Important Laws for NRIs #NRI Day Special

Important Laws for NRIs is important to know not only because of the occasion of the NRI Day as on January 9, 2019, but also because of the different repercussions it has upon the legal obligations and rights that may or may not be possessed by them, though they do not reside in India.

Introduction

When you call yourself an “Indian”, automatically that patriotic fervour and sense of duty comes with it. But the adjective of “non- resident” tends to lower that threshold of being an Indian. Well, residency and citizenship entirely different concepts, the former is crucial not only for getting the famous NRI tag but also in terms of tax implications and legal obligations.

In the coming article, the important laws governing the status of non- resident Indians would be examined. There is a multitude of areas like marital law, taxation and property that get affected once one becomes an NRI.

Laws related to such fields would affect the rights and obligations of such people. Hence it becomes very important to have knowledge of such laws.

Definitions

The Income Tax Act plainly defined a non- resident Indian as one who is not a resident.[1] A resident is the one who in the past year had lived in India for minimum 182 days or in the preceding 4 years been in India for total 365 days or more and in India for 60 days for the past year.[2]

Similar parameters are being provided in the Foreign Exchange Management Act.[3] Here, the terminology used is different – person resident outside India, which is defined as one who is not a resident in India.[4]

The Foreign Exchange Management (Deposit) Regulations, 2000 also throw light on the concept of Person of Indian Origin (PIO). Regulation 2(xii) define him/ her as a citizen of any other country other than Bangladesh or Pakistan and fulfils either of the three conditions:

1. Holds Indian Passport
2. Parents or Grand- Parents were citizens
3. Spouse of an Indian citizen.[5]

This shows that PIO is a wider term than the NRI since for the earlier their current Indian citizenship status does not create any difference.

Citizenship Status

For NRIs, the most important law conceptually is the Citizenship Act, 1955 which provides for the ways and methodologies in which the citizenship can be acquired.[6]

There are primarily 5 manners in which citizenship can be acquired by a person-

1. Birth

The person born between 26.01.1950 – 01.07.1987; for those born afterwards, needs to have one of their parents as Indians.[7]

2. Descent

The person born between 26.01.1950 – 10.12.1992 and having descent through their father, who was an Indian citizen at the time of the birth, for the ones born afterwards, either of the parents should be Indian and the birth should be registered with an Indian consulate within the prescribed period.[8]

3. Registration

Three kinds of people are so eligible-

1. PIOs – resided in India for a minimum of 7 years;
2. Spouses – of Indian Citizens resided in India for 7 years & 12 months immediately before applying & for 6 years in aggregate in eight months before 12 months;
3. Minor Children – of Indian Citizens.[9]
4. Naturalisation

For foreigners who resided in India for 10 years, one year continuously before applying and 9 years in aggregate in past 12 years. [10]

5. Incorporation of Territory

Persons from the territory that becomes part of the Indian state are granted citizenship by the Government from a specified date.[11]

The crucial aspect is that the Indian government is also empowered to deprive the citizenship of a person on the satisfaction of either condition:

1. Usage of fraud, false representation or concealment of a material fact in obtaining registration or certificate of naturalisation.
2. The citizen by act or speech has shown to be disloyal or disaffected towards the Constitution of India
3. The citizen has assisted the enemy nation during war.
4. Imprisonment in another country for a minimum of 2 years.
5. Ordinarily resident outside India for continuous 7 years (except – student, Government service, member of an international organisation, informing the Indian consulate the intention to retain Indian citizenship).
   [12]

An NRI can also make a declaration for renouncing his or her status of being an Indian as prescribed under the law.[13] Basically, a renunciation certificate is also been issued. Those who would acquire foreign citizenship after that will also have to pay the US $ 175 as a penalty as mandated by the Indian government.

Tax Liabilities

A major source of income for the government comes through the tax revenue that becomes the revenue receipts for the government. Earlier, when an NRI had to leave India, a tax clearance certificate as required under Section 230 (1) of the Income Tax Act.[14]

But, after January 1, 2003, this requirement has been done away with most of the people except the fact that Income tax authorities can specifically ask for certain persons not to leave the country without obtaining the respective certificate.

The clearance certificate can be found in the Form Number 33 in the Income Tax Rules.[15] The Assessing officer foreign section would signify his assent thereto over the form with his or her signatures.

The rules so mentioned also come to the rescue of NRIs when they do not possess any PAN (Permanent Account Number). They may fill in the Form No. 60 and get the benefit in lieu of a PAN Card which would suffice the latter’s requirement.[16]

The tax liabilities are also a matter of concern. As discussed above, the resident is determined by the number of days that are spent in the country, whereby the stay need not be continuous. Thereafter, the Income Tax Act would determine the taxation on the basis of the residential status.

The same can be of three types as per the law:

1. Resident and Ordinarily Resident (ROR)
2. Non-Resident (NR)
3. Resident and Ordinarily Resident (RNOR)

Under such regime, if the NRIs have been present in India for 182 days or more or even for 60 days minimum (with cumulative 365 days in previous four years), they can become residents for the purposes of the tax implications. It will be a ROR status.

To avoid such implication, the NRI can take the benefit of the status of Resident but not Ordinarily Resident (RNOR), whereby, the person should be non- resident in India for 9 out of 10 years, or during previous 7 years, the stay was less than 730 days.[17]

Hence, when one is not ordinarily resident, no tax is required to be paid on the foreign income and the same thus become exempt from the tax implication. On the contrary note, the Resident for tax purposes is not given such leeway when it comes to worldwide income.

Normally, this RNOR status is enjoyable for a period of two years hence the same status would not be possible to be enjoyed for a period of three financial years. Otherwise, NRIs can rely on the Double Taxation Avoidance Agreements (DTAAs) to get certain relief from paying tax on foreign income.

There is a legal basis for this proposition since under the tax law; Section 90[18] provides for the exemption to the taxpayer if earning an income from a country with which India has signed a DTAA. Some leading examples are Singapore, UK, USA, Germany, Australia, Canada and France.

After the Union Budget 2012, to avail this DTAA benefit, the assessee has to provide a Tax Residency Certificate (TRC) from the particular government of the country they reside in. This change has been effective from April 1^st, 2012. U.S. Nationals may approach the IRS and the UK Nationals may approach the HMRC.

This DTAA benefit can be used to save on TDS by paying the deducted tax amount to the bank. This is best exemplified by the case of the DTAA between India and the US.[19] But the minimum requirement of Tax Residency Certificate remains a minimum requirement as the benefit is associated with a DTAA.

Even while inheriting property, a capital gains tax would be made applicable upon the NRIs. Earlier, an Inheritance tax was applied, that was introduced in the year of 1953 but was abolished in the year of 1985 when Mr V.P. Singh was the Finance Minister.[20]

Property Laws

When an NRI inherits a property, the Foreign Exchange Management Act and the related rules come into the picture. Reserve Bank of India also makes rules to regulate the affairs of the property and the conduct of the NRI.

As per the broad understanding, an NRI can be the seller and can sell to anybody whereby no permission would be required. But, when agricultural land is to be sold by the NRI, then the purchaser must be not only an Indian citizen but also a resident of India.

When the mortgage is to be done for the property to a party abroad, then approval from the RBI becomes mandatory as was not the case in the above two occasions. If the property is situated in India, the registration and transfer of ownership would have to be recorded in India itself.

When it comes to purchasing the land in India, the NRIs can consider taking the ownership record check, getting an encumbrance certificate and getting a release certificate, depending on the rules and regulations of the particular state you come from.

Other Rights and Benefits

• Bonds

NRIs are being mandated under the law to disclose the foreign bonds that they possess under their present financial position under the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991.[21] The nature and source of the investment in such bonds have to be disclosed properly.

• Education

The NRIs are being provided with reservation quota both under the central universities as well as state universities, whereby, a specific number of seats are exclusively reserved for them.

Even the fee structure for them is made different as per the needs Reservation of seats in educational institutions for NRIs. Some of the statutory examples include – Karnataka Professional Educational Institutions (Regulation of Admission and Determination of Fee) Act, 2006[22] and Rajiv Gandhi National Institute of Youth Development Act, 2012[23].

• Investment

Reserve Bank of India issues the Portfolio Investment Scheme. It allows the NRIs to purchase and sell shares and convertible debentures of Indian companies, on a recognised stock exchange in India. Such a scheme is a necessity in the Indian framework since NRIs cannot invest more than 5% in an Indian company.

• Information

NRIs can also use the Right to Information Act so as to get information from government offices and resolve issues. There is no restriction in the act as to who and how can the information can be claimed.[24]

The right is so wide that the person concerned can also ask for reasons behind administrative or quasi-judicial decisions of a public authority.[25] If the person concerned is an affected person, the threshold for gaining information increases further. A meagre amount of Rupees 10 is charged as the RTI fee.

“Overseas Citizen of India” Scheme

For the PIOs, the Indian government made a landmark amendment[26] in the said act and introduced the scheme of OCI, i.e., Overseas Citizen of India.

Now any foreign citizen who would be deemed to be of Indian origin can get himself or herself registered as an OCI. People generally refer to it as the dual citizenship though the same is not allowed.

The requirements under the law are also quite loose. You may be either a former citizen or eligible to be a citizen or part of the earlier British undivided territory, you will get an OCI Card. You will get visa-free and lifetime travel to India along with a treatment at par with other NRIs.[27]

Conclusion

Different laws in the forms of acts, rules, regulations and the resulting schemes provide an opportunity to the NRIs to enjoy the benefits of being in India even if they are not in India.

This unique interface where the legislature has cautiously laid down the network of legal obligations as well as has generously vested rights in them as well, one can conclude that such laws are not only important but also quite required for the usual course of business to follow.

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[1] Income Tax Act, 1961, § 2 (30), No. 43, Acts of Parliament, 1961 (India).

[2] Id. at § 2(40) & 6.

[3] Foreign Exchange Management Act, 1999, § 2 (v), No. 42, Acts of Parliament, 2000 (India).

[4] Id. at § 2 (w).

[5] Foreign Exchange Management (Deposit) Regulations, 2000, Regulation 2(xii) May 03, 2000, Notification No.FEMA 5 /2000-RB, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/13255.pdf.

[6] Citizenship Act, 1955, No. 57, Acts of Parliament, 1955 (India).

[7] Id. at § 3.

[8] Id. at § 4.

[9] Id. at § 5.

[10] Id. at § 6.

[11] Id. at § 7.

[12] Id. at § 10.

[13] Id. at § 8 (1).

[14] Income Tax Act, 1961, § 230 (1), No. 43, Acts of Parliament, 1961 (India).

[15] Income Tax Rules, 1962, Rule 43, Form No. 33.

[16] Id. at Form No. 60.

[17] Income Tax Act, 1961, § 6, No. 43, Acts of Parliament, 1961 (India).

[18] Id. at §90.

[19] Double Taxation Avoidance Agreement, India- U.S., Article 11.

[20] V.K. Chand, The NRI Guide 139 (Chand 2015).

[21] Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991, § 6, No.41 , Acts of Parliament, 1991 (India).

[22] Karnataka Professional Educational Institutions (Regulation of Admission and Determination of Fee) Act, 2006, §9, No. 8, Acts of Karnataka State Legislature, 2006 (India).

[23] Rajiv Gandhi National Institute of Youth Development Act, 2016, §33, Acts of Parliament, 2012 (India).

[24] Right to Information Act, 2005, § 6, No. 22, Acts of Parliament, 2005 (India).

[25] Id. at § 4 (1) (d).

[26] Citizenship Act, 1955, §7A, No. 57, Acts of Parliament, 1955 (India).

[27] Id. at §7B.

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