would not be taxable.
      the individual;
                                                   l      The receipts must be without
(6)   any lineal ascendant or descendant of               consideration, implying in the nature
      the spouse of the individual; and                   of gift.
(7)   spouse of the person referred to in (2)
      to (6).                                      PRESUMPTIVE TAX PROVISIONS

Scope of Receipts                                  Certain provisions have been incorporated
l     As per plain reading of the provision,       in the Income-tax Act whereby the total
      any receipt without consideration, save      income of certain non-resident assessee is
      exclusions, whether capital or               computed on the basis of certain percentage
      otherwise, may be considered as              of their gross total receipts. This estimated
      income.                                      income approach is expected to reduce areas
                                                   of uncertainty and resultant tax litigation.
l     Similar receipts by any person (such         However, a non-resident assessee has the
      as, a partnership firm, a company, and       option to maintain books of account and get
      AOP etc.), other than an individual or       his books of account audited u/s 44AB ("Tax
      a Hindu undivided Family, would not          Audit") and offer lower profits and gains for
      constitute income in its hands.              taxation in India than the profits and gains
l     The provision would apply to an              estimated under Sections 44BB and 44BBB
      individual irrespective of his               on presumptive basis.
      residential status. Accordingly, any         Special provisions applicable to non-
      receipt in India by a non-resident of        residents for computing their income under
      the nature discussed above would be          the head "Business Income"
      considered as income in his hands.
                                                   Shipping Business (Sections 44B & 172)
l     Gifts on occasion other than marriage,
      for example, birthday, marriage              Section 44B contains special provisions for


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computing profits and gains of shipping          Business of Operation of Aircraft (Section
business of a non-resident assessee. In the      44BBA)
case of non-residents, such profits and gains
                                                 Section 44BBA contains special provisions
will be taken at an amount equal to 7.5%
                                                 for computing profits and gains of the
(seven and a half per cent of the amount paid
                                                 business of operation of aircraft of non-
or payable to the non-resident or to any other
                                                 residents. It provides for determination of the
person on his behalf on account of the
                                                 income of non-resident taxpayers on
carriage of passengers, livestock, mail or
                                                 presumptive basis at a flat rate of 5% of the
goods shipped at any Indian port as also of
                                                 amount received or receivable for carriage
the amount received or deemed to be
                                                 of persons, livestock, mail or goods from any
received in India on account of the carriage
                                                 place in India or the amount received or
of passengers, livestock, mail or goods
                                                 deemed to be received within India on
shipped at any port outside India.
                                                 account of such carriage from any place
Section 172, which is a complete code in         outside India.
itself, contains provisions for taxation of
                                                 Profits and Gains of Foreign Companies
occasional shipping business of non-
                                                 Engaged in the Business of Civil
residents in respect of profits made by them
                                                 Construction or Erection of Plant
from carriage of passengers, livestock, mail
                                                 And Machinery or Testing or
or goods shipped at a port in India.
                                                 Commissioning thereof, in Connection
Business of Providing Services and               with certain Turnkey Power Projects
Facilities in Connection with Exploration        (Section 44BBB)
etc. of Mineral Oils (Section 44BB)
                                                 Section      44BBB         provides       that,
Section 44BB contains special provisions for     notwithstanding anything to the contrary
computation of taxable income of a non-          contained in Sections 28 to 44AA of the
resident assessee engaged in the business of     Income-tax Act, the income of foreign
providing services or facilities in connection   companies who are engaged in the business
with, or supplying plant and machinery on        of civil construction or erection or testing or
hire, used or to be used, in the prospecting     commissioning of plant or machinery in
for, or extraction or production of, mineral     connection with a turnkey power project
oils. It provides that 10% of the amount paid    shall be deemed at 10 per cent of the amount
or payable to, or the amount received or         paid or payable to such assessee or to any
receivable by, the assessee for provision of     person on his behalf, whether in or out of
such services or facilities or supply of plant   India. For this purpose, the turnkey power
and machinery shall be deemed to be the          project should be approved by the Central
taxable income of such non-resident              Government. It has also been clarified that
assessee.                                        erection of plant or machinery or testing or


122
                                                    TAX PROVISIONS   AND     OVERSEAS INDIANS



commissioning thereof will include lying of    The deduction in respect of head office
transmission lines and systems.                expenses will be limited to:
Taxation of Non-Resident's Royalty             a)      An amount equal to 5 per cent of the
Income or Fees for Technical Services                  "adjusted total income" for the relevant
(Section 44DA)                                         year: or
Royalties and fees for Technical Services      b)      The actual amount of head office
received from the Government or an Indian              expenditure attributable to the business
concern by a Non-Resident or a foreign                 in India,
company in pursuance of an agreement
                                                       whichever is least.
entered into after 31-3-2003 shall be
computed under the head "Business Income"      TAX INCENTIVES FOR INDUSTRIES
in accordance with the provisions of the
Income Tax Act i.e. after allowing deduction   Tax holidays in the form of deductions are
for various permissible expenses and           available for private sectors and incentives
allowances.                                    to industries located in special area/regions
Section 44DA does not Permit Deduction         are listed below:
of following Expenses                          Infrastructure Sectors
(i)    expenditure which is not wholly         Deduction of 100% of the profits from
       and exclusively incurred for the        business for a period of 10 years for:
       business of such permanent
       establishment or fixed place of         a.      Development or operation and
       profession in India, and                        maintenance of ports, airports,
                                                       roads, highways, bridges, rail systems,
(ii)   amounts reimbursed by permanent                 inland water ways, inland ports,
       establishment to its head office or             water supply projects, water
       to any of its other offices (Other              treatment systems, irrigation
       than, reimbursement of actual                   projects, sanitation and sewage
       expenses).                                      projects, and solid waste management
Restriction on Deduction of Head Office                systems.
Expenses (SECTION 44C)                         b.      Generation and distribution of power
Section 44C is intended to be made                     that commence before 31.3.2006.
applicable only in the cases of those non-     c.      Development, operation and
residents who carry on business in India               maintenance of Industrial Park or
through their branches.                                Special Economic Zone.



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Hotels and Convention Centre in NCR                    more), old age homes, vocational
(Sec 80-ID)                                            training institutes for hotel
                                                       management, catering and food crafts,
Deduction of 100% of the profits from
                                                       entrepreneurship development,
business of hotels and convention centres for
                                                       nursing and paramedical, civil aviation
a period of 5 years for:
                                                       related training, fashion designing and
a.    Hotel and Convention Centre is                   industrial training, IT related training
      located in National Capital Territory of         centres, IT hardware manufacture units
      Delhi and the districts of Faridabad,            and bio-technology.
      Gurgaon, Gautam Budh Nagar and
                                                 d.    The aforesaid activity takes place in
      Ghaziabad.
                                                       any North-Eastern States(i.e.,
b.    Hotel is constructed and has started or          Arunachal Pradesh, Assam, Manipur,
      starts functioning at any time during            Meghalaya, Mizoram, Nagaland,
      April 1, 2007 and March 31, 2010.                Sikkim and Tripura).
      Likewise, the Convention Centre is
                                                 Tax Exemptions
      constructed at any time during April
      1, 2007 and March 31, 2010.                Following tax exemptions are available in
                                                 different sectors:
Undertakings in North Eastern States
(Sec 80-IE)                                      Deduction of 100% of the Profit from
                                                 Business of
Deduction of 100% of the profits from
business for a period of 10 years for:           (a)   Development or operation and
                                                       maintenance of ports, airports, roads,
a.    Manufacture or production of goods or
                                                       highways, bridges etc. (Sec 80-IA).
      undertakes substantial expansion
      during April 1, 2007 and March 31,         (b)   Generation, distribution and
      2017. Providing eligible services                transmission of power (Sec 80-IA).
      during April 1, 2007 and March 31,
                                                 (c)   Development, operation and
      2017.
                                                       maintenance of an Industrial Park or
b.    Deduction is not available in respect            SEZ (Sec 80-IAB).
      of manufacture or production of
                                                 (d)   By undertakings set up in certain
      tobacco, pan masala, plastic carry bag
                                                       notified areas or in certain thrust sector
      of less than 20 microns or goods
                                                       industries in the North Eastern states
      produced by petroleum and gas
                                                       and Sikkim (Sec 80-IC).
      refineries.
                                                 (e)   By undertakings set up in certain
c.    Eligible services are hotel (2 star or
                                                       notified areas or in certain thrust sector
      above), nursing home(25 beds or

124
                                                    TAX PROVISIONS   AND   OVERSEAS INDIANS



      industries in Uttaranchal and Himachal    The Authority and Its Powers
      Pradesh (Sec 80-IC).
                                                The authority is constituted by the Central
(f)   Derived from export of articles or        Government and is known as "Authority for
      software by undertakings in FTZ,          Advance Ruling" (AAR) [Section 245-O
      EHTP/STP (Sec 10A).                       (1)].
(g)   Derived from export of articles or        AAR consist of three member, viz :
      software by undertakings in SEZ (Sec
                                                l      Chairman (who is a retired judge of the
      10A).
                                                       Supreme Court)
(h)   Derived from export of articles or
                                                l      An IRS officer (who is qualified to be
      software by 100% EOU (Sec 10B).
                                                       a member of CBDT); and
(i)   An offshore banking unit situated in
                                                l      An ILS officer (who is qualified to be
      SEZ from business activities with units
                                                       an additional secretary to the
      located in the SEZ (Sec 80-LA).
                                                       Government of India) [Section 245-
(j)   Derived by undertakings engaged in               O(2)]
      the business of developing and
                                                The AAR enjoys all powers of a Civil Court
      building housing projects (Sec 80-IB).
                                                under the code of Civil Procedure, 1908, as
(k)   Derived by an undertaking engaged in      are referred to in Section 131 of the Income
      the integrated business of handling,      Tax Act, 1961 [Section 245U(1)]
      storage and transportation of food
                                                The AAR also enjoys the status of a Civil
      grains (Sec 80-IB).
                                                Court for the purpose of section 195 of the
(l)   Derived by an undertaking engaged in      Code of Criminal Procedure, 1973. [Section
      the commercial production or refining     245U(2)].
      of mineral oil (Sec 80-IB).
                                                Every proceedings before the AAR is
(m) Derived by an undertaking from export       deemed to be a judicial proceedings within
    of wood based handicraft (Sec 10BA).        the meaning of Sections 193 & 228 and for
                                                the purpose of Section 196 of the Indian
AUTHORITY            FOR       ADVANCE          Penal Code,1860.
RULINGS
                                                Meaning of “Advance Ruling”
Introduction                                    The term "Advance ruling" is defined in
 The Finance Act, 1993 has inserted a new       Section 245N(a) of the Act. Following are
Chapter XIX-B entitled Advance Rulings in       the main features of the definition:
respect of transaction involving non-           l      Advance       ruling    means      the
residents.

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       determination of a question specified           resident arising out of a transaction
       in the application by the applicant;            with a non-resident.
l      Such question may be a question of law     In case of resident applicants, no Income-
       or a question of fact. Such question       tax Authority or the Appellate Tribunal shall
       must be in relation to a transaction and   proceed to decide any issue in respect of
       cannot be a hypothetical or academic       which an application has been made.
       question;                                  Procedure for Making an Application
l      The transaction may be the one which       The application has to be made in following
       is already undertaken or the one which     forms:
       is proposed to be undertaken by the
                                                  l    By Non-Residents : Form 34C
       applicant;
                                                  l    By resident in relation to transaction
l      The determination of such question on
                                                       with Non-Residents : Form 34D
       such a transaction is to be done by the
       AAR.                                       l    By residents notified by the
                                                       Government : Form 34E
This term also indicates the determination
or decision in respect of an issue pending        l    Application must be made in
before:                                                quadruplicate.

(i)    An Income-tax Authority; or                l    It should be presented by the applicant
                                                       in person or by an authorized
(ii)   The Appellate Tribunal.                         representative or may be sent by post;
Such determination could be determination         l    The AAR, at present, holds its sittings
on a question of law or on a question of fact.         at its headquarters at Delhi. The
Who can Apply                                          address is as follows :-
                                                  Authority for Advance Ruling
An application for advance ruling can be
                                                  Mayur Bhavan, 4th Floor, Connaught
made by a NON-RESIDENT as also by a
                                                  Circle, New Delhi-110 001, Fax No.(011)
resident in respect of a transaction with a
                                                  23313675
non-resident. Besides, a resident falling
within a notified class or category may also      l    The application must be accompanied
make an application. The class or category             by draft of Rs. 2500 drawn in favor of
so notified by the Government till date are:           "Authority of Advance Ruling"
l      Public Sector Company; and                      payable at New Delhi.

l      A resident seeking advance ruling in       l    The secretary may send the application
       relation to the tax liability of a non-         back to the applicant if it is defective
                                                       in any manner for removing the defect.


126
                                                      TAX PROVISIONS    AND   OVERSEAS INDIANS



The application mast be signed as per the         l      Where the application is signed by an
provisions of Rule 44E (2) of the Income                 authorized representative, an affidavit
Tax Rule, 1962.                                          setting out the unavoidable reasons
                                                         which entitles him to sign.
Enclosures to the Application
                                                  l      Separate enclosures may be used
l    A statement listing question(s) relation
                                                         where the space provided for any of
     to the transaction on which the advance
                                                         the items in the relevant forms is
     ruling is required. This is optional. The
                                                         insufficient.
     question(s) may be stated in the
     application form itself. If, however,        l      In the covering letter, the applicant may
     space provided is insufficient, separate            make a request for being heard before
     enclosure may be used for this purpose.             pronouncing the ruling.
     It may be noted that the question(s)         Procedure After Making of the
     raised in the application should be          Appliation
     exhaustively drafted covering al
                                                  l      On receipt of the application, the AAR
     aspects of the issue involved and all
                                                         will forward a copy to the
     alternative claims that the applicant
                                                         Commissioner.
     may wish to make without prejudice
     to each other. This is because if at a       l      Commissioner may be called upon to
     later stage the applicant desires to raise          furnish the relevant records.
     any additional question which is not         l      AAR shall examine the application and
     set-forth in the application, he may                such records.
     have to obtain permission of the AAR.
     Granting of such permission is at the        l      After examination, an order shall be
     discretion of the AAR.                              passed u/s 245R(2) to either allow or
                                                         reject the application
l    A statement of relevant facts having a
     bearing on the question(s) on which the      l      A copy of order u/s 245R(2) is sent to
     advance ruling is required.                         the applicant and to the commissioner.

l    A statement containing the applicant's       l      If the application is allowed vide order
     interpretation of law or facts, as the              u/s 245R(2), the AAR shall :-
     case may be, in respect of the                      (i)    Examine such further material as
     question(s) on which the advance                           may be placed before it by the
     ruling is required.                                        applicant;
l    Where the application is signed by an               (ii)   Examine such further material as
     authorized representative, the power of                    may be obtained by the Authority
     attorney authorizing him to sign.                          suo moto; and

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      (iii) Pronounce its advance ruling on      It may sometime happen that owing to
            the question specified in the        reduction in tax rates under the domestic
            application within six months of     law-taking place after coming into existence
            the receipt of the application       of the treaty, the domestic rates become more
            either with or without giving the    favorable to the NRIs/PIO. Since the object
            assessee a hearing.                  of the tax treaties is to benefit the NRIs/PIO,
                                                 they have, under such circumstances, the
DOUBLE   TAX     AVOIDANCE                       option to be assessed either as per the
AGREEMENT (DTAA)                                 provisions of the treaty or the domestic law
                                                 of the land.
The Government of India has entered into
double taxation avoidance agreements (tax        In order to avoid any demand or refund
treaties) with several countries with the        consequent to assessment and to facilitate
principal objective of evolving a system for     the process of assessment, the concerned
the respective countries to allocate the right   authorities in India have provided that tax
to tax different types of income on an           shall be deducted at source out of payments
equitable basis. Tax treaties serve the          to NRIs/PIO at the prevailing rates at which
purpose of providing full protection to          the particular income is made taxable under
taxpayers against double taxation and also       the tax treaties.
aim at preventing discrimination between the
taxpayers in the international field. The
NRIs/PIO would, therefore, be well advised
to take advantage of such treaties in tax
planning for their investments in India.
DTAA can be defined as an "international
agreement between two sovereign States
reaching an understanding as to how their
residents will be taxed in respect of cross
order transactions in order to avoid double
taxation on the same income".
In yet another way, DTAA can be defined as
"an agreement of compromise between two
contracting States whereby each country
agrees to give up something in consideration
of the other country giving up something in
its favour".


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        OVERSEAS CITIZENSHIP   OF   INDIA (OCI)




   PART - III
Other Important
  Matters and
Overseas Indians




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 OVERSEAS CITIZENSHIP OF INDIA
             (OCI)
OCI SCHEME IS OPERATIONAL                            to Lok Sabha / Rajya Sabha /
FROM 02.12.2005                                      Legislative Assembly / Council,
                                                     holding Constitutional posts such as
The Constitution of India does not allow             President, Vice President, Judge of
holding Indian citizenship and citizenship of        Supreme Court / High Court etc.
a foreign country simultaneously. Based on           Registered OCIs shall be entitled to
the recommendation of the High Level                 following benefits:
committee on Indian Diaspora, the
                                                     (i)    Multiple entry, multi-purpose life
Government of India decided to grant
                                                            long visa to visit India;
Overseas Citizenship Of India (OCI)
commonly known as ‘dual Citizenship’.                (ii)   Exemption from reporting to
Persons of Indian Origin (PIOs) of certain                  Police authorities for any length
category as has been specified in the                       of stay in India; and
Brochure who migrated from India and
                                                     (iii) Parity with NRIs in financial,
acquired citizenship of a foreign country
                                                           economic and educational fields
other than Pakistan and Bangladesh, are
                                                           except in the acquisition of
eligible for grant of OCI as long as their
                                                           agricultural or plantation
home countries allow dual citizenship in
                                                           properties.
some form or the other under their local laws.
                                                 3   Any further benefits to OCIs will be
1.    Application for registration as OCI can
                                                     notified by the Ministry of Overseas
      be made online. Before filing the
                                                     Indian affairs (MOIA) under section
      application, Instructions may be
                                                     7B (1) of the citizenship Act, 1955.
      perused so that there is no mistake in
      submission of application. Further the     4   A person registered as OCI is eligible
      details regarding Fee and offices              to apply for grant of Indian citizenship
      where applications have to be filed            under section 5(1) (g) of the citizenship
      may also be perused.                           Act, 1955 if he/she is registered as OCI
                                                     for five years and has been residing in
2.    Persons registered as OCI have not
                                                     India for one year out of the five years
      been given any voting rights, election
                                                     before making the application.




130
                                                     OVERSEAS CITIZENSHIP     OF   INDIA (OCI)



BROCHURE      ON     OVERSEAS                         (b)    Belonging to a territory that
CITIZENSHIP OF INDIA (OCI)                                   became part of India after 15th
                                                             August, 1947; or
1.   Eligibility Criteria                             (c)    Being citizen of India on or after
A foreign national, who was eligible to                      26th January, 1950
become citizen of India on 26.01.1950 or              These could be:
was a citizen of India on or at anytime after
26.01.1950 or belonged to a territory that            (i)    Copy of the passport: or
became part of India after 15.08.1947 and             (ii)   Copy of the domicile certificate
his/her children and grand children, provided                issued by the Competent
his/her country of citizenship allows dual                   authority; or
citizenship in some form or other under the
local laws, is eligible for registration as           (iii) Any other proof.
Overseas Citizenship Of India (OCI). Minor      3.    Evidence of relationship as parent /
children of such person are also eligible for         grand parent, if their Indian origin is
OCI. However, if the applicant had ever been          claimed as basis for grant of OCI.
a citizen of Pakistan or Bangladesh, he/she
                                                4.    Application fee by way of Demand
will not be eligible for OCI.
                                                      Draft (US $ 275 for each applicant or
2.   Application Form and Procedure                   equivalent in local Currency; US $ 25
A family consisting of spouses and upto two           or equivalent in local currency for each
minor children can apply in the same form             PIO cardholder.)
i.e. Form XIX. The form can be filed online     5.    PIO cardholders should submit a copy
or downloaded from our website                        of his/her PIO card.
www.mha.nic.in.
                                                The application form completed in all
The following documents shall be enclosed       respects along with enclosures should be
for each application:                           submitted in duplicate to the Indian Mission
1.   Proof of present citizenship.              / Post of the country of applicant’s
                                                citizenship or where he/she is not in the
2.   Evidence of self or parents or grand       country of citizenship to the Indian Mission
     parents,                                   / Post of the country in which he / she is
     (a)   Being eligible to become a           ordinarily resident. If the applicant is in
           citizen of India at the time of      India, he / she can apply to the Foreigners
           commencement          of    the      Regional Registration Officer (FRRO) at
           Constitution; or                     Delhi, Mumbai, Kolkata or Amritsar or Chief
                                                Immigration Officer (CHIO) Chennai or to


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the Under Secretary, OCI Cell, Citizenship           4.     OCI for PIO Card Holders
Section, Foreigners Division, Ministry of
                                                     PIO card holders who are otherwise eligible
Home Affairs (MHA), Jaisalmer House, 26
                                                     for registration as OCI may apply in the same
Mansingh Road, New Delhi – 110011.
                                                     Form i.e. Form XIX and they will be
3. Procedure for Granting Registration               considered for grant of registration in the
                                                     same manner as other applicants. PIO card
After Preliminary scrutiny, if there is no adverse
                                                     holders have to pay a fee of US $ 25 or
information available against the applicant, the
                                                     equivalent in local currency instead of US $
Indian Mission / Post shall register a person as
                                                     275 for normal applicant. PIO cardholders
OCI within 30 days of application and the case
                                                     will have to surrender his/her PIO card after
shall be referred to MHA for post verification
                                                     knowledge of acceptance of application.
of the antecedents of the applicant. If during
the post verification, any adverse information       5. OCI for Persons who have Applied on
comes to the knowledge of the MHA, the               the Earlier Prescribed Application Form
registration as OCI already granted by the
                                                     All such applications will be considered for
Indian Mission / Post shall be cancelled by an
                                                     grant of OCI on the same line as in 3 above
order under section 7D of the Citizenship Act,
                                                     without seeking fresh application and fees.
1955.
                                                     6. Cancellation of OCI Registration
After preliminary scrutiny, if there is any
adverse information against the applicant,           If it has been found that the registration as
prior approval of MHA, shall be required             an OCI was obtained by means of fraud, false
before grant of registration. MHA may                representation or concealment of any
approve or reject the grant of registration          material fact or the registered OCI has shown
within 120 days from the date of the receipt         disaffection towards the Constitution of
of the application. If the grant of registration     India or comes under any of the provisions
as OCI is approved by MHA, the Indian                of section 7D of the Citizenship Act, the
Mission / Post shall register the person as          registration of such person will not only be
OCI.                                                 cancelled forthwith but he / she will also be
                                                     blacklisted for visiting India.
If the application is filed in India, registration
shall be granted by MHA by following the             7. Benefits to OCI
above procedure.                                     Following benefits will accrue to OCI:
After grant of registration, a registration          (i)    A Multiple entry, multi purpose life
certificate in the form of booklet will be                  long visa for visiting India.
issued and a multiple entry, multi–purpose
life long OCI ‘U’ visa sticker will be pasted        (ii)   Exemption from registration with local
on the foreign passport of the applicant.                   police authority for any length of stay
                                                            in India.

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                                                      OVERSEAS CITIZENSHIP     OF   INDIA (OCI)



(iii) Parity with Non resident Indians             Delhi. In case of PIO Card holder, an amount
      (NRIs) in respect of economic,               of Rs 1,150 has to be paid.
      financial and educational fields except
                                                   In case of application to be filled outside
      in relation to acquisition of agricultural
                                                   India, for the amount of fee to be paid in
      or plantation properties.
                                                   local currency, please visit the web site of
Any other benefits to OCIs will be notified        the respective Indian Mission / Post.
by the Ministry of Overseas Indian Affairs
(MOIA) under Section 7B(1) of the                  FREQUENTLY ASKED QUESTION
Citizenship Act, 1955.
                                                   Q.1.   Who is eligible to apply?
8. Benefits to which OCI is Not Entitled
to                                                 A.1    A foreign national, who was eligible
                                                          to become citizen of India on
The OCI is not entitled to vote, be a member              26.01.1950 or was a citizen of India
of Legislative Assembly or Legislative                    on or at any time after 26.01.1950 or
Council or Parliament, cannot hold                        belonged to a territory that become
constitutional posts such as President, Vice              part of India after 15.08.1947 and
President, Judge of Supreme Court or High                 his/her children and grand children,
Court etc. and he / she cannot normally hold              provided his/her country of
employment in the Government.                             citizenship allows dual citizenship in
9.   Help Desk                                            some form or other under local laws,
                                                          is eligible for registration as
For any clarification/query on the scheme,
                                                          Overseas citizen of India (OCI).
please visit our website www.mha.nic.in.
                                                          Minor children of such person are
or visit the website of the local Indian
                                                          also eligible for OCI. However, if the
Mission / Post or contact the Indian Mission
                                                          applicant had ever been a citizen of
/ Post or OCI Cell,Citizenship Section,
                                                          Pakistan or Bangladesh, he/she will
Foreigners Division, Ministry of Home
                                                          not be eligible for OCI.
Affairs, Jaisalmer House, 26 Mansingh
Road, New Delhi – 110011.                          Q.2.   Who was eligible to become
                                                          Citizen of India on 26.01.1950?
APPLICATION FEES
                                                   A.2    Any person who or either of whose
                                                          parents or grand-parents were born
For application to be filled in India, an
                                                          in India as defined in the
amount of Rs. 12,650 has to be paid for each
                                                          Government of India Act, 1935(as
applicant by demand Draft in Favour of “Pay
                                                          originally enacted), and who was
and Account Officer (Secretariat),
                                                          ordinarily residing in any country
Ministry of Home Affairs” payable at New


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       outside India was eligible to become     Q.8.   In what form should a person
       citizen of India on 26.01.1950.                 apply for OCI and where are the
                                                       forms available?
3.     Which territories became part of
       India after 15.08.1947 and from          A.9    A family consisting of spouses and
       what date?                                      upto two minor children can apply
                                                       in the same form i.e. Form XIX,
A.3    The territories, which became part of
                                                       which can be filed online or
       India after 15.08.1947 are:
                                                       downloaded from our website
       (i)    Sikkim           26.04.1975              www.mha.nic.in./oci/oci-main.htm
       (ii)   Pondicherry      16.08.1962       Q.9.   Can application form be filled and
       (iii) Dadra &            11.08.1961             submitted on line?
             Nagar Haveli                       A.9    Yes. Part A of the application form
       (iv) Goa, Daman         20.12.1961              can be filed online. Upon submission
            and Diu                                    of part A online, Part B is
                                                       downloaded instantly and it can be
Q.4.   Can the spouse of the eligible                  printed on computer or by hand in
       person apply for OCI?                           Block letters. Printed Part A and Part
Q.4    Yes, if he/she is eligible in his /her          B of the application form have to be
       own capacity.                                   submitted to the Indian Mission/
                                                       Post/Office.
Q.5.   Who is a minor?
                                                Q.10. What documents have to be
A.5.   A person who has not attained the              submitted with the application?
       age of 18 years is considered minor.
                                                A.10. The following documents shall be
Q.6.   Are minor children whose both                  enclosed for each applicant:
       parents are Indian citizens, eligible
       for OCI?                                        1.   Proof of present citizenship

A.6    NO.                                             2.   Evidence of self or parents or
                                                            grand parents,
Q. 7. Can children of parents, wherein
      one of the parents is eligible for               (a) Being eligible to become a
      OCI, apply for OCI?                                  citizen of India at the time of
                                                           commencement of the
A.7    Yes.                                                Constitution; or
                                                       (b) Belonging to a territory that
                                                           became part of India after 15th


134
                                                       OVERSEAS CITIZENSHIP    OF   INDIA (OCI)



             August, 1947; or                    A.12. Application has to be submitted in
                                                       duplicate for each applicant.
       (c) Being citizen of India on after
           26th January, 1950                    Q.13. Whether applicant(s) have to go in
                                                       person      to   submit       the
       These could be:
                                                       application(s)?
       (i)   Copy of the passport: or
                                                 A.13. No. Application(s) can be sent by
       (ii) Copy of the domicile certificate           post.
            issued by the Competent
                                                 Q.14. Whether the applicant(s) have to
            authority; or
                                                       take oath before the Counsel of the
       (iii) Any other proof.                          Indian Mission/Post?
       3.    Evidence of relationship as         A.14     No. Earlier provision in this regard
             parent / grand parent, if their              has been done away with.
             Indian origin is claimed as basis
                                                 15.      Where to submit the application?
             for grant of OCI.
                                                 A.15     To the Indian Mission / Post of the
       4.    Application fee by way of
                                                          country of citizenship of the
             Demand Draft (US $ 275 for
                                                          applicant. If the applicant is not in
             each applicant or equivalent in
                                                          the country of citizenship, to the
             local currency; US $ 25 or
                                                          Indian Mission / Post of the country
             equivalent in local currency for
                                                          where he is ordinarily residing. If the
             each PIO cardholder)
                                                          applicant is in India, to the FRRO
       5.    PIO cardholders should submit                Delhi, Mumbai, Kolkata or Amritsar
             a copy of his/her PIO card.                  or to the Under Secretary, OCI Cell,
Q.11. What documents would qualify                        Citizenship Section, Foreigners
      for “ Any other proof” for evidence                 Division, Ministry of Home Affairs
      of self or parents or grand parents                 (MHA), Jaisalmer House, 26
      being eligible for grant of OCI?                    Mansingh Road, New Delhi –
                                                          110011.
A.11   Any documentary evidence like a
       school certificate, land ownership        Q.16. Can a person apply in the country
       certificate, birth certificate, etc.            where he is ordinarily residing?
       which may reasonably ascertain            A.16     Yes.
       eligibility.
                                                 Q.17. What are the consequences of
12.    How many copies of application                  furnishing wrong information or
       have to be submitted?                           suppressing material information?


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A.17. All the applications will be subject             in local currency shall be refunded,
      to pre or post enquiry depending on              if registration is refused. US $ 25 is
      whether any adverse information is               the processing fees, which is non-
      voluntarily reported in the                      refundable.
      application or not. If the Government
                                                Q.21. Can a PIO cardholder apply?
      comes to the know that any false
      information was furnished or              A.21. Yes, provided he/she is otherwise
      material       information       was            eligible for grant of OCI like any
      suppressed, the registration as OCI             other applicant.
      already granted shall be cancelled by     Q.22. Will the PIO Cardholder be
      an order under section 7D of the                granted an OCI registration
      Citizenship Act, 1955. The persons              gratis?
      will also be blacklisted thereby
      banning his/her entry into India.         A.22. No. He/she has to make a payment
                                                      of US $ 25 equivalent in local
Q.18. What is the fee for application for             currency along with the application.
      registration as an OCI?
                                                Q.23. Will the PIO Card be honored till
A.18. US $ 275 or equivalent in local                 the time they are valid even after
      currency for each applicant. In case            acquisition of OCI?
      of PIO card holder, US $ 25 or
      equivalent in local currency for each     A.23. No. PIO Card will have surrendered
      applicant.                                      to Indian Mission/Post/MHA for
                                                      grant of OCI registration certificate
Q.19. What is the time taken for                      and OCI ‘U’ visa sticker.
      registration as OCI?
                                                Q.24. What will be issued after
A.19. Within 30 days of the application, if           registration as an OCI?
      there is no adverse information
      available against the applicant. If any   A.24   A registration certificate in the form
      adverse information is available                 of a booklet will be issued and a
      against the applicant, the decision to           multiple entry, multi-purpose OCI
      grant or otherwise is taken within               ‘U’ visa sticker will be pasted on the
      120 days.                                        foreign passport of the applicant. For
                                                       this purpose, the applicant has to
Q.20. If the registration as OCI is not                send the original passport to the
      granted, what amount will be                     Indian Mission / Post after receipt of
      refunded?                                        the acceptance letter/ verifying the
A.20. An amount of US $ 250 or equivalent              status of the application online.



136
                                                 OVERSEAS CITIZENSHIP    OF   INDIA (OCI)



A.24. In case of application filed in India          continue to carry the old passport
      with FRRO, applicants should go to             wherein the OCI ‘U’ Visa sticker was
      the concerned FRRO in person/                  pasted along with new passport for
      authorized person with passport. In            visiting India without seeking a new
      case of applications filed in India            visa, as the visa is lifelong.
      with MHA, applicants should go to
                                              Q.28. Will the applicant lose his
      OCI Cell, MHA, New Delhi in
                                                    citizenship after registering as an
      person/authorized person with
                                                    OCI?
      passport.
                                              A.28. No. As only citizen of the country
Q.25. Will a separate OCI passport be
                                                    which allows dual citizenship under
      issued?
                                                    the local laws in some form or the
A.25   No.                                          other are eligible for applying for
                                                    registration as an OCI, losing foreign
Q.26. Will a duplicate certificate of
                                                    citizenship does not arise.
      registration, as an OCI will be
      issued?                                 Q.29. Can a person registered as an OCI
                                                    travel to protected area/restricted
A.26. Yes. For this purpose, an application
                                                    area without permission?
      has to be made to the Indian Mission
      / Post with evidence for loss of        A.29. No. He/she will be required to seek
      certificate. In case of mutilated/            PAP/RAP for such visits.
      damaged certificate an application
                                              Q.30. Would the Indian civil/criminal
      has to be made enclosing the same.
                                                    laws be applicable to persons
      The applications in both the cases
                                                    registered as OCI?
      have to be made to the same Indian
      Mission / Post which issued the         A.30. Yes. For the period OCI is living in
      certificate alongwith with payment            India.
      of fee of US $ 25 or equivalent in      Q.31. Can a person registered as an OCI
      local currency.                               be granted Indian citizenship?
Q.27. Will a new OCI visa sticker be          A.31. Yes. As per the provisions of section
      issued on the new foreign passport            5(1)(g) of the citizenship Act, 1955,
      after the expiry of the old                   a person who is registered as an OCI
      passport?                                     for 5 years and residing in India for
A.27. Yes. On payment of requisite fee, a           1 Year out of the above 5 Years, is
      new OCI ‘U’ visa sticker will be              eligible to apply for Indian
      issued. However, the applicant can            citizenship.



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Q.32. Will OCI be granted gratis to           Q.37. Is the OCI is entitled to voting
      certain categories of people?                 rights?
A.32. No.                                     A.37     No.
Q.33. Can OCI be granted to foreign           38.      Is the OCI is entitled to hold
      nationals who are not eligible for               Constitutional post in India?
      OCI, but married to persons who
                                              A.38. No.
      are eligible for OCI?
                                              Q.39. Is the OCI is entitled to hold
A.33. No.
                                                    Government post in India?
Q.34. Will foreign-born children of PIOs
                                              A.39. No, except for the posts specified by
      be eligible to become an OCI?
                                                    an order by the Central Government.
A.34   Yes, provided one of the parents is
                                              40.      If a person is already holding more
       eligible to become an OCI.
                                                       than one nationality, can he/she
35.    What are the benefits of an OCI?                apply for OCI?
A.35. Following benefits will be allowed      A.40     Yes, as long as the local laws of at
      to an OCI:                                       least one of the countries allow dual
       a.   Multi-purpose, multiple                    citizenship in some form or the other.
            entries, lifelong visa for        Q.41. What are the advantages of OCI
            visiting India.                         when compared to PIO
       b.   Exemption from NRIs with                cardholders?
            local police authority for any    A.41.(a)       An OCI is entitled to life long
            length of stay in India.                         visa with free travel to India
       c.   Parity with NRIs in respect of                   whereas for PIO cardholder, it is
            economic, financial and                          only valid for 15 years.
            educational fields except in             (b)     PIO cardholder is required to
            matters relating to acquisition                  register with the local police
            of agricultural/ plantation                      authority for any stay exceeding
            properties.                                      180 days in India on any single
Q.36. Will any other benefit be granted                      visit whereas an OCI is exempted
      to OCI?                                                from registration with police
                                                             authority for any length of stay
A.36. Any other benefits to OCI will be
                                                             in India.
      notified by the ministry of Overseas
      Indian Affairs (MOIA) under Section            (c)     An OCI gets a specific right to
      7B (1) of the Citizenship Act, 1955.                   become an Indian Citizen as in
                                                             31, whereas the PIO card holder
                                                             does not have this.

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                                                      OVERSEAS CITIZENSHIP    OF   INDIA (OCI)



Q.42. Whether an OCI be entitled to                    jurisdiction over the country of which
      apply for and obtain a normal                    applicant is a citizen; or
      Indian passport, which is given to       l       If he/she is not living in the country of
      a citizen of India?                              his/her citizenship, to the Indian
A.42. No. Indian Passport is given only to             Mission /post having jurisdiction over
      Indian citizen.                                  the country of which the applicant is
                                                       ordinarily resident.
Q.43. Whether         national of
      commonwealth countries are               Applicants any where in India can File
      eligible for OCI?                        with Ministry of Home Affairs (MHA) at
                                               the following Address:
A.43. Yes, if they fulfill the eligibility
      criteria.                                Under Secretary (OCI), Foreigners Division,
                                               Ministry of Home Affairs, 26-Mansingh
Q.44. Can a person renounce OCI?               Road, Jaisalmer House, New Delhi-110011.
A.44. Yes. He/she has to declare intention     Tel. No. 011-110011 e-mail: usoci-
      of renunciation in Form XXII to the      mha@nic.in
      Indian Mission /Post where OCI           Applicants in Delhi, Mumbai, Chennai,
      registration was granted. After          Kolkata and Amritsar can also file with
      receipt of the declaration, the Indian   respective    Foreigners    Regional
      Mission/Post shall issue an              Registration Officers (FRROs) at the
      acknowledgement in Form XXII A.          following addresses:
Q.45. Do the applicants who have               i.      FRRO, East Block- VIII Level-2
      applied on the earlier prescribed                Sector-1, R.K. Puram, New Delhi-
      application form have to apply                   110066. Tel.No. 011-26711384
      again in the new form?
                                               ii.     FRRO, Badruddin Tayyabji Marg,
A.45. No. All such application will be                 Mumbai-1 Tel.No. 022-26571998
      considered for registration as OCI       iii.    FRRO, Shastri Bhavan Annexe, 26,
      without seeking fresh applications               Haddows Road, Chennai. Tel. No.
      and fee.                                         044-28232642

ADDRESSES OF OFFICES TO FILE                   iv.     FRRO, 237, A.J.C. Bose Road,
OCI APPLICATIONS                                       Kolkata. Tel.No. 033-22470549
                                               v.      FRRO, D-123,Ranjeet Avenue,
Applicants outside India can file                      Amritsar. Tel.No. 0183-2508250.
applications to
l    The Indian Mission /Post having

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READY RECKONER   FOR   OVERSEAS INDIANS



          Comparative chart on NRI/PIO/PIO CARD HOLDERS/OCI
              NRI             PIO             PIO Card holder                     OCI
1. Who?   An Indian       A person who       A person registered as      A person registered as
          citizen who     or whose any of    PIO card Holder under       Overseas Citizen of
          is ordinarily   ancestors was      MHA’s scheme vide           India (OCI) under
          residing        an      Indian     Notification      No.       section 7A of the
          outside         national and       26011/4/98-F.I dated        citizenship Act,1955
          India and       who           is   19.08.2002.
          holds an        presently
          Indian          holding another
          passport        c o u n t r y ’s
                          citizenship/
                          nationality i.e.
                          he/she        is
                          holding foreign
                          passport

2. Who is -               -                  Any person who at any       A foreign national, who
eligible?                                    time held an Indian         was eligible to become
                                             passport; or he or either   citizen of India on
                                             of his parents or grand     26.01.1950 or was a citizen
                                             parents was born in or      of India on or at anytime
                                             was      permanently        after 26.01.1950 or
                                             resident in India as        belonged to a territory that
                                             defined in government       become part of India after
                                             of India Act, 1935 and      15.08.1947 and his/her
                                             other territories that      children and grand
                                                                         children, provided his/her
                                             become part of India
                                                                         country of citizenship
                                             thereafter provided
                                                                         allows dual citizenship in
                                             neither was at any time
                                                                         some form or other under
                                             a       citizen        of   the local laws, is eligible for
                                             Afghanistan, Bhutan,        registration as overseas
                                             China, Nepal, Pakistan      citizen of India (OCI )
                                             and Sri Lanka,. Or who      Minor children of such
                                             is a spouse of a citizen    person are also eligible for
                                             of India or a person of     OCI .However, if the
                                             Indian origin as            applicant had ever been a
                                             mentioned above.            citizen of Pakistan or
                                                                         Bangladesh, he/she will
                                                                         not be eligible for OCI..


140
                            OVERSEAS CITIZENSHIP       OF   INDIA (OCI)



3. How can -    -   Eligible persons to        Eligible persons to
one get?            apply in the prescribed    apply on line /down
                    form along with            load application form
                    enclosures.Form            from          MHA’s
                    available on MHA’s         website:www.mha.nic.in.
                    website         ;www.
                    mha.nic.in.

4. Where to -   -   To the Indian Mission/     To the Indian Mission/
apply?              Post in the country        Post of the country of
                    where the applicant is     applicant’s citizenship
                    ordinarily resident; if    or where he/she is not
                    in India on long term      in the country of
                    visa (more than one        citizenship, to the
                    year), to the FRRO,        Indian Mission/Post of
                    Delhi,      Mumbai,        the country in which
                    Kolkata, Amritsar,         he/she is ordinarily
                    CHIO, Chennai or to        resident.      If    the
                    the joint secretary        applicant is in India he/
                    (foreigners),MHA.          she can apply to the
                                               FRRO at Delhi,
                                               Mumbai, Kolkata,
                                               Amritsar,        CHIO,
                                               Chennai or to the
                                               Under Secretary, OCI
                                               Cell,     Citizenship
                                               Section Foreigners
                                               Division, Ministry of
                                               Home            Affairs,
                                               Jaisalmer House, 26
                                               Mansingh Road, New
                                               Delhi-110011.

5. Fees?    -   -   Rs. 15000/- or             US $ 275 or equivalent
                    equivalent in local        in local currency. In
                    currency for adults.       case of PIO card
                    For the children upto      holders, it is US $ 25
                    the age of 18 years, the   or equivalent in local
                    fee is Rs. 7500/- or       currency.
                    equivalent in local
                    currency.


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6. Which -                -             PIO of all countries         PIOs of all countries
nationals                               except Afghanistan,          except Pakistan and
are eligible?                           Bangladesh, Bhutan,          Bangladesh provided
                                        China,Nepal, Pakistan        the     country      of
                                        and Sri Lanka                nationality allows dual
                                                                     citizenship in some
                                                                     form or other under
                                                                     local laws.

             All benefits No specific   (1)Shall not require a       (1)A multiple entry
7.    What
             as available benefits.     separate visa to visit       multi- purpose life long
benefits one
             to Indian                  India.                       visa for visiting India.
is entitled
             citizen                    (2) Will be exempt           (2)Exemption from
to?
             subject to                 from the requirements        registration with local
             notification               of registration if his/her   police authority for any
             issued by the              stay on any single visit     length of stay in India.
             Government                 in India does not            (3) Parity with non
             from time to               exceed 180 days.             resident Indians (NRIs)
             time.                      (3) In the event of          in respect of economics
                                        continuous stay in           financial            and
                                        India exceeding 180          educational fields
                                        days, he/she shall have      except in relation to the
                                        to get himself/herself       acquisition            of
                                        registered within 30         agricultural           or
                                        days of the expiry of        plantation properties.
                                        180 days with the            No parity shall be
                                        concerned FRRO/              allowed in the sphere of
                                        FRO.                         political rights.
                                        (4) Parity with NRIs in      Any other benefit to
                                        respect of all facilities    OCIs will be notified
                                        available to the later in    by the Ministry of
                                        the economic, financial      Overseas Indian Affairs
                                        and educational fields       (MOIA) under section
                                        except in maters             7B (1) of the
                                        relating       to      the   Citizenship Act 1955.
                                        acquisition             of
                                        agricultural / plantation
                                        properties. No parity
                                        shall be allowed in the
                                        sphere of political
                                        rights.


142
                                                     OVERSEAS CITIZENSHIP       OF   INDIA (OCI)



8. Does he/ No               Yes and of      Can visit India without Can visit India without
she require                  specific type   visa for 15 year from visa for life long.
visa for                     depending       the date of issue of PIO
visiting                     on his /her     card.
India?                       purpose of
                             visit.

9. Is he    No               Yes             Yes one time when the No
required to                                  stay in India exceeds
register                                     180 days for the first
with local                                   time
police
authorities
in India ?

10. What    All activities Activity as All activities except            All activities except
activities                 specified in m o u n t a i n e e r i n g ,   mountaineering,
can be                     the visa     missionary              and     missionary       and
under taken                             research work and               research work and
in India?                               existing PAP/ RAP               existing PAP/ RAP
                                        Which require specific          Which require specific
                                        permit.                         permit

11. How      He/she is an    As per          As per section 5 (1) (a)   Registered OCI may be
can one      Indian          section 5       & 5(1) (c) of the          granted          Indian
acquire      citizenship     (1) (a) &       Citizenship Act, he/she    citizenship after 5 years
Indian                       5(1) (c) of     has to reside in India     from       date        of
citizenship?                 the             for minimum 7 years        registration provided
                             Citizenship     before          making     he/she stays for one
                             Act, he/she     application for granting   year in India before
                             has to          Indian citizenship         making application
                             reside in
                             India for
                             minimum 7
                             years before
                             making
                             application
                             for granting
                             Indian
                             citizenship



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                                   PIO CARD
THE PIO CARD SCHEME                               Procedure for Application for PIO Card
                                                  The card would be issued to eligible
In a significant step towards granting dual
                                                  applicants through the concerned Indian
citizenship to Overseas Indians, the
                                                  Embassies/ High Commission / Consulates
Government approved the person of Indian
                                                  (Annexure II) and for those staying in India
origin (PIO) card scheme to permit all such
                                                  on a long term visa, from the concerned
individuals visa-free entry into the country.
                                                  Foreigners Regional Registration Officer
                                                  (Delhi, Mumbai, Calcutta, Chennai) and also
Definition of Person of Indian Origin
                                                  from the Ministry of Home Affairs,
(PIO)
                                                  Foreigners Division, Lok Nayak Bhawan,
                                                  Khan Market, New Delhi-110003. (Refer
“Person of Indian Origin” means a foreign
                                                  Annexure 1 for the Application for PIO Card
citizen [not being a citizen of Pakistan,
                                                  Scheme).
Bangladesh and other countries as may be
specified by the central government from          The fees for the card, which will have a
time to time] if,                                 validity of 15 years, would be
                                                  Rs.15, 000/- and for the minor (below 18
i.     He/she at any time held an Indian
                                                  years), the fees is Rs.7,500/-.
       passport;
                                                  Benefits of Person of Indian Origin (PIO)
ii.    He/she or either of his/her parents or
                                                  Card Scheme
       grand parents or great grand parents
       was born in and permanently resident       Besides making their journey back to their
       in India as defined in the Government      roots simpler, easier and smoother, this
       of India Act, 1935 and other territories   scheme entitles the PIOs to a wide range of
       that became part of India thereafter       economic, financial, educational and cultural
       provided neither was at any time a         benefits.
       citizen of any of the specified
                                                  The benefits envisaged under the scheme
       countries; or
                                                  include:-
iii.   He/she is a spouse of a citizen of India
                                                  (i)    No requirement of visa to visit India;
       or a person of Indian origin covered
       under (i) or (ii) above.                   (ii)   No separate “Student Visa” or
                                                         “Employment Visa” required for




144
                                                     OVERSEAS CITIZENSHIP     OF    PIO CARD
                                                                                   INDIA (OCI)



      admission in colleges/ institution or for   Issue of Gratis PIO Card
      taking up employment respectively;
                                                  Gratis PIO Card may be issued to an
(iii) No requirement to register with the         exceptionally eminent person of Indian
      Foreigners Registration Officer if          Origin, who plays an important role in
      continuous stay does not exceed 180         building bridges between India and the
      days. Registration is required to be        country of his/her adoption, if he/she
      done within a period of 30 days after       expresses a desire to obtain the PIO Card.
      expiry of 180 days;
                                                  Duplicate PIO Card
(iv) Parity with Non-Resident Indians in
                                                  Duplicate PIO Card can be obtained in case
     respect of facilities available to the
                                                  of loss, etc., on a request supported by FIR
     latter in economic, financial,
                                                  and other documents. A duplicate PIO Card
     educational fields, etc. These facilities
                                                  shall be issued on depositing a fee of US $
     will include:
                                                  100. Duplicate PIO Cards will be issued by
(a)   Acquisition, holding, transfer and          the same office that issued the original one.
      disposal of immovable properties in
                                                  PIO cards issued earlier as per PIO Card
      India except for agricultural/plantation
                                                  Scheme for US $1000 will continue to
      properties;
                                                  remain valid without any extra fee, with
(b)   Admission of children in educational        validity extendable by 10 more years.
      institution in India under the general
      category quota for NRIs—including
      medical/engineering colleges, IITs,
      IIMs etc.;
(c)   Various housing schemes of Life
      Insurance Corporation of India, State
      Government and other Government
      agencies;
(d)   Special counters at the immigration
      check post for speedy clearance.
(v)   All future benefits that would be
      extended to NRIs would also be made
      to PIO Card holders
(vi) They however cannot enjoy political
     rights in India.



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BAGGAGE RULES AND VISA RULES

BAGGAGE RULES                                     Laptop computer ( computer notebook)
                                                  brought by a passenger of the age of 18 years
Baggage Rules is an aspect of customs             and above has been exempted w.e.f from
network which the common man going                9-1-2004.
abroad or returning from abroad has to deal       Alcoholic liquor or wines up to two litres,
with at customs.                                  200 cigarettes and jewellery upto Rs. 20,000/
Under the General Baggage Rules,                  - for a lady and Rs. 10,000/- for a gentleman
                                                  can be brought as part of the free baggage
(1)   used personal effects, and
                                                  allowance. Import of cinematography films,
(2)   new articles up to a value of Rs.           exposed but not developed, brought as part
      12,000/- per adult passenger ( Rs.          of baggage has also been made duty free.
      25,000/- if the person returns to India
                                                  In case a single article exceeding the limit
      after more than three days) are exempt.
                                                  of Rs. 12,000 ( or Rs. 25,000 in value) is
A lower Free Allowance of Rs. 6,000/- is          brought, 35% flat rate of duty with no SAD
allowed to passengers coming ( after 3 days)      or CVD is payable on excess value. 40%
from Nepal, Bhutan, Burma or China                without SAD & CVD is also the effective
provided they do not come across land             rate of duty for any article of bona fide
borders with these countries.                     baggage brought in excess of free allowance
                                                  except for fire arms, cartridges of fire arms
Passengers returning from Pakistan by road
                                                  exceeding 50 and excess cigarettes, cigars
are allowed duty free baggage up to Rs.
                                                  or tobacco.
12,000/-.
                                                  But in terms of exemption Notification No.
For child passengers (below 10 years of age),
                                                  49/96-Cus., dated 23-7-1996, specified
free allowance is 50% of the allowance
                                                  goods covered under listed Headings and
admissible to an adult passenger of that
                                                  Notifications therein attract merit rate ( as
category.
                                                  applicable to cargo) even if imported as
The General Free Allowance of passenger           baggage. Conditions, if any, prescribed in the
is not clubbable with similar allowance of        listed Notification will apply to imports
another passenger ( for example, husband          under baggage also. Free allowance is
or wife or any other relative traveling with      restricted in case of visit to contiguous
the passenger ) to permit clearance of a costly   countries like Maldives, Sri Lanka, Nepal
article of baggage.

146
                                                          BAGGAGE RULES       AND   VISA RULES



and Bhutan.                                      months/6 months ( duty free household
                                                 article worth Rs. 12,000/- and professional
‘Baggage’ does not include motor vehicle,
                                                 equipment worth Rs. 20,000/- /40,000/-).
fire arms and goods of commercial nature
or in commercial quantities.                     Allowance for gifts as well as for travel
                                                 souvenirs in the case of foreign tourists is
There are value/ quantity restrictions on
                                                 Rs. 8,000/-( Rs.6,000/- in the case of tourists
bringing jewellery, cigarettes and liquor.
                                                 from Pakistan origin), apart from personal
However, primary gold up to ten kgs. per
                                                 effects in use of the tourist. Peak rate of duty
passenger and silver up to one hundred kgs.
                                                 for baggage goods of Heading 98.03 is 150%
per passenger can be imported on payment
                                                 non-bona fide baggage is in addition to fine
of normal duties in convertible foreign
                                                 and penalty.
exchange provided the concerned passenger
is coming to India after at least six months’    Foreign Travel Tax and Inland Air Travel Tax
stay abroad. For crew members of a vessel        have been exempted for all passengers with
or aircraft, free allowance for petty gifts is   effect from 9-1-2004.
Rs 600/-.
                                                 Passengers not carrying any dutiable goods
                                                 can walk through the Green Channel. Others
TRANSFER OF RESIDENCE
                                                 are required to come to the Red Channel and
In the case of passengers transferring their     report at customs counter. There are now no
residence to India after stay abroad of two      restrictions on resale of baggage goods.
years or more, personal and household            Passengers importing / exporting
effects in use abroad and six new specified      commercial samples as accompanied
household gadgets are exempt from duty but       baggage should follow the procedure laid
15 % flat duty without SAD has to be paid        down in this behalf. If an importer is desirous
on 17 listed articles of consumer durables       of paying duty on an article at the cargo rate
within value ceiling of 5 lakhs. In the case     but by mistake he has brought the said article
of transfer of residence after stay abroad of    as baggage, he can rectify the error by filling
at least one year, other personal and            an application before the authorities along
household effects in use abroad and not          with submission of a bill of entry (Collector
exceeding Rs. 75,000/- in aggregate value        v. A.K.Dhawan)
can be brought in free. In addition, there are
                                                 Please visit the website www.cbec.gov.in for
free allowances of varying value for
                                                 the complete Baggage Rules 1998
professional artisans coming to India after 3




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                                      VISA RULES

       GENERAL VISA REQUIREMENTS FOR ENTRY / STAY IN INDIA
                             UNITED STATES OF AMERICA
Visa application forms (available at www.indiacgny.org) should be accompanied for all
types of visas by two photographs and applicant’s original passport should have validity of
six months.
Type of Visa           Other requirements/conditions

Tourist Visa           Nil
Transit Visa           Copy of airline tickets
Entry Visa             Issued to People of Indian Origin only
Business Visa          Letter from the sponsoring organization indicating nature of
                       applicant’s business, probable duration of stay, validity of visa,
                       places and organizations to be visited and also a guarantee
                       to meet maintenance expenses etc.
Employment Visa Contract with the employer
Student Visa           A letter confirming admission to the institution along with
                       evidence of financial arrangements for stay in India.In case of
                       admission in medical or paramedical courses in India, NOC
                       from Ministry of Health, Govt. of India.In case of admission in
                       graduate or post graduate courses in engineering/technical
                       institutions in India, NOC from Ministry of Human Resources
                       Development (Department of Education)
Research Visa          Approval of Ministry of Human Resource Development
Journalist Visa        Given to professional journalists and photographers for upto
                       three months stay in India
Conference Visa        Letter of invitation from the organizer of the conference

UNITED KINGDOM
Visa application forms (available at http://www.hcilondon.net) should be accompanied for
all types of visas by two photographs and applicant’s original passport should have validity
of six months.




148
                                                           BAGGAGE RULES      AND   VISA RULES



 Type of Visa           Other requirements/conditions
 Tourist Visa           Nil
 Business Visa          Letter explaining the nature of business and duration from
                        UK company and letter of invitation from an Indian Company
 Conference Visa        Letter of invitation from the conference organizer
 Transit Visa           Evidence of onward travel outside India is required
 Entry Visa             Issued to People of Indian Origin only
 Long Term Visa         This settlement visa is issued to people of Indian origin
 Student Visa           Letter of admission from recognized educational institution
                        with duration of the course
 Journalist Visa        Letter from employer where applicable
Employment Visa An employment contract signed by both the parties should be
                submitted

Sports Visa             Invitation Letter from India

SOUTH AFRICA
Visa application forms (available at http://www.indconjoburg.co.za) should be accompanied
for all types of visas by two photographs, original passport (South Africa or any other
country), one air ticket copy (except two for business visa) and birth certificate/South African
ID.
 Type of Visa           Other requirements/conditions
 Tourist Visa           Nil
 Business Visa          Two copies of invitation letter from India and two copies of
                        letter from South African company
 Study Visa             Letter from School, Institution or college (Duration of study
                        must be mentioned)
Employment Visa Employment Letter from company and letter of NOC from
                Ministry of Labour, India




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MAURITIUS
Visa application forms (available at http://indiahighcom.intnet.mu) should be accompanied
for all types of visas by three passport size photographs, photocopy of confirmed return air
ticket and applicant’s original passport should have validity of six months.
 Type of Visa           Proof/ Other requirements/conditions
 Tourist Visa           Hotel booking in cities intended to travel in India, Travellers
                        cheques or receipt of exchange of money in the name of
                        applicant $50 per day per person for stay in India or notarized
                        letter of sponsorship from person residing in India, guaranteeing
                        all expenses of stay, travel etc of the applicant in India or Credit
                        Cards accompanied by covering letter of Bank
 Business Visa          Business in Mauritius Letter from company in Mauritius
                        showing exact nature of business to be transacted and details
                        of person deputed for the purpose and Letter from company
                        in India, indicating the details of person, visiting India and the
                        nature of Business
 Education Visa         Eligibility certificate from concerned university
 for freshers
 Student Visa           Eligibility certificate from concerned university
 Extension              Photocopy of college Identity Card, Bonafide certificate,
                        Residence permit photocopy
Note: the above VISA rules are not applicable to the holders of diplomatic and official passport.
MALAYSIA
Visa application forms (available at http://www.indianhighcommission.com.my) should
be accompanied for all types of visas by three photographs and applicant’s original passport
should have validity of six months.
 Type of Visa              Other requirements/conditions

 Transit Visa           Confirmed Air Ticket
 Tourist Visa           Nil
 Business Visa          Proof of business in India
 Student Visa           Proof of admission in recognized institution in India
 Employee Visa          Proof of employment in India
 Other Visa             Consult the counter


150
                                                          BAGGAGE RULES      AND   VISA RULES



UNITED ARAB EMIRATES
Visa application forms (available at www.indianembassy.org.sa) should be accompanied for
all types of visas by two photographs, Saudi exit/re-entry visa on the passport and applicant’s
original passport should have validity of two months beyond the validity of visa,
Type of Visa           Other requirements/conditions
Tourist Visa           Letter of recommendation from sponsor
Business Visa          Letter of request from business establishment in Saudi Arabia
Transit Visa           Letter of recommendation from sponsor
Student Visa           Provisional admission letter from recognized educational
                       institution in India. Letter of financial support/guardian along
                       with a bank guarantee worth Saudi riyals Seven Thousand.
                       Letter of recommendation from sponsor
Visa to visit     Names and complete addresses of relatives to be visited in
relatives or for  India. Medical Reports/Hospital References in case of medical
                  treatment.
Medical Treatment Letter of recommendation from sponsor.
Employment Visa Copy of contract signed with the employer in India or letter
                regarding offer of appointment in India. Letter of
                recommendation from sponsor.
Diplomatic/            Note verbale from the applicant’s embassy indicating the
Official Visa          purpose of the visit

CANADA
Visa application forms (available at http://www.hciottawa.ca) should be accompanied for
all types of visas by one photograph for the business visa and two photographs for the rest
and a valid passport.
Type of Visa         Others requirements/conditions
Business Visa        Letter from the applicant’s company stating the purpose of visit
                     and another letter from Indian company inviting the applicant
                     Additional Business Information Sheet to be filled in
Student Visa         Letter of admission from Government of India recognized
                     school/institution
Long Term Visa Sufficient reason with documentary proof for granting long term
               visa


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              FOREIGN CONTRIBUTION
              (REGULATION) ACT, 1976
INTRODUCTION                                      and audited accounts. The registration is
                                                  granted only to such association, which has
Foreign Contribution (Regulation) Act, 1976
                                                  proven track record of functioning in the
(FCRA) was enacted in the year 1976 with
                                                  chosen field of work during last three years,
the prime objective of regulating the
                                                  and after registration, such organization is
acceptance and utilization of foreign
                                                  free to receive foreign contribution from any
contribution and foreign hospitality by
                                                  foreign source for stated objectives.
persons and associations working in the
                                                  Registration is granted only after thorough
important areas of national life. The focus
                                                  security vetting of the activities and
of this Act is to ensure that the foreign
                                                  antecedents of the organization and office
contribution and foreign hospitality is not
                                                  bearers thereof. However, such organizations
utilized to affect or influence electoral
                                                  which are newly established and do not have
politics, public servants, judges and other
                                                  proven track record of functioning may also
people working the important areas of
                                                  receive foreign contribution for specific
national life like journalists, printers and
                                                  activities, for a specific purpose and from a
publishers of newspapers, etc. The Act also
                                                  specific source after seeking project based
seeks to regulate flow of foreign funds to
                                                  prior permission (PP) from the Ministry of
voluntary organizations with objective of
                                                  Home Affairs.
preventing any possible diversion of such
funds towards activities detrimental to the       In order to bring in transparency in the
national interest and to ensure that such         administration of the Foreign Contribution
individuals and organizations may function        (Regulation) Act, 1976 and the Rules framed
in a manner consistent with the values of         there under, improve the functioning,
sovereign democratic republic.                    disseminate the information and enhance
                                                  user friendliness of the various procedures
The organizations seeking foreign
                                                  the web-site is uploaded with all the FCRA
contributions for definite cultural, social,
                                                  forms, Citizens’ Charter, list of registered
economic, educational or religious
                                                  associations, State-wise status of application
programmes may either obtain registration
                                                  for registration/prior permission, etc. In our
or prior permission to receive foreign
                                                  efforts to bring in further improvements in
contribution from Ministry of Home Affairs
                                                  the system, the following additional charters/
by making application in the prescribed
                                                  materials are uploaded for information and
format and furnishing details of the activities
                                                  guidance of all concerned:

152
                                           FOREIGN CONTRIBUTION REGULATION ACT, 1976



•    Citizens charter                            NOTE: Contributions made by a citizen of
                                                 India living in another country, from his
•    Charter for NGO/Associations
                                                 personal savings, through the normal
     applying for grant of Prior permission/
                                                 banking channels, is not treated as foreign
     Registration under      the FCRA.
                                                 contribution. It is advisable to obtain the
•    Charter for NGOs/Associations               passport details of the concerned citizen of
     granted Prior permission/Registration       India before accepting such contributions.
     under the FCRA.
                                                 What is a Foreign Source
•    Charter for the Chartered Accountants.      Foreign source means the government of any
•    Charter for the Banks.                      foreign country or territory or its agency;
                                                 international agency; a foreign company;
•    Dealing officers
                                                 citizen of a foreign country. For more details
                                                 see section 2(1)(e) of the Foreign
CITIZENS CHARTER
                                                 Contribution (Regulation) Act, 1976.
Receipt of Foreign Contribution                  Who     cannot        Receive       Foreign
                                                 Contribution
The provisions of the Foreign Contribution
(Regulation) Act, 1976 regulate the receipt      Foreign contribution cannot be accepted by
of foreign contribution in the country. The      a candidate for election; correspondent,
Foreign Contribution (Regulation) Rules          columnist, cartoonist, editor, owner, printer
1976 contain the various forms prescribed        or publisher of a registered newspaper;
for this purpose.                                judge, government servant or employee of
                                                 any corporation; member of any legislature;
What is Foreign Contribution
                                                 political party or office bearer thereof.
Foreign contribution means the donation,
                                                 Who can Receive Foreign Contribution
delivery or transfer, made by any foreign
source of any,                                   An association having a definite cultural,
                                                 economic, educational, religious or social
a)   Article, not given to a person as a gift,   programme can receive foreign contribution
     for personal use, if the market value,      after it obtains the prior permission of the
     in India, of such article exceeds one       Central Government, or gets itself registered
     thousand rupees;                            with the Central Government.
b)   Currency, whether Indian or foreign;
     or,                                         Forms Prescribed for this Purpose
c)   Foreign security as defined in clause       An application for seeking prior permission
     2(i) of the Foreign Exchange                to accept foreign contribution is to be made
     Regulation Act, 1973.                       in Form FC – 1A and for grant of registration
                                                 in Form FC – 8 respectively.

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Designated Bank Account                          end of the application form, from any of the
                                                 competent authority mentioned therein viz.,
An association granted prior permission or
                                                 Any concerned Collector of District;
registration under the Act can receive the
                                                 Department of the State Government;
foreign contribution and subsequently utilise
                                                 Ministry / Department of the Government
it using a single designated bank account,
                                                 of India.
as intimated in the application form. Do not
deposit any local funds in this bank account.    Where should the Application be Sent
Maintenance of Accounts                          An application (one copy only) for seeking
                                                 prior permission or registration is to be sent
An association granted prior permission or
                                                 by registered post to the Secretary, Ministry
registration under the Act must maintain a
                                                 of Home Affairs, Foreigners Division,
separate set of accounts and records
                                                 Jaisalmer House, 26 Man Singh Road, New
exclusively for the foreign contribution
                                                 Delhi 110011.
received and utilised in the prescribed
manner. For more details see rule 8 of the       Proper Filing of Application
Foreign Contribution (Regulation) Rules,
                                                 Please familiarise yourself with the
1976.
                                                 provisions of the Foreign Contribution
Receipt of Scholarships etc                      (Regulation) Act, 1976 and the Foreign
                                                 Contribution (Regulation) Rules, 1976
A citizen of India receiving any scholarship,
                                                 before making an application. Please fill the
stipend or any payment of a like nature from
                                                 relevant application form with due care.
any foreign source is required to give, within
                                                 Ensure that you furnish information exactly
thirty days of such a receipt, an intimation
                                                 in the manner stated in the form. An
to the Central Government as to the amount
                                                 incomplete application will be summarily
of the scholarship, stipend or other payment
                                                 rejected.
received; the foreign source from which and
the purpose for which, such scholarship,         Filing of Returns
stipend or other payment has been, or is
                                                 An association permitted to accept foreign
being received. The intimation is to be given
                                                 contribution is required to submit an annual
in Form FC – 5.
                                                 return, duly certified by a Chartered
Time Taken to Dispose Application                Accountant, giving details of the receipt and
                                                 purpose-wise utilization of the foreign
An application for registration is normally
                                                 contribution. The return is to be filed for
disposed within six months. An application
                                                 every year (1st April to 31st March) within a
seeking prior permission is disposed within
                                                 period of four months from the closure of
90/120 days. It is advisable to obtain a
                                                 the year i.e. by 31st July of each year. The
certificate, in the format incorporated at the


154
                                           FOREIGN CONTRIBUTION REGULATION ACT, 1976



return is to be submitted, in duplicate, in      •    It shall neither receive nor utilise any
Form FC–3. It is to be accompanied with               FC without obtaining either prior
the balance sheet and statement of receipt            permission or registration from the
and payment, duly certified by a Chartered            Central Government.
Accountant, also in duplicate.
                                                 •    Details of FC received prior to obtaining
Availability of Forms                                 either prior permission or registration
                                                      should be mentioned clearly at the time
Please use the correct and current form. The
                                                      of applying for prior permission or
forms can be obtained, free of cost, from the
                                                      registration, as the case may be.
above-mentioned address. The forms are
also available on the Ministry of Home           •    An application for seeking prior
Affairs’ web site – http://mha.nic.in/fore.htm        permission to accept foreign
                                                      contribution is to be made in Form FC–
Penalties for Violation
                                                      1A, and for grant of registration in
Whoever accepts, or assists any person,               Form FC–8, respectively. The forms
political party or organisation in accepting          can be downloaded from Ministry of
any foreign contribution or any currency              Home Affairs Web Site at http://
from a foreign source, in contravention of            mha.nic.in/fcra.htm
the provisions of the Foreign Contribution
                                                 •    The application should be complete in
(Regulation) Act, 1976, or the rules made
                                                      all respects and no column should be
thereunder, shall be punished with
                                                      left blank.
imprisonment for a term, which may extend
to five years, or with fine or with both. “All   •    Each Prior permission application
the above services & commitments will be              should be sent for receiving a specific
honoured without the citizens having to pay           amount, for a specific purpose and
any bribe.”                                           from a specific donor. The donor’s
                                                      commitment letter specifying the
CHARTER      FOR      NGOs /                          amount of FC and copy of project for
ASSOCIATIONs APPLYING FOR                             which FC is solicited should invariably
GRANT OF PRIOR PERMISSION /                           be sent along with the FC-1A form.
REGISTRATION UNDER THE
                                                 •    Copies of following documents are
FOREIGN       CONTRIBUTION
                                                      required to be sent along with FC-1A
(REGULATION) ACT, 1976.
                                                      and FC-8 form.
•    Any NGO wishing to receive Foreign          1.   Copy of certificate of registration
     Contribution (FC) must have a definite           issued under the Societies Registration
     cultural, economic, educational,                 Act, 1860 or Trust deed, as the case
     religious or social programme.                   may be;

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2.    Details of activities during the last      •   Any fixed asset acquired out of the FC
      three years;                                   and any article received in kind from
                                                     the foreign source should be in the
3.    Copies of audited statement of
                                                     name of the association and not in the
      accounts for the past three years (Asset
                                                     name of any individual in the
      and Liabilities, Receipt and Payment,
                                                     association.
      Income and Expenditure);
                                                 •   Not more than 30% of the FC shall be
4.    If any printed work is brought out by
                                                     defrayed to meet administrative
      the association, a certificate from the
                                                     expenses of the association.
      Press Registrar that the publication is
      not a newspaper in terms of section        •   An association granted prior
      1(1) of the Press Registration of Books        permission or registration under FCRA
      Act, 1867.                                     should maintain a separate set of
                                                     accounts and records, exclusively for
CHARTER     FOR   NGOs    /                          foreign contribution received and
ASSOCIATIONs GRANTED PRIOR                           utilised.
PERMISSION OR REGISTRATION
                                                     i.     In Form FC-6, where the FC
UNDER      THE     FOREIGN
                                                            relates only to articles;
CONTRIBUTION (REGULATION)
ACT, 1976.                                           ii.    In the cash book and ledger
                                                            account on double entry basis,
•     An association granted prior                          where the FC relates to currency
      permission or registration under the                  received and utilised.
      Foreign Contribution (Regulation) Act,
                                                     iii.   In Form FC-7, where the FC
      1976 (FCRA) should receive the FC
                                                            relates to foreign securities.
      and subsequently utilise it using an
      exclusive designated bank account, as      •   Every account giving details of the
      intimated in the application form. Do          receipt and purpose-wise utilisation of
      not deposit any local funds in this bank       the FC, including the interest earned
      account.                                       on the FC amount, should be
                                                     maintained on an yearly basis,
•     An association granted prior
                                                     commencing on the 1st day of April
      permission or registration under FCRA
                                                     each year and every such yearly
      is required to carry out the activities,
                                                     account, duly certified by a chartered
      for which FC is received, in India only
                                                     accountant in Form FC-3 along with a
      and the amount should not be utilised
                                                     balance sheet and statement of receipt
      for purposes other than for which it is
                                                     and payment should be furnished in
      received.
                                                     duplicate, within four months of the

156
                                             FOREIGN CONTRIBUTION REGULATION ACT, 1976



     closure of the year i.e. before 31st July.    exercise extreme care and caution in dealing
     Even if no FC is received during a year,      with foreign contribution from the time of
     a ‘Nil’ return is required to be filed with   its receipt to its final utilization. As the
     the Ministry of Home Affairs within           Chartered Accountants (CA’s) audit the
     the prescribed time limit.                    accounts of the NGOs and they certify the
                                                   accounts before being submitted to the
•    No FC should be transferred to an
                                                   FCRA division, CA’s are required to provide
     association, which has not obtained
                                                   meaningful guidance to the NGOs.
     either prior permission or registration
     under FCRA or to any person or                •    To verify whether the associations are
     association, prohibited under FCRA                 eligible to receive foreign contribution
     from receiving any FC.
                                                   •    To guide the applicant organization to
•    Change of name, address, registration,             apply to the Home Ministry for
     nature of activities or aims and                   necessary registration / prior
     objectives of an association should be             permission;
     intimated to the Ministry of Home
                                                   •    To assist in the proper maintenance of
     Affairs within 30 days of effecting the
                                                        prescribed books of accounts;
     change, alongwith the documentary
     evidence effecting the change.                •    To furnish the required certificate in
                                                        the prescribed format after careful
•    Prior permission of Ministry of Home
                                                        scrutiny of the accounts of the NGO;
     Affairs should be obtained for
     replacing 50% or more of the office           •    Before certifying the accounts of an
     bearers.                                           association in FC-3 returns, the CA
                                                        concerned must ensure that they have
•    Prior permission of Ministry of Home
                                                        been prepared in accordance with the
     Affairs should be obtained for
                                                        provisions of FC(R) Act, 1976 and
     changing bank account for valid and
                                                        Rules framed thereunder.
     convincing reasons.
•    The forms can be downloaded from              CHARTER FOR THE BANKS
     Ministry of Home Affairs Web Site at
     http//mha.nic.in/fcra.htm.                    •    No bank should credit any foreign
                                                        contribution to the account of an
CHARTER FOR THE CHARTERED                               association/NGO unless it produces
ACCOUNTANTS                                             documentary evidence of having
                                                        obtained registration/prior permission
Since the FCRA Act, 1976 is national                    from the Central Government for the
security legislation; NGOs are required to              same.


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•      In case any foreign contribution is      Application Form
       credited to the account of an NGO/
                                                (i)    For grant of registration in form FC–
       Association/Trust directly, the bank
                                                       8 and,
       should not allow utilization of such
       fund and inform the NGO/Association/     (ii)   For grant of prior permission in form
       Trust concerned to obtain necessary             FC-1A.
       permission/registration from the         ESSENTIAL REQUIREMENTS
       Central Government for the same.
       Simultaneously, the bank should          (A)    Bank Account
       inform the Deputy Secretary (FCRA),      Open a separate bank account for the receipt
       Ministry of Home Affairs, Govt. of       and utilisation of foreign contribution in a
       India, New Delhi about such receipt.     bank of your choice and furnish particulars
•      Non-compliance of the above by the       of the same at the appropriate place.
       bank will constitute a violation and     Note: Do not deposit any local funds, other
       will render the defaulting bank liable   than the essential initial deposit specified by
       for appropriate action by the Reserve    the bank for opening an account, in this
       Bank of India.                           account.

CHECKLIST FOR ENSURING                          (B) Documents
PROPER      SUBMISSION    OF                    Remember to enclose copies of the following
APPLICATIONS, UNDER THE                         documents with your application –
PROVISIONS OF THE FOREIGN
CONTRIBUTION (REGULATION)                       a)     Certified copy of registration
ACT, 1976, FOR ACCEPTANCE OF                           certificate or Trust deed, as the case
FOREIGN CONTRIBUTION                                   may be;
                                                b)     Details of activities during the last
Eligible Category                                      three years;
An association with a definite cultural,        c)     Copies of audited statement of
economic, educational, religious or social             accounts for the past three years (Asset
programme.                                             and Liabilities, Receipt and Payment,
Types of Permission                                    Income and Expenditure);

(i)     Registration under section 6(1)(a);     d)     Commitment letter from foreign donor
       and,                                            specifying the amount of foreign
                                                       contribution (only with prior
(ii)   Prior permission under section 6 (1A).          permission application);



158
                                           FOREIGN CONTRIBUTION REGULATION ACT, 1976



e)   Copy of project for which foreign           registration or prior permission from the
     contribution was solicited is being         Central Government constitutes a violation
     offered (only with prior permission         and will render the defaulting bank liable for
     application);                               action by the Reserve Bank of India.
f)   If functioning as editor, owner, printer
                                                 COMMON     GROUND    FOR
     or publisher of a publication registered
                                                 REJECTION OF APPLICATION
     under the Press and Registration of
                                                 UNDER FCRA
     Books Act, 1867, a certificate from the
     Press Registrar that the publication is     To remove certain lacunae noticed during
     not a newspaper in terms of section         administration of the FCRA and the Rules
     1(1) of the said Act.                       made there under, certain guidelines were
Miscellaneous                                    laid down for considering applications for
                                                 grant of prior permission /registration under
Furnish information exactly in the manner
                                                 the Act. Some of the common grounds for
asked for in the form, especially the names
                                                 rejection of applications are enlisted below
and addresses of the members of the
                                                 as illustrations to bring in transparency and
Executive Committee/Governing Council
                                                 benefit the applicants in taking due care and
etc. The forms can be downloaded from
                                                 caution:
Ministry of Home Affairs Web Site at http:/
/mha.nic.in/fcra/intro/forms.htm                 •    If the association is not registered
                                                      under the Societies Registration Act,
Chartered Accountants / Banks
                                                      1860 or Indian Trusts Act, 1882 or
Chartered Accountants, before certifying the          section 25 of the Companies Act, 1956.
accounts of an association in form FC – 3,
                                                 •    If any of the office bearers/trustees,
must ensure that they have been prepared in
                                                      including the chief functionary is a
accordance with the provisions of the
                                                      foreign national, other than of Indian
Foreign Contribution (Regulation) Act, 1976
                                                      origin.
and the Rules framed thereunder.
                                                 •    If the association has a single office
No bank should credit any foreign
                                                      bearer/member.
contribution to the account of an association/
organisation unless it produces documentary      •    If the association is found to have been
proof of having obtained registration/prior           formed for personal gain or for
permission from the Central Government for            diversion of the funds for undesirable
the same. Crediting of foreign contribution           purposes.
by a bank to the account of an association /     •    If the association is found to be
organisation that has not obtained                    fictitious or ‘benami’ in nature.


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•     If the credibility of any member of the        association has come to adverse notice.
      governing body is in doubt.
                                                 •   If the association’s printed work is not
•     If the association has close links with        certified by the Press registrar of India
      another association which has been             not to be a newspaper in terms of
      refused registration under FCRA or             section 1(1) of the Press Registration
      prohibited under FCRA or violated the          of Books Act, 1867.
      provisions of FCRA.
                                                 •   If the source of foreign contribution is
•     If the association has links with any          found to be adverse to the interests of
      banned organization.                           the country.
•     If the principal office bearers of the     •   If the acceptance of foreign
      association have been convicted by any         contribution by the association is likely
      court of law under any act or if a             to be prejudicial to (a) the sovereignty
      prosecution for any offence is pending         and integrity of India; (b) free and fair
      against them.                                  election to any Legislature or House
                                                     of Parliament; (c) public interest; (d)
•      If the principal office bearers of the
                                                     friendly relations with a foreign state;
      association have been found guilty of
                                                     or (e) harmony between any religious,
      diversion or misutilisation of funds of
                                                     social, linguistic, regional groups, caste
      the said association or any other
                                                     or community.
      association in the past.
                                                 •   If the association has not filed its
•     If the activities of the association are
                                                     annual FC-3 returns, of receipt and
      found to be aimed at conversion
                                                     utilization of foreign contribution
      through inducement or force, either
                                                     received with prior permission, within
      directly or indirectly, from one
                                                     the stipulated period.
      religious faith to another.
                                                 •   If the association has violated any
•     If the association is found to be
                                                     provisions of the Act or Rules in the
      propagate sedition or to advocate
                                                     preceding three years and the said
      violent methods to achieve its ends.
                                                     violation has not been remedied or
•     If the association is found to be              rectified.
      creating communal tensions or
                                                 Additional Grounds for Rejection of
      disharmony.
                                                 Applications for Registration
•     If the office bearers of the association
                                                 •   If the association is not in existence
      are also office bearers of another
                                                     for three years at least.
      association and one of these



160
                                             FOREIGN CONTRIBUTION REGULATION ACT, 1976



•      If the association has not carried on any   c)     Foreign security
       activity in chosen field during the last
                                                   Q.2.   What is foreign source?
       three years.
                                                   A.2    Foreign source includes the
•      If the association has not received
                                                          Government of any foreign country
       foreign contribution with prior
                                                          or territory or its agency; an
       permission, during the preceding three
                                                          international agency; a foreign
       years.
                                                          company; and citizen of a foreign
•      If the association has not made any                country. Agencies of the United
       substantial contribution, excluding                Nations, World Bank and some other
       expenditure on administration,                     International agencies/multilateral
       (Rs.6,00,000 over a period of three                organisations ate exempted from the
       years or Rs.2,00,000 per year) in its              definition of ‘foreign source’. List of
       field of interest.                                 such      exempted         agencies/
                                                          organisations is available on the
Additional Grounds for Rejection of
                                                          website http://mha.nic.in/fore.htm
Applications for Prior Permission
                                                   Q.3.   Whether donation given by Non-
•      If the application is not accompanied
                                                          Resident Indians (NRIs) is treated
       by the ‘commitment letter’ of the
                                                          as ‘foreign contribution’?
       donor.
                                                   A.3.   Contributions made by a citizen of
•      If the application is not accompanied
                                                          India living in another country
       by the copy of project for which foreign
                                                          (i.e.Non-Resident Indian), from his
       contribution was solicited/is being
                                                          personal saving, through the normal
       offered.
                                                          banking channels, is not treated as
Frequently Asked Questions ( FAQs )                       foreign contribution. However, while
Q.1.     What is foreign contribution?                    accepting any donations from such
                                                          NRI, it is advisable to obtain his
A.1.     Foreign contribution means the                   passport details to ascertain that he/
         donation, delivery or transfer, made             she is an Indian passport holder.
         by any foreign source of any,
                                                   Q.4.   Whether donations by person of
a)       Article, not given to a person as a              Indian Origin (PIO) Card holder
         gift for personal use, if the market             or Persons of Indian Origin (PIO)
         value, in India, of such article                 who hold other country’s
         exceeds one thousand rupees;                     passports or registered Overseas
b)       Currency, whether Indian or foreign;             Citizens of India (OCI) would be
         or                                               considered ‘foreign source’?


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A.4.   Yes, because persons under all these                   Committee, in an ex-officio
       three categories are foreign nationals                 capacity representing a
       and hold passports of the country of                   multilateral body which is
       their nationality.                                     exempted from the definition
                                                              of foreign source.
Q.5.   Whether foreigners can be
       appointed as Executive Committee                The need for such an appointment
       members?                                        should, however, be adequately
                                                       justified.
A.5.   Foreign nationals are generally
       discouraged from being appointed as      Q.6.   Who can receive              foreign
       member of Executive Committee by                contribution?
       an association. However, foreign
                                                A.6.   An association having a definite
       nationals, fulfilling the following
                                                       cultural, economic, educational,
       conditions, may be appointed as
                                                       religious or social programme can
       Executive Committee members,
                                                       receive foreign contribution after it
       after obtaining prior permission of
                                                       obtains the prior permission of the
       the Central Government:
                                                       Central Government, or gets itself
       a)   The foreigner is married to an             registered with the Central
            Indian citizen;                            Government. An illustrative but not
                                                       exhaustive list of activities which are
       b)   The foreigner has been living
                                                       permissible and may be carried out
            and working in India for at least
                                                       by associations of different nature are
            five years;
                                                       available on the website http://
       c)   The foreigner has made                     mha.nic.in/fore.him
            available his/her specialised
                                                Q.7.   Who cannot receive foreign
            knowledge, especially in the
                                                       contribution?
            medical and health related
            fields on a voluntary basis in      A.7.   Foreign contribution cannot be
            India, in the past;                        accepted by:
       d)   The foreigner is part of the               i.     A candidate for election;
            Board of Trustees/Executive
                                                       ii.    Correspondent, columnist,
            Committee in terms of the
                                                              cartoonist, editor, owner,
            provisions in an inter
                                                              printer or publisher of a
            governmental agreement;
                                                              registered newspaper;
       e)   The foreigner is part of the
                                                       iii.   Judge, Government servant or
            Board of Trustee/Executive
                                                              employee of any Corporation;

162
                                          FOREIGN CONTRIBUTION REGULATION ACT, 1976



       iv.   Member of any legislature;                transactions even in rupees term are
                                                       considered foreign contribution.
       v.    Political party or office bearer
             thereof; and                       Q.11. Will interest earned from foreign
                                                      contribution be considered foreign
       vi.   Individuals or associations
                                                      contribution?
             specifically notified under
             section 10 (a) of foreign          A.11   Yes.
             contribution (Regulation) Act,
                                                Q.12. What is the Procedure for change
             1976 who have been prohibited
                                                      of designated Bank Account?
             from receiving foreign
             contribution.                      A.12. For the change of Bank account, an
                                                      application in prescribed form
Q.8.   Can foreign contribution be
                                                      mentioning the details if the old bank
       received in and utilised from
                                                      account and the proposed new bank
       multiple Bank Accounts?
                                                      account alongwith justification for
A.8.   No, All foreign contribution should            change may be submitted to MHA
       be received in and utilised from same          alongwith copy of resolution of the
       single Bank Account mentioned in               executive committee for such
       the order for registration or prior            change. This form is available on
       permission granted by MHA. This                website http://mha.nic.in/fore.htm.
       account number is same as has been             This new account may be made
       intimated by the organisation in their         operational only after seeking
       application for registration/prior             MHA’s approval.
       permission. Use of multiple bank
                                                Q.13. What are the eligibility criteria for
       accounts is legally prohibited.
                                                      registration?
Q.9.   Can foreign contribution be mixed
                                                A.13. An organisation in formative stage
       with local receipts?
                                                      is not eligible for registration. Such
A.9.   No, foreign contribution should not            organisation may apply for grant of
       be mixed with local funds being                prior permission under the law. For
       handled by the organisation.                   grant of registration, the association
                                                      should:
Q.10. Can foreign contribution be
      received in rupees?                              a)     be registered under the
                                                              Societies Registration Act,
A.10   Yes. Any amount received from
                                                              1860 or the Indian Trusts Act,
       ‘foreign source’ in rupees or foreign
                                                              1882 or section 25 of the
       currency is construed as ‘foreign
                                                              Companies Act, 1956;
       contribution’ under law. Such

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       b)    be in existence for at least three   A.15. a)   be registered under the
             years and have made                             Societies Registration Act,
             significant contribution in                     1860 or the Indian Trusts Act,
             chosen area of activity. For this               1882 or section 25 of the
             purpose, the association should                 Companies Act, 1956;
             have spent at least Rs. 6,00,000
                                                        b)   submit commitment letter from
             over last three years on its
                                                             the donor; and
             activities,          excluding
             administrative expenditure.                c)   submit copy of project for
             Statement of Income &                           which foreign contribution is
             Expenditure duly audited by                     solicited/is being offered.
             Chartered Accountant for last        Q.16. What are the documents to be
             three years may be enclosed to             enclosed with the application?
             substantiate           financial
             parameter.                           A.16. i.   Following documents should
                                                             be enclosed with the
Q.14. Whether recommendation of                              application for grant of
      District Collector, etc. is                            registration:
      mandatory?
                                                        a)   certified copy of registration
A.14. No, Submission of verification                         certificate or Trust deed, as the
      certificate from the District                          case may be;
      Collector, etc. is not mandatory.
      However, in certain cases, if the area            b)   details of activities during last
      of activity of an association is in non-               three years;
      border/coastal/tribal region and                  c)   copies of audited statement of
      amount applied for prior permission                    accounts for the past three
      is less than Rs.50 lakhs, submission                   years (Assets and Liabilities,
      of such a certificate assists in speedy                Receipt and Payment, Income
      clearance of the application                           and Expenditure);
Q.15. What are the eligibility criteria for             d)   if functioning as editor, owner,
      grant of prior permission?                             printer or publisher of a
A.15. Prior permission is granted for                        publication registered under
      receipt of specific amount from                        the Press and Registration of
      specific donor for carrying out                        Books Act, 1867, a certificate
      specific activities/projects. For this                 from the Press Registrar that
      purpose, the association should:                       the publication is not a



164
                                           FOREIGN CONTRIBUTION REGULATION ACT, 1976



             newspaper in terms of section       Q.18. How to find the status of pending
             1(1) of the said Act.                     application for registration/prior
                                                       permission?
       ii.   Following documents should
             be enclosed with the                A.18. Status of pending application for
             application for grant of prior            grant of registration or prior
             permission:                               permission may be checked on line
                                                       from the Ministry of Home Affairs
       a)    certified copy of registration
                                                       website http://mha.nic.in/fore.htm.
             certificate or Trust deed, as the
                                                       One needs to fill in the numbers on
             case may be;
                                                       acknowledgement letter or any
       b)    commitment letter from                    correspondence from MHA
             foreign donor specifying the              (Foreigners Division) in the blank
             amount        of    foreign               format, which pops on the screen
             contribution;                             after selection of status enquiry icon
       c)    copy of project for which                 (registration/prior permission, as the
             foreign contribution was                  case may be).
             solicited/is being offered;         Q.19. What is the procedure to be
       d)    if functioning as editor, owner,          followed by a Liaison Office to
             printer or publisher of a                 receive foreign contribution?
             publication registered under        A.19. Prior permission under FCRA is
             the Press and Registration of             required by a Liaison Office of a
             Books Act, 1867, a certificate            foreign company for receiving
             from the Press Registrar that             remittances from its Head Office
             the publication is not a                  abroad for conducting conferences or
             newspaper in terms of section             carrying out other activities/
             1(1) of the said Act.                     programmes, etc. in India.
Q.17. Is there any restriction on transfer       Q.20. What is the procedure for filing
      of funds to other organizations?                 of FC -3 returns ?
A.17. Yes, No foreign contribution can be        A.20. An association permitted to accept
      transferred from an association                  foreign contribution is required
      granted registration or prior                    under law to maintain separate set of
      permission under FCRA to another                 accounts and records exclusively for
      association unless the letter has also           the foreign contribution received and
      obtained either registration or prior            utilized and submit an annual return,
      permission under FCRA.                           duly certified by a Chartered


                                                                                         165
READY RECKONER      FOR   OVERSEAS INDIANS



       Accountant, giving details of the                  any country or territory outside India,
       receipt and purpose-wise utilization               accept, except with the prior
       of the foreign contribution. The                   permission of the Central
       return is to be filed for every financial          Government any foreign hospitality.
       year (1st April to 31st March) within
                                                   Q.23. How one can seek permission of
       a period of four months from the
                                                         the Government for receiving
       closure of the year i.e. by 31st July of
                                                         foreign hospitality?
       the year. Submission of even a ‘Nil’
       return if there is no receipt/utilization   A.23. Application form (form FC-2) for his
       of foreign contribution during the                purpose is available on MHA’s web-
       year, is mandatory, under law.                    site – http://mha.nic.in/fore.htm. One
                                                         must apply on this form through the
       The return is to be submitted, in
                                                         controlling officer at least three
       prescribed Form FC–3, duly
                                                         weeks in advance to seek prior
       accompanied with the balance sheet
                                                         approval of the Government for
       and statement of receipt and
                                                         receiving foreign hospitality.
       payment, which is certified by a
       Chartered                                   Q.24. Where should the applications be
                                                         sent?
       Accountant. The form is available on
       MHA’s web-site – http://mha.nic.in/         A.24. All applications be sent to the
       fore.htm                                          Secretary, Ministry of Home Affairs,
                                                         Foreigners, Division,
Q.21. What is foreign hospitality?
                                                          Jaisalmer House, 26, Man Singh
A.21. Foreign hospitality means any offer,
                                                          Road, New Delhi – 110011. The
      not being a purely casual one, made
                                                          forms can be downloaded from the
      by a foreign source for providing a
                                                          web-site–http://mha.nic.in/fore.htm.
      person with the cost of travel to any
      foreign country or territory or with         Q.25. What is the procedure for seeking
      free board, lodging, transport or                  change in the name/address of the
      medical treatment.                                 association?

Q.22. Who cannot accept foreign                    A.25. For seeking change in the name/
      hospitality without prior approval                 address of the association, one
      of MHA ?                                           should use the prescribed from
                                                         available on MHA’s web-site – http:/
A.22. No member of a legislature, office
                                                         /mha.nic.in/fore.htm.
      bearer of a political party, judge,
      Government servant or employee of            26.    Who should be contacted for any
      any corporation shall, while visiting               information on FCRA?

166
                                        FOREIGN CONTRIBUTION REGULATION ACT, 1976



A.26. Names of the officers, their contact           10.   Common grounds for rejection
      details including telephone numbers                  of applications
      are available on MHA’s web-site –
                                                     11.   Details      of   registered
      http://mha.nic.in/fore.htm.
                                                           associations
Q.27. Which other materials on FCRA
                                                     12.   On-Line status of pending
      are available on the MHA’s
                                                           applications
      website?
                                                     13.   Annual summary on FCRA,
A.26. Following material on FCRA are
                                                           FC forms
      available on MHA’s web-site – http:/
      /mha.nic.in/fore.htm.                          14.   List of associations placed in
                                                           prohibited category/prior
       1.    Foreign        Contribution
                                                           permission category u/s 6(1),
             (Regulation) Act, 1976
                                                           10 (a) and 10 (b) of the Act
       2.    Foreign       Contribution
                                                     15.   Directory of officers dealing
             (Regulation) Rules, 1976
                                                           with FCRA.
       3.    Citizens charter, Charter for
                                              Q.28. Can an organization, whose
             NGOs/Associations applying
                                                    violation under FCRA has been
             for grant of prior permission/
                                                    condoned, apply for registration/
             registration under FCRA
                                                    prior permission?
       4.    Charter      for       NGOs/
                                              A.28. After the violation committed by an
             Associations granted prior
                                                    association has been condoned, the
             permission/registrations under
                                                    association can apply for prior
             FCRA
                                                    permission (PP) only by submitting
       5.    Charter for the Chartered              an application in form FC 1-A. Once
             Accountants                            the PP has been granted and foreign
                                                    contribution received for specific
       6.   Charter for the Banks
                                                    purpose has been fully/partially
       7.    Illustrative programmes                utilised and organisation has
             permitted to be carried out by         submitted annual FC3 returns and
             association having different           accounts in prescribed format
             nature.                                pertaining to the PP, it becomes
       8.    Check List for ensuring proper         eligible for consideration of
             submission of applications             registration       under      FCRA.
                                                    Registration would be granted under
       9.    Agencies not covered by the            FCRA, if other parameters are
             definition of ‘foreign source’         fulfilled by the association.
                                                                                     167
READY RECKONER     FOR   OVERSEAS INDIANS



Q.29. Can NGOs use the foreign                        received. The utilization should be
      contributions for investment in                 in line with the objectives of the
      Mutual Funds and other                          association. However, foreign
      speculative investments?                        contributions can be utilised for self-
A.29. No. The foreign contributions                   sustaining activities, not meant for
      received after prior permission/grant           commercial purposes.
      of registration under the Act are to     Q.32. Whether interest earned out of
      utilise for the purpose for which they         foreign contribution be shown as
      have been received and they are not            fresh foreign contribution receipt
      to be invested in any speculative              during that year or not?
      investments. Further, it is clarified
                                               A.32. Yes, the interest earned out of such
      that foreign contributions can be
                                                     deposit should be shown as second/
      received through a single Bank
                                                     subsequent foreign contribution
      Account designated for the purpose
                                                     receipt in the FC-3 returns during the
      under the order for registration/prior
                                                     year in which it is earned.
      permission or changed thereafter
      with prior approval of the               Q.33. Whether grant received from
      Government.                                    MNCs be treated as FC or not?
Q.30. Whether Capital Assets purchased         A.33. If the funds are received from an
      with the help of foreign                       Indian Company incorporated under
      contributions can be acquired in               the Company Act, 1956 the same will
      the name of the office bearers of              not be treated as foreign contribution.
      the association?                               But if the ownership and control
A.30. No. Every assets acquired out of               rights of the company are vested in
      foreign contributions should be                foreign source, it will be treated as
      acquired and possessed in the name             foreign contribution.
      of the association since association     Q.34. If an application for registration
      has a separate legal entity distinct           is submitted on-line by an NGO,
      from its members.                              does it need to submit the
Q.31. Can the NGOs/Trusts invest in                  application in physical form also?
      profitable ventures and proceeds         A.34. Yes. When an application is filed on-
      can be utilised for welfare                    line, a printout of the same may be
      activities?                                    taken after submission and thereafter,
A.31. No. The NGOs/Trusts should utilise             it should be submitted alongwith the
      the funds for the welfare purpose or           requisite enclosure, duly signed, to
      related activities for which it is             Ministry of Home Affairs.

168
                                                                  SPECIAL ECONOMIC ZONES




          SPECIAL ECONOMIC ZONES

INTRODUCTION                                      a)   Generation of additional economic
                                                       activity
India was one of the first in Asia to recognize
the effectiveness of the Export Processing        b)   Promotion of exports of goods and
Zone (EPZ) model in promoting                          services;
exports, with Asia’s first EPZ set up             c)   Promotion of investment from
in Kandla in 1965. With a view to overcome             domestic and foreign sources;
the shortcomings experienced on account
                                                  d)   Creation of employment opportunities;
of the multiplicity of controls and clearances;
absence of world-class infrastructure, and        e)   Development of infrastructure
an unstable fiscal regime and with a view              facilities;
to attract larger foreign investment in
                                                  It is expected that this will trigger a large
India, the Special Economic Zone
                                                  flow of foreign and domestic investment in
(SEZs) policy was announced in April
                                                  SEZs, in infrastructure and productive
2000.
                                                  capacity, leading to generation of additional
The policy intended to make SEZs an engine        economic activity and creation of
for economic growth supported by                  employment opportunities.
quality infrastructure complemented by
                                                  The SEZ Act 2005 envisages key role for
an attractive fiscal package, both at the
                                                  the State Governments in export promotion
Centre and State level, with the minimum
                                                  and creation of related infrastructure. A
possible regulations. SEZs in India
                                                  single window SEZ approval mechanism has
functioned from 1.11.2000. to 09.02.2006
                                                  been provided through a 19 member inter-
under the provisions of the Foreign Trade
                                                  ministerial SEZ Board of approval (BOA).
Policy and fiscal incentives were made
                                                  The application duly recommended by the
effective through the provisions of relevant
                                                  respective State Government /UT
statutes.
                                                  Administration are considered by this BOA
The SEZ Act, 2005, supported by SEZ Rules,        periodically. All decisions of the Board of
came into effect on 10th February 2006,           approvals are with consensus.
providing for drastic simplification of
                                                  The SEZ Rules provide for different
procedures and for single window clearance
                                                  minimum land requirement for different
on matters relating to central as well as state
                                                  class of SEZs, Every SEZ is divided into a
governments. The main objectives of the
                                                  processing area where alone the SEZ units
SEZ Act are:

                                                                                           169
READY RECKONER         FOR   OVERSEAS INDIANS



would come up and the non-processing area          APPROVAL MECHANISM AND
where the supporting infrastructure is to be       ADMINISTRATIVE SET UP OF SEZS
created.
The SEZ Rules provide for:                         (a)   Approval Mechanism

•         Simplified procedure for development,    The developer submits the proposal for
          operation, and maintenance of the        establishment of SEZ to the concerned State
          Special Economic Zones and for setting   Government. The State Government has to
          up units conducting business in SEZs;    forward the proposal with its recommendation
                                                   within 45 days from the date of receipt of such
•         Single window clearance for setting up   proposal to the Board of Approval. The applicant
          of an SEZ;                               also has the option to submit the proposal directly
•          Single window clearance for setting     to the Board of Approval.
          up a unit in a Special Economic Zone     The Board of Approval has been constituted
•         Single window clearance on matters       by the Central Government in the exercise
          relating to Central as well as State     of the powers conferred under the SEZ Act.
          Governments;                             All the decisions are taken in the Board of
                                                   Approval by consensus. The Board of
•         Simplified compliance procedures and
                                                   Approval has 19 members. Its constitution
          documentation with an emphasis on
                                                   is as follows:
          self certification.
    1.     Secretary, Department of Commerce                                             Chairman
    2.     Member, CBEC                                                                   Member
    3.     Member, IT, CBDT                                                               Member
    4.     Joint Secretary (Banking Division) Department of Economic Affairs,
           Ministry of Finance                                                            Member
    5.     Joint Secretary (SEZ), Department of Commerce                                  Member
    6.     Joint Secretary, DIPP                                                          Member
    7.     Joint Secretary, Ministry of Science and Technology                            Member
    8.     Joint Secretary, Ministry of Small Scale Industries and Agro and
           Rural Industries                                                               Member
    9.     Joint Secretary, Ministry of Home Affairs                                      Member
    10.    Joint Secretary, Ministry of Defence                                           Member
    11.    Joint Secretary, Ministry of Environment and Forests                           Member


170
                                                                 SPECIAL ECONOMIC ZONES




 12.   Joint Secretary, Ministry of Law and Justice                                 Member
 13.   Joint Secretary, Ministry of Overseas Indian Affairs                         Member
 14.   Joint Secretary, Ministry of Urban Development                               Member
 15.   A nominee of the State Government concerned                                  Member
 16.   Director General of Foreign Trade or his nominee                             Member
 17.   Development Commissioner concerned                                           Member
 18.   A professor in the Indian Institute of Management or the
       Indian Institute of Foreign                                           Trade Member
 19.   Director or Deputy Secretary, Ministry of Commerce and
       Industry, Department of Commerce                                  Member Secretary

(b) Administrative Set Up                       or implementing agency, broad banding
The functioning of the SEZs is governed by      diversification, etc. are given at the Zone
a three tier administrative set up. The Board   level by the Development Commissioner.
of approval is the apex body and is headed      The performance of the SEZ units are
by the Secretary, Department of Commerce.       periodically monitored by the Approval
The Approval Committee at the Zone level        Committee and units are liable for penal
deals with approval of units in the SEZs and    action under the provision of Foreign Trade
other related issues. Each Zone is headed by    (Development and Regulation) Act, in case
a Development Commissioner, who is ex-          of violation of the conditions of the approval.
officio chairperson of the Approval
Committee.                                      INCENTIVE AND FACILITIES
                                                OFFERED TO THE SEZs
Once an SEZ has been approved by the
Board of Approval and Central Government        The incentives and facilities offered to the
has notified the area of the SEZ, units are     units in SEZs for attracting investments into
allowed to be set up in the SEZ. All the        the SEZs, including foreign investment
proposal for setting up of units in the SEZ     include: -
are approved at the Zone level by the
                                                •     Duty     free    import/domestic
Approval Committee consisting of
                                                      procurement     of    goods  for
Development Commissioner, Customs
                                                      development,     operation  and
Authorities and representatives of State
                                                      maintenance of SEZ units.
Government. All post approval clearances
including grant of importer-exporter code       •     100% Income Tax exemption on export
number, change in the name of the company             income for SEZ units under Section


                                                                                           171
READY RECKONER      FOR   OVERSEAS INDIANS



      10AA of the Income Tax Act for first       •    Exemption from Central Sales Tax
      5 years, 50% for next 5 years thereafter        (CST).
      and 50% of the ploughed back export
                                                 •    Exemption from Service Tax (Section
      profit for next 5 years.
                                                      7 , 26 and Second Schedule of the SEZ
•     Exemption from minimum alternative              Act).
      tax under section 115JB of the Income
      Tax Act.                                   SEZ APPROVAL STATUS
•     External commercial borrowing by
                                                 Consequent upon the SEZ Rules coming into
      SEZ units upto US $500 million in a
                                                 effect w.e.f. 10th February 2006, nineteen
      year without any maturity restriction
                                                 meetings of the Board of Approvals have
      through recognized banking channels.
                                                 since been held. During these meetings,
•     Exemption from Central Sales Tax.          formal approval has been granted to 404 SEZ
•     Exemption from Service Tax.                proposals and in-principle approval has been
                                                 granted to 167 SEZ proposals. Out of the
•     Single window clearance for Central
                                                 formal approvals, 172 SEZs have been
      and State level approval.
                                                 notified.
•     Exemption from State Sales Tax and
      other levies as extended by the            BENEFITS DERIVED FROM SEZs
      respective State Governments.
                                                 Benefits derived from SEZs are evident from
The major incentives and facilities available
                                                 the investment, employment, exports and
to SEZ developers include:
                                                 infrastructural developments additionally
•     Exemption from customs/excise duties       generated. Investment of the order of Rs.1,
      for development of SEZs for authorized     00,000 crores including FDI of US $ 5-6
      operations approved by the BOA.            billion is expected by the end of December
•     Income Tax exemption on export             2007, 5,00,000 direct jobs are expected to
      income for a block of 10 years in 15       be created by December 2007. The benefits
      years under section 80-IAB of the          derived from multiplier effect of the
      Income Tax Act.                            investments and additional economic
                                                 activity in the SEZs and the employment
•     Exemption from minimum alternative
                                                 generated thus will far outweigh the tax
      tax under section 115JB of the Income
                                                 exemptions and the losses on account of land
      Tax Act.
                                                 acquisition. Stability in fiscal concession is
•     Exemption from dividend distribution       absolutely essential to ensure credibility of
      tax under section 115O of the Income       Government intensions.
      Tax Act.


172
                                                                SPECIAL ECONOMIC ZONES



(a)   Exports from the Functioning SEZs         Expected Investment and employment
      during the Last Three Years are as
                                                Investment      Rs. 2,85,279 Crores
      under:
                                                Employment 21,42,089 Additional jobs
 Year           Value       Growth rate
 (Rs. Crore)                (over the           (d)   Expected     Investment     and
                            previous year)            Employment if 405 Formal
                                                      Approvals become Operational:
 2003-2004      13,854      39%
                                                Investment       Rs. 3,00,000 Crores
 2004-2005      18,314      32%
 2005-2006      22,840      24.7%               Employment       4 million additional jobs

 2006-2007      34,787      52.3%               IMPACT OF THE SCHEME
Projected exports from all SEZs for 2007-
08: Rs. 67,088 crores                           The overwhelming response to the SEZ
                                                scheme is evident from the flow of
(b)   Investment and Employment in the          investment and creation of additional
      SEZs Set up Prior to the SEZ Act,         employment in the country. The SEZ scheme
      2005                                      has generated tremendous response amongst
At present, 1332 units are in operation         the investors, both in India and abroad,
in the SEZs. In the SEZs established            which is evident from the list of Developers
prior to the Act coming into force, there are   who have set up SEZs:
1179 units providing direct employment to       •     Nokia SEZ in Tamilnadu
over 2.08 lakh persons; about 40% of whom
                                                •     Quark city SEZ in Chandigarh
are women. Private investment by
entrepreneurs in these SEZs established prior   •     Flextronics SEZ in Tamilnadu
to the SEZ Act is of the order of over Rs.      •     Mahindra world city in Tamilnadu
5844 crore.                                     •     Motorola DELL and Foxconn
(c)   Investment and Employment in the          •     Apache SEZ (Adidas Group) in
      SEZs Notified under the SEZ Act                 Andhra Pradesh
      2005:
                                                •     Divvy’s Laboratories, Andhra Pradesh
Current investment and employment:              •     Rajiv Gandhi Technology Park,
 Investment              Rs.52,193 Crores             Chandigarh

 Employment              46,814 Persons         •     ETL Infrastructure IT SEZ, Chennai
                                                •     Hyderabad Gems limited, Hyderabad



                                                                                        173
READY RECKONER          FOR    OVERSEAS INDIANS                                      LIST   OF   WEBSITES




                             LIST OF WEBSITES
      WEBSITE ADDRESSES OF IMPORTANT MINISTRIES/DEPARTMENTS

OVERSEAS INDIAN FACILITATION CENTER                              http://www.oifc.in
MINISTRY OF OVERSEAS INDIAN AFFAIRS                              http://www.moia.gov.in
CONFEDERATION OF INDIAN INDUSTRY                                 http://www.ciionline.org
Ministry of Biotechnology                                        http://dbtindia.nic.in
Bureau of Indian Standards                                       http://www.bis.org.in
Ministry of Chemicals & Petrochemicals                           http://chemicals.nic.in
Ministry of Civil Aviation                                       http://civilaviation.nic.in
Department of Commerce                                           http://commerce.nic.in
Ministry of Coal                                                 http://coal.nic.in
Ministry of Company Affairs                                      http://dca.nic.in
Department of Education                                          http://education.nic.in
Ministry of Environment and Forests                              http://envfor.nic.in
Department of Explosives                                         http://explosives.nic.in
Ministry of External Affairs                                     http://www.meanindia.nic.in
Ministry of Finance                                              http://finmin.nic.in
Directorate General of Foreign Trade                             http://dgft.delhi.nic.in
Department of Heavy Industries                                   http://dhi.nic.in
Department of Industrial Policy & Promotion                      http://dipp.nic.in
Ministry of Information and Broadcasting                         http://mib.nic.in
Department of Information Technology                             http://www.mit.gov.in
Ministry of Labour                                               http://labour.nic.in
Department of Mines                                              http://mines.nic.in
Ministry of Non-Conventional Energy Sources                      http://mnes.nic.in
Office of The Controller General Of Patents                      http://patentoffice.nic.in
Ministry of Petroleum And Natural Gas                            http://petroleum.nic.in
Ministry of Power                                                http://powermin.nic.in
Ministry of Railways                                             http://www.indianrailways.gov.in
Reserve Bank of India                                            http://www.rbi.org.in
Ministry of Road Transport & Highways                            http://morth.nic.in
Department of Shipping                                           http://shipping.nic.in
Ministry of Small Scale Industries & Agro and Rural Industries   http://ssi.nic.in
Ministry of Statistics and Programme Implementation              http://mospi.nic.in
Department of Telecommunication                                  http://www.dotindia.com
Ministry of Textile                                              http://texmin.nic.in
Ministry of Tourism                                              http://tourismofindia.com
Ministry of Urban Development                                    http://urbanindia.nic.in
Ministry of Water Resources                                      http://wrmin.nic.in




174
                                                                          WEBSITES



               WEBSITE ADDRESS OF STATES/UNION TERRITORIES

Andaman & Nicobar (UT)                        http://andaman.nic.in
Andhra Pradesh                                http://www.andhrapradesh.com
Arunachal Pardesh                             http://arunachalpradesh.nic.in
Assam                                         http://assamgovt.nic.in
Bihar                                         http://bihar.nic.in
Chandigarh (UT)                               http://chandigarh.nic.in
Chhattisgarh                                  http://chattisgarh.nic.in
Dadra & Nagar Haveli                          http://oidc.nic.in
Daman & Diu                                   http://daman.nic.in
Delhi                                         http://delhigovt.nic.in
Goa                                           http://goagovt.nic.in
Gujarat                                       http://www.gujaratindia.com
Haryana                                       http://haryana.nic.in
Himachal Pradesh                              http://himachal.nic.in
Jammu & Kashmir                               http://jammukashmir.nic.in
Jharkhand                                     http://jharkhand.nic.in
Karnataka                                     http://www.karnataka.nic.in
Kerala                                        http://www.kerala.gov.in
Lakshdweep(UT)                                http://lakshadweep.nic.in
Madhya Prdesh                                 http://www.mp.nic.in
Maharashtra                                   http://maharashtra.gov.in
Manipur                                       http://manipur.nic.in
Meghalaya                                     http://meghalaya.nic.in
Mizoram                                       http://mizoram.nic.in
Nagaland                                      http://nagaland.nic.in
Orissa                                        http://orissagov.nic.in
Pondicherry(UT)                               http://pondicherry.nic.in
Punjab                                        http://punjabgovt.nic.in
Rajasthan                                     http://www.rajasthan.gov.in
Sikkim                                        http://sikkimgov.nic.in
Tamil Nadu                                    http://www.tn.gov.in
Tripura                                       http://tripura.nic.in
Uttar Pradesh                                 http://upgov.nic.in
Uttranchal                                    http://gov.ua.nic.in
West Bengal                                   http://www.wbgov.com


                                                                               175
READY RECKONER     FOR   OVERSEAS INDIANS




                    CONTACT DETAILS

Contact Details of Overseas Indian Facilitation Center

1.    Mr. G. Gurucharan
      Joint Secretary (FS)
      Ministry of Overseas Indian Affairs
      9th floor, Akbar Bhawan
      Chanakya Puri
      New Delhi-110021
      Tel: 24676210, 24197916
      Email : jsfs@moia.nic.in

2.    Ms Subha Rajan
      CEO
      Overseas Indian Facilitation Center
      Plot No. 249-F, Sector 18
      Udyog Vihar, Phase IV
      Gurgaon-122015
      Haryana
      Tel: +91 124 4014060-67 Extn. 374, 4014055
      Fax:+91 124-4014080
      Email:Subha.rajan@ciionline.org

3.    Ms. Anupma Aggarwal
      Knowledge Partner on Taxation and Foreign Direct Investment
      Director
      Peeyush Aggarwal & Co. Consultants Pvt Ltd
      B-132 Anand Vihar,
      Delhi-110092
      Tel: 011 2216 4800, 2216 4700
      Fax:+91 11 2216 4700
      Mobile: +91-9312276731
      Email: anupma@indialiaison.com
      Website: www.indialiaison.com




176
                                                                         FEEDBACK FORM




                      FEEDBACK FORM
Kindly give us your feedback on the document as this will help us in making the revised
edition of this book more valuable. We will be obliged if any mistake, error or discrepancy
is brought to our notice for carrying out necessary corrections and modifications.

SUGGESTIONS




 Please mail/fax/e-mail your suggestions to

 Ms. Subha RajanCEO, Overseas Indian Facilitation Center (OIFC)
 & Director, Confederation of Indian Industry (CII)
 Plot No. 249-F, Sector 18, Udyog Vihar, Phase IV
 Gurgaon-122015, Haryana, INDIA.
 Tel: +91 124 4014060-67 Extn. 374, 4014055(D)
 Fax: +91 124 4014080
 E-Mail: subha.rajan@ciionline.org
 Website: www.oifc.in


                                                                                       177

				
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