SBS-Digest-EJournal-October-2019

VVoolulummee-1-404 DecOecmtobbeerr-2-0210619 PPaaggeess11-1-147 SBS Interns’ For Private circulation only Digest An attempt to share knowledge By Interns of SBS and Company LLP

SBS Interns' Digest www.sbsandco.com/interns-digest CONTENTS INCOME TAX......................................................................................................................................1 ACCELERATED ASSESSMENT ...........................................................................................................................1 FEMA ..............................................................................................................................................11 DEPOSITS ACCOUNTS OF PERSONSRESIDENTOF INDIA .............................................................................................11

INCOME TAX Contributed by Monika A & Vetted by CA Bhyrav ACCELERATED ASSESSMENT Introduction: As per section 4 of Income Tax Act,1961 income earned during the year will be assessed in the subsequent year, however there are few exceptions to the general rule, hence in those cases income will be assessed in the same year itself. In this article we discussed about those special cases where income is assessed in the same year i.e., accelerated Assessment. Assessment: ?As per section 4 of the Act, Income-tax shall be charged for any assessment year in respect of the total income of the previous year of every person. ?Which means Income earned during the year (Previous Year) will be assessed in the subsequent year (Assessment Year). ?For example: Mr X earns 10,00,000 during the year2016-17 then such income will be assessed during the year 2017-18. Accelerated Assessment: General Rule: “Income of a previous year would be assessed in the Assessment year” Exception to the rule:“Income earned in the previous year would be assessed in the previous year itself” in the following 5 cases: Case 1: Shipping business of non-resident (Sec-172) Case 2: Persons leaving India (Sec-174) Case 3: Associations, Bodies formed for short duration (Sec-174A) Case 4: Persons likely to transfer property to avoid tax (Sec-175) Case 5: Discontinued business (Sec-176) Case 1: Shipping business of a non-resident(Sec -172) As per section 172 of the Act, If the following conditions(all) are satisfied, then income of a non-resident is charged to tax in previous year itself: 1 |Page

Conditions: Accelerated assessment ?The assessee is a non-resident; ?He owns a ship, or a ship is chartered by him. ?The Ship carries passengers, livestock, mail or goods shipped at a port in India. Applicability: ?Income:7.5% of amount paid/payable on account of such carriage, to the non-residentor the charterer or any person on his behalf whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. ?Rate of tax: Taxon such income is payable at the rates applicable to a foreign company. (Refer Annexure: rates of tax) ?The ship is allowed to leave India only when the tax has been paid or other satisfactory arrangement has been made. ?Person responsible for filing of return and payment of taxes: Master of the ship shall pay tax on the deemed income (i.e., 7.5 %) and file the return of income on account of the carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat. However, If assessing officer is satisfied that it will be difficult to submit the return before departure and if satisfactory arrangement have been made for payment of tax amount then such return may be filed within 30 days from the date of departure of the Ship by any other person on his behalf. ?Port clearance: A port clearance shall not be granted to the ship until the Collector of Customs or other officer duly authorised to grant the same is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. ?Note: The non-resident may or may not have an Agent or representative in India. Example: Mr. X earns Rs. 100 lacs through shipping business and for that he expensed Rs. 90 lacs during the P.Y. 2016-17. 2 |Page

Determine Taxable income and year in which tax is to be assessed in the following two alternatives. Accelerated assessment 1. Condition of section 172 is not satisfied 2. All conditions of section 172 is satisfied. Solution: ?Alternative 1: Conditions of section 172 is not satisfied Taxable Income: 100 lacs minus 90 lacs = 10 lacs which will be assessed in the Year 2017-18 (A.Y.). ?Alternative 2: Conditions of section 172 is satisfied Taxable income: 100lacs*7.5% = 7.5 lacs which will be assessed in the same year i.e., 2016-17 at the rates as applicable for the previous year 2016-17. Case 2: Persons leaving India (Sec-174) Purpose of the section: The Section has been enacted to charge, levy and recover income from a person who proposes to leave the country and not return inter alia with the object of evading payment of tax for the income derived during the current year. If following conditions are satisfied, then income of a person leaving India is charged to tax in the previous year itself: Conditions: ?It appears to the Assessing Officer that any individual may leave India during the current assessment year or shortly after its expiry and ?Such a person has no present intention of returning to India. Applicability: ?Period: The total income of such individual for the period from the expiry of previous year for that assessment year up to the probable date of his departure from India shall be chargeable to tax in that assessment year. ?The rate of tax(Refer Annexure: rates of tax), legal provisions etc of the previous year will be applicable on him. The Assessing Officer can make his best judgement of assessment for such person Assessment: ?The Assessing Officer may serve a notice upon such individual requiring him to furnish within such time, not being less than seven days, a return in the same form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142(Enquiry before assessment),Income tax Act, 1961 and 3 |Page

?The provisions of this Act shall, so far as may be, and subject to the provisions of this section, Accelerated assessment apply as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. ?Any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148in respect of any tax chargeable under any other provision of this Act, require the furnishing of the return by such individual within such period, not being less than seven days, as the Assessing Officer may think proper. Example: ?Mr. A leaves India permanently to US on 1 August 2012 for a job, Mr. A is supposed to file two income-tax returns: 1. Regular Assessment for the period of 1 April 2011 to 31 March 2012. 2. Another Assessment for the period of 1 April 2012 to 1 August 2012 based on actual or estimated basis and the rates of taxes applicable are the rates for the previous year 2012-13 as of the regular assessment for the period of 1 April 2011 to 31 March 2012 will be applicable on him. ?Note: The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision. Case 3: Associations, Bodies formed for short duration (Sec-174A) Meaning: ?Association of persons (AOP) means an association in which two or more persons join in a common purpose or common action. ?An association of persons may have companies, firms, joint families as its members. ?Body of individuals (BOI), on the other hand, cannot have non individuals as its members ?Artificial juridical person (AJP):A public corporation established under special Act of legislature and a body having juristic personality of its own are known to be Artificial Juridical Persons. E.g., Universities Conditions: ?Where it appears to the Assessing Officer that any AOP or BOI or AJP formed or established or incorporated for an event or purpose is likely to dissolve in the assessment year in which it was formed or established or incorporated or immediately after such assessment year. Applicability: ?The total income of such AOP or BOI or AJP for the period from the expiry of the previous year for that assessment year up to the date of its dissolution shall be chargeable to tax in that assessment year. 4 |Page

?The rates of tax (Refer Annexure: rates of tax) and legal provisions of the previous year will be Accelerated assessment applicable. The Assessing Officer can make his best judgement of assessment. Assessment: ?The Assessing Officer may serve a notice upon such individual requiring him to furnish within such time, not being less than seven days, , a return in the same form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142(Enquiry before assessment),Income tax Act, 1961 and ?The provisions of this Act shall, so far as may be, and subject to the provisions of this section, apply as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. ?Any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148in respect of any tax chargeable under any other provision of this Act, require the furnishing of the return by such individual within such period, not being less than seven days, as the Assessing Officer may think proper. Example: X & Co is an association of two individuals X & Y. it is formed on April 10,2012 for the purpose of completing a contract given by a French company in India. It is likely to be dissolved on September 10,2013. While processing the return submitted by the association for the AY 2013-14, the Assessing Officer comes to know on Aug 6,2013 about the probable date of dissolution. ?In this case AO will make two assessments for the AY 2013-14: ?Regular assessment for the PY 2012-13(i.e., income for the period April 10,2012 to March 31,2013); and ?Assessment for the income of the period April 1,2013 to September 10,2013 ?Applicable rates for such assessments: ?For the first assessment, tax shall be chargeable at the rates applicable for the AY13-14 ?For the second assessment, tax shall be chargeable at the rates applicable for the PY 13-14 Case 4: Persons likely to transfer property to avoid tax (Sec-175) As per section 175 of the Act, If the following condition is satisfied, then income of such person is charged to tax in previous year itself: 5 |Page

Condition: Accelerated assessment ?Where it appears to the assessing officer during any current assessment year that a person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets(movable or immovable) with a view to avoiding payment of any liability under the Income tax Act. Applicability: ?The total income of such person from the expiry of the PY for that AY to the date when the assessment officer commences proceedings under this section shall be chargeable to tax in that assessment year. ?The rate of tax (Refer Annexure: rates of tax), legal provisions etc of the previous year will be applicable. The Assessing Officer can make his best judgement of assessment. Assessment: ?The Assessing Officer may serve a notice upon such individual requiring him to furnish within such time, not being less than seven days, , a return in the same form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142(Enquiry before assessment),Income tax Act, 1961 and ?The provisions of this Act shall, so far as may be, and subject to the provisions of this section, apply as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. ?Any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148in respect of any tax chargeable under any other provision of this Act, require the furnishing of the return by such individual within such period, not being less than seven days, as the Assessing Officer may think proper Example: In November 2012, while making the assessment of income of Mr. Kumar for the assessment year 2012- 13, i.e., previous year 2011-12, the Assessing Officer came to know that Mr. Kumar was transferring his building with an intention to avoid payment of Income-tax liability. Considering the intention of Mr. Kumar the Assessing Officer issued notice (in November 2012) to Mr. Kumar to furnish his return of income for the period April 2012 to November 2012. Solution: ?In the above case, it could be observed that income of the period April 2012 to November 2012 was covered in the previous year 2012-13, i.e., assessment year 2013-14 and it could be charged to tax in assessment year 2013-14 only. 6 |Page

?However, by invoking the provisions of section 175, the Assessing Officer could assess the income Accelerated assessment for the period of April 2012 to November 2012 in the assessment year 2012-13 itself. ?Note: This case needs to be read along with clubbing provisions u/sec 60-64 and Deemed ownership u/sec27 for better understanding. Case 5: Discontinued business (Sec-176) As per section 176 of the Act, If the following condition is satisfied, then income of such person is charged to tax in previous year itself: Condition: Where any business or profession discontinued in any assessment year. Applicability: ?The income of the period from the expiry of the PY for that AY in which such business or profession is discontinued to the date of discontinuation may be taxable at the discretion of the AO in the assessment year in which the business or profession is discontinued. ?The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment, and separate assessments shall be made in respect of each such completed previous year or part of any previous year. ?Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof. ?Where any business or profession is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt at the rates of tax applicable for such previous year(Refer Annexure: rates of tax) Assessment: ?The provisions of this Act shall, so far as may be, and subject to the provisions of this section, apply as if the notice were a notice issued under clause (i) of sub-section (1) of section 142. ?The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act. ?Any notice issued by the Assessing Officer under clause (i) of sub-section (1) of section 142 or section 148in respect of any tax chargeable under any other provision of this Act, require the furnishing of the return by such individual within such period, not being less than seven days, as the Assessing Officer may think proper. 7 |Page

Caselaw: Accelerated assessment “HIGH COURT OF BOMBAY Commissioner of Income-tax v. Star Andheri Estate” ?Discontinued business– In Assessment year 1976-77, Assessee- firm has received an amount of Rs. 9,80,000 after its dissolution on 31-3-1975.Taxability? Whether by virtue of section 176 said amount was assessable in hands of assessee -firm in year of receipt despite dissolution and discontinuance of its business? ?Facts: ?The assessee - firm was dissolved on 31-3-1975, i.e., on the last day of the previous year relevant to the assessment year 1975-76. The amount of Rs. 12,90,000 was due to the assessee-firm in respect of transaction entered before its dissolution. ?A sum of Rs. 3,10,000 had been received by the said firm prior to its dissolution and the balance amount of Rs. 9,80,000 was received after dissolution. ?Contention of the assessee: on the date of receipt of the said amount, the assessee-firm being not in existence, the said amount could not be held to be the receipt of the assessee-firm and could not be assessed to tax. ?Judgement: ?The contention of the assessee however, was no more valid after incorporation of sub-section (3A) in section 176 which was intended specifically to meet such objections. ?This sub-section constitutes an exception to the rule that business receipts are chargeable only if the business or profession is carried on in the year of receipt. ?In that view of the matter, the amount of Rs. 9,80,000 was assessable in the hands of the assessee-firm in the year of receipt despite dissolution and discontinuance of its business by virtue of sub-section (3A) of section 176. ?Note: It should be noted that in section 172,174,174A and 175 it is mandatory to tax the income in the previous year itself. However, in case of section 176 i.e., income of discontinued business/profession, income can be charged to tax in the previous year itself or in the assessment year (at the discretion of the Assessing Officer). 8 |Page

Annexure: Rates of tax Accelerated assessment As per Part III of the first schedule of the finance act 2019(rates for charging income-tax in certain cases, deducting income-tax from income chargeable under the head \"salaries\" and computing \"advance tax\"),following are the rates to be charged for the income assessable which have been discussed in the above cases: I. In case of Individual or HUF or AOP or BOI or AJP Total Income Rate of Income tax 0 - 2,50,000 Nil 2,50,000 – 5,00,000 5% 5,00,000 – 10,00,000 20% >10,00,000 30% II. In case of Individual(60 years or more but less than 80 years) Total Income Rate of Income tax 0 - 3,00,000 Nil 3,00,000 – 5,00,000 5% 5,00,000 – 10,00,000 20% >10,00,000 30% III. In case of individual (80 years or more) Total Income Rate of Income tax 0 - 5,00,000 Nil 5,00,000 – 10,00,000 20% >10,00,000 30% IV. In case of co-operative society Rate of Income tax 10% Total Income 20% 0 - 10,000 30% 10,000 – 20,000 >20,000 9 |Page

V. In case of firm and local authority – 30% Accelerated assessment VI. In case of a company Domestic company Rate of 1. Turnover or Gross receipts in the PY (17-18) does not exceed 400 crores Income tax 2. others 25% 30% Other than Domestic company 1. (a)Royalties received from the Government or an Indian concern in pursuance of 50% an agreement (approved by central government) made by it with the Government or the Indian concern after the 31stMarch,1961 but before the 1st April1976; or (b)Fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 29th February,1964 but before the 1st April1976. 2. Other Income 40% ?Note: In the above cases, such tax shall be increased by surcharge as applicable. This article is contributed by Monika A, Intern of SBS and Company LLP. The author can be reached at [email protected] 10 | P a g e

FEMA DEPOSITS ACCOUNTS OF PERSONS RESIDENT OF INDIA Contributed by Laasya N & Vetted by CA Bharani & CA Murali Krishna Introduction: RBI regulates the foreign exchange markets (i.e., FOREX market) through Foreign Exchange Management Act, 1999 (herein after referred as FEMA Act). In exercise of powers conferred under section 6(3)(f) & 47(2) of FEMA Act, 1999, RBI has notified Foreign Exchange Management (Deposit) Regulations, 2016 (herein after known as “Deposit Regulations, 2016”) by notification number 5(R)/2000-RB dated 1st April 2016, superseding Deposit Regulations, 2000. Through the Deposit Regulations, 2016, RBI regulates the forex market with regard to deposits that can be held in India by persons resident outside India. In this article, an attempt has been made to understand and discuss about the following widely used deposit accounts that can be held by persons resident outside India with Authorised Dealer / Authorised Banker in India: (1) Non-Resident (External) Account Scheme (NRE account); (2) Foreign Currency (Non-Resident) Account Banks Scheme, (FCNR(B) account); (3) Non-Resident (Ordinary) Account Scheme, (NRO account); Definitions: Before we discuss the provisions related to the Deposit Regulations, It is important to understand and get familiarise with the following few important terms. (1) Deposit : ‘Deposit' includes deposit of money with a bank, company, proprietary concern, partnership firm, corporate body, trust or any other person. (2) Person resident in India (PRI): means (i) a person residing in India for more than 182 days during the preceding financial year but does not include a) a person who has gone out of India or who stays outside India, in either case – i. for or on taking up employment outside India, or ii. for carrying on outside India a business or vocation outside India, or iii. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period b) a person who has come to or stays in India, in either case, otherwise than – i. for or on taking up employment in India, or ii. for carrying on in India a business or vocation in India, or iii. for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period 11| P a g e

(ii) any person or body corporate registered or incorporated in India Deposits Accounts of Persons Resident of India (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India; (3) Person resident outside India (PROI): Person Resident Outside India means a person who is not resident in India; (4) Non-Resident Indian (NRI) :Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India. (5) Person of Indian Origin (PIO): Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions: a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or b) Who belonged to a territory that became part of India after the 15th day of August 1947;or c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or Deposits Accounts for Persons resident outside India : An authorised dealer in India may accept deposit: I. under the Non-Resident (External) Account Scheme (NRE account), from an NRI and PIO; II. under the Foreign Currency (Non-Resident) Account Banks Scheme, (FCNR(B) account), from an NRI and PIO; III. under the Non-Resident (Ordinary) Account Scheme, (NRO account), from any person resident outside India; NRE Account: Criteria Applicability Eligible Person : Non-resident Indians (NRIs) and Person of Indian Origin (PIOs)* Types of accounts : Savings, Current, Recurring or Fixed deposit account Denominated Currency : INR Rate of Interest : As per the directions/ instructions issued by RBI from time to time 12 | P a g e

*account should be opened by the non-resident account holder himself and not by the holder of the Deposits Accounts of Persons Resident of India power of attorney in India Permitted Credits : a) Proceeds of remittances to India in any permitted currency; b) Proceeds of personal cheques drawn by the account holder on his foreign currency account; c) Travellers cheques; d) Proceeds of foreign currency/ bank notes tendered by account holder during his temporary visit to India provided: (a) The amount was declared on a Currency Declaration Form (CDF), where applicable; (b) The notes are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that account holder is a person resident outside India. e) Transfers from other NRE/ FCNR (B) accounts; f) Interest accruing on the funds held in the account; g) Current income in India (such as dividends, rents etc,.)due to account holder, subject to payment of applicable taxes in India. h) Maturity or sale proceeds of any permissible investment in India which was originally made by debit to the account holder's NRE/ FCNR (B) account or out of remittances received from outside India through banking channels; i) Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/ FCNR (B) account of the account holder or by remittance from outside India through banking channels; j) Refund of application/ earnest money/ purchase consideration made by the house building agencies/ seller on account of non-allotment of flat/ plot/ cancellation of bookings / deals for purchase of residential/ commercial property, together with interest, if any (net of income tax payable thereon), provided the original payment was made out of NRE/ FCNR(B) account of the account holder or remittance from outside India through banking channels and the authorised dealer is satisfied about the genuineness of the transaction; k) Any other credit if covered under general or special permission granted by Reserve Bank. Permitted Debits : a) Local Disbursements; b) Remittances outside India; c) Transfer to NRE/FCNR(B) accounts of the account holder or any other person eligible to maintain such account; d) Investment in shares/securities/commercial paper of an Indian Company or for purchase of immovable property in India provided such investment/purchase is covered by the regulations made or the general/special permission granted by RBI; e) Any other transaction if covered under general or special permission granted by RBI. 13 | P a g e

Loans against NRE Account : Deposits Accounts of Persons Resident of India A. To Account Holder: 1. The loan shall be used for: (i) Personal purposes or for carrying on business activities except a. for the purpose of relending or b. carrying on agricultural/ plantation activities or c. for investment in real estate business. (ii) making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/company’s subject to the provisions of the relevant Regulations made under the Act (iii) acquiring flat/house in India for his own residential use subject to the provisions of the relevant Regulations made under the Act 2. Repayment shall be made either by adjustment of the deposit or by fresh inward remittances from outside India through banking channels or out of local rupee resources in the NRO account of the borrower. B. To Third Parties: Authorised dealers and authorised banks may grant loans to resident individuals/ firms/ companies in India against the collateral of fixed deposits held in NRE account subject to the following: (i) The loan should be utilized for personal purposes or for carrying on business activities except a. for the purpose of relending or b. carrying on agricultural/plantation activities or c. for investment in real estate business. (ii) There should be no direct or indirect foreign exchange consideration for the non-resident depositor agreeing to pledge his deposits to enable the resident individual/ firm/ company to obtain such facilities C. Loans outside India: Authorised dealers may allow their branches/correspondents outside India to grant loans to or in favour of non-resident depositor or to third parties at the request of depositor for bona fide purpose except for the following purposes specified below against the security of funds held in the NRE accounts in India and also agree for remittance of the funds from India, if necessary, for liquidation of the outstanding. a. for the purpose of relending or b. carrying on agricultural/plantation activities or c. for investment in real estate business. 14 | P a g e

Other Points: Deposits Accounts of Persons Resident of India (i) Change of residential status of the account holder: a. NRE account should be re-designated as resident accounts or b. Funds held in these accounts may be transferred to the Resident Foreign Currency (RFC) accounts (if the account holder is eligible for maintaining RFC account) (ii) If the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India. (iii) NRE Account can be opened jointly by two or more NRIs and/or PIOs. (iv) NRE Account can also be opened jointly with resident relative(s). However, the said relative(s) can operate the account as a Power of Attorney. (v) Temporary overdrawing upto ? 50,000 is allowed for a period of not more than two weeks. (vi) Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax. FCNR(B) Account : Criteria Applicability Eligible Person : Non-resident Indians (NRIs) and Person of Indian Origin (PIOs) Types of accounts : Term deposit only Denominated Currency : Permitted Foreign Currency Rate of Interest : As per the directions/ instructions issued by RBI from time to time In general, NRE and FCNR(B) Account are similar in all aspects except with following differences: 1. NRE account is a Rupee denominated account whereas FCNR(B) account is denominated in a permitted foreign currency; 2. NRE account can be opened as Savings Account, Current Account, Recurring Account and Fixed Deposit Account whereas FCNR(B) can be opened as term deposit account only with maturity period as specified by RBI; 3. Interest on balances held in FCNR(B) account may be credited on half-yearly or on an annual basis as desired by the depositor to a new FCNR(B) account or an existing/new NRE/NRO account in the name of the account holder, at the option of holder while the interest in the NRE account can be credited to NRE account only. 4. In case of change of residential status of account holder: a) Deposits held in the account can be held till maturity at the contracted rate of interest or b) On maturity, FCNR(B) account should be (i) Converted into resident rupee deposit account or (ii) Funds held in these accounts may be transferred to the RFC accounts (if the account holder is eligible for maintaining RFC account) 15 | P a g e

NRO Account: Deposits Accounts of Persons Resident of India Criteria Applicability Eligible Person : Persons Resident Outside India (except entities of Pakistan and Bangladesh ownership and individuals of Pakistan Nationality requires approval of RBI) Types of accounts : Current, Savings, Recurring or Fixed deposit Denominated Currency: INR Rate of Interest : As per the directions/ instructions issued by RBI from time to time Permitted Credits: a) Proceeds of remittances received in any permitted currency from outside India through banking channels; b) Any permitted currency tendered by the account holder during his temporary visit to India; c) Legitimate dues in India of the account holder; d) Transfers from other NRO accounts; e) Any amount received by the account holder in accordance with the rules or regulations made under the Act. Permitted Debits: a) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank. b) Remittance outside India of current income in India of the account holder net of applicable taxes. c) Transfers to other NRO accounts. d) Settlement of charges on International Credit Cards issued by authorised dealer banks in India to NRIs or PIOs. Other Points: 1. Change of Resident Status of Account holder: a) From Resident to Non-resident : When a person resident in India becomes person resident outside India (other than Nepal or Bhutan), his existing resident account should be designated as NRO account. b) From Non-resident to Resident : NRO accounts may be designated as resident rupee accounts. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit. 16 | P a g e

2. Loan to account holder or third party: Deposits Accounts of Persons Resident of India Loans to non-resident account holders and resident individuals/ firms/ companies in India may be granted in rupees against the security of fixed deposits for personal purposes or for carrying on business activities except a) for the purpose of relending or b) carrying on agricultural/plantation activities or c) for investment in real estate business. 3. Remittance of funds held in NRO accounts : Balances in NRO accounts are not eligible for remittance outside India without the general or specific approval of Reserve Bank. However, in case of NRI / PIO, amounts can be repatriated outside India up to USD 1 Mn per calendar year under FEM (Remittance of Assets) Regulations, 2016. Summary: S.No Particulars NRE Account FCNR(B) Account NRO Account 1. Eligible persons NRI/PIO NRI/PIO PROI 2. Type of Account S av i n g s , C u r re nt , Term Deposit Savings, Current, Recurring or Fixed Recurring or 3. Currency deposit Fixed deposit 4. Whether Interest paid? INR Permitted FC INR Yes Yes Yes 5. W h e t h e r j o i n t A c c o u n t Yes Yes Yes Permitted? Yes No* 6. W h e t h e r R e p a t r i a t i o n Yes Allowed? Yes Yes As specified by RBI NA 7. Whether Loans are allowed? Yes 8. Tenure of Account NA *up to USD 1 Mn per calendar year in case of NRI / PIO This article is contributed by Laasya N, Intern of SBS and Company LLP. The author can be reached at [email protected] 17 | P a g e

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