CHANGE OF RESIDENTIAL STATUS

A Non-Resident Indian will be treated as a person resident in India if he returns to or stays in India, in either case:­-
(a) for or on taking up employment in India, or
(b) for carrying on in India, a business or vocation, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.
From the definition given above, it can be concluded that the purpose/intention of stay in India is the most relevant factor for determining the residential status of a person. The period of stay is only of secondary importance.
Status of non-residents on temporary visits/stay in India
Non-Resident Indian citizens and Persons of Indian Origin on the temporary visits/stay in India without any intention to stay in India for an uncertain period shall continue to be treated as Non-Residents, during their stay in India. Their Non-Resident accounts/investments etc., would continue without any change and they will also not be required to surrender any foreign exchange.
Once an NRI becomes resident of India, all the rules and regulations of FEMA, as are applicable to the person resident in India would be applicable to him except that he continues to enjoy various facilities such as maintaining his foreign securities, currency, properties situated abroad or maintaining and operating Resident Foreign Currency Account in India.

FORMALITIES TO BE COMPLETED ON BECOMING RESIDENT

This is the most significant practical aspect of FEMA. Quite a few formalities have to be complied with, upon change of residential status either way. A large number of violations of FERA were occurring in this area due to ignorance. RBI was considerate in pardoning genuine mistakes thus far. The scenario has changed, now that the RBI's power to regularise mistakes or give post-facto approval has been withdrawn. In view of this, it is imperative that we get to know about obligations under FEMA upon change of residential status.
(i) Assets Abroad
Section 6(4) of the Act deals with provisions relating to "Returning NRls". Accordingly, a person resident in India (here the reference is to returning NRls) is permitted to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, provided such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
Under FERA, general permission was given to the returning NRls to hold their investments and assets outside India under several Notifications. These Notifications permitted the returning NRls to hold, convert, sell, re-invest the assets abroad and/or earn income thereon. In short, the returning NRls were permitted to deal with these assets in whatever manner they feel appropriate even after becoming resident. The only two conditions were that the assets should have been acquired legitimately (without FERA violation) while residing abroad and the returning NRI should have stayed outside India for at least one year continuously.
The condition of continuous period of one year has been removed under FEMA. However, Section 6(4) is silent on re-investment of income/sale proceeds of assets abroad after becoming resident of India, which was freely allowed under FERA. Thus, applying provisions of surrender of foreign exchange representing income on assets held outside India, all such income or sale proceeds have to be deposited, with the authorised person in India, within seven days of their receipt.
(ii) Continuation of proprietary/partnership business abroad
Section 6(4) is silent on this issue; moreover, there is no direct provision dealing with this situation. However, Section 3 puts a general restriction on a person resident in India to deal in foreign exchange or enter into any transactions of receipts or payments with non-residents, unless there is a general or special permission in that behalf. Besides this, there are specific regulations concerning a person resident in India pertaining to foreign currency bank accounts, lending and borrowing in foreign exchange, acquisition and transfer of immovable property outside India and so on. Therefore, it is advisable that a specific permission be obtained from the Reserve Bank in respect of these types of interests.
(iii) Other Movable Assets held abroad
There are no provisions under FEMA governing movable assets held abroad, excepting foreign currency and foreign securities covered by section 6(4) of the Act, pertaining to returning NRls. There are two views, namely, (i) whatever is not expressly prohibited is permitted under the law, and (ii) wherever the Act is silent, it is considered as implied prohibition. It is difficult to accept the second view; however, in order to be on right side of the law and to avoid possibility of litigation, one may obtain permission to hold such assets from the RBI.
Other movable assets may include:

• Jewellery
• Motor car
• Personal household effects
• Personal computers, Cell phones and other gadgetry.

(iv) Bank Accounts Abroad
FEMA does not specifically contain provision for maintaining foreign currency accounts abroad in respect of returning Indians. Therefore, it is advisable to obtain a specific permission from the RBI in this regard.
(v) Bank Accounts in India
Upon change of residential status, the returning NRI must inform the bank, where upon all bank accounts would be re designated as "Resident A/C". RBI has allowed continuance of NRE and FCNR accounts till maturity so that there is no loss of interest. Funds in NRE account can be deposited in RFC Account on returning to India. The time limit is not specified. However, it is advisable to transfer the funds immediately after maturity. In any case, it is obligatory on the part of the returning NRI to inform the banker about his change of residential status immediately upon such change. Interest on NRE deposits which are continued till maturity, will be eligible for concessional tax under chapter XII-A.
FCNR, too, can be converted into RFC Account on its maturity. RFC account is fully convertible. Therefore, it is advisable that whatever repatriable incomes are due on arrival are credited to RFC account.
(vi) Investments
A person can continue to hold an investment without requiring prior permission of the RBI, provided such investments were acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
(vii) Time limits for intimation
As stated earlier, no specific time limits are prescribed. However, as far as bank accounts are concerned, the regulations stipulate immediate redesignation as resident account. This is one area where many people fail to comply with the provisions of law. Many people continue to maintain NRE/FCNR and other non-resident accounts for years after becoming resident. The Reserve Bank was considerate in condoning such lapses under FERA. Now it will be difficult for the Reserve Bank to condone delay, and such lapses may invite monetary penalty.
VISA
Foreign National of Indian origin can visit India under multi-entry visa when they hold letter of Intent/Acknowledgement of Industrial Entrepreneurs Memorandum/License or Provisional Registration with the Directorate of Industries etc. Such persons can get endorsement on their passport for single/multi-entry visa from the Consulate General/High Commissioner/Embassy of India. Their spouses can also be granted multi-entry visa upto 5 years.

IMPORT OF GOLD AND SILVER

An NRI returning to India after staying abroad for a period of more than six months is permitted to import Gold upto 10 kgs and Silver upto 100 kgs on payment of custom duty which on Gold is @ Rs. 10 per gm. for a 100 gm bar and for a Tola bar it is Rs. 250 per 10 gm and on silver is @ Rs. 500 per kg subject to following conditions:-

When gold is sold in India, the profit is liable to tax as business income or capital gains, depending upon the facts of each case i. e., the intention of the NRI. If his intention was to take advantage of the business opportunity and sell gold/silver, it will be treated as business profit. If his intention was to hold it as a capital asset, it will be treated as capital gains.
In a majority of the cases, the NRI would have purchased the precious metal just prior to his return to India and sold it within a short time after his arrival in India, such a transaction constituting an "adventure in the nature of trade" and the income therefrom would be taxable as business income. It is a well-settled principle that income from a single transaction could also constitute business income. Hence profit on sale of gold/silver would be treated as business income.
If however, the NRI has acquired the precious metal as a capital asset, the income will be treated as short-term or long-­term capital gain depending upon the period of holding.

IMPORT OF CURRENCY

Any person who arrived from outside India, may bring into India at the time of his return from any place outside India (other than from Nepal and Bhutan):­
1) No limit is prescribed for the import of coins.
2) There is no limit as such to bring in foreign exchange by an incoming passenger; however, a declaration in form CDF (Currency Declaration Form) is required if the value of such currency exceeds US $ 10,000 or its equivalent (in the form of currency notes, bank notes or traveler's cheques) and US $ 5,000 (foreign currency notes) or its equivalent.

CONCESSIONS AVAILABLE TO NRIS ON THEIR RETURN TO INDIA

A returning Indian is permitted to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, provided such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
A returning Indian can convert his balances in NRE/FCNR account into RFC account. RFC account is convertible on Capital account, whereby he can buy or invest in properties and securities abroad without any permission from RBI.
Tax Benefits
A returning Indian can opt to be governed by provisions of Chapter XII-A of the Income tax Act, 1961 whereby his specified assets in India (for example, deposits with public limited companies in India placed out of convertible foreign exchange) can continue to be taxed at the concessional rate of 20 per cent.
Moneys and the value of assets brought by Returning Indian and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter are totally exempt from Wealth-tax for a period of seven years after return to India.
The NRI has to consider whether it is advantageous to keep foreign currency assets abroad, carrying much lower returns but which provides protection against the exchange rate fluctuation, as well as Indian tax on foreign incomes. In some cases, it may be advantageous to invest a large portion of their foreign liquid funds in India and earn higher income thereon, sometimes even when there are no plans to return to India permanently. Each individual NRI has to examine in detail the various avenues available in India, which give the right to repatriability, offer much higher returns than those available abroad and at the same time protect the investor against the depreciation of the Indian rupee.

BANK ACCOUNTS ABROAD

Under the FERA, RBI had granted general permission to returning Indians to maintain and operate their foreign currency accounts abroad provided the funds held in bank accounts were acquired by such person not in contravention of provisions of FERA while he was resident outside India and he had been non-resident for a continuous period of one year.
There were no restrictions on utilization of the balances in these accounts for any bona fide payments in foreign currency. Further, funds were allowed to be utilised for making investments abroad in any shares/securities, immovable properties, etc. This facilitated account holders to make any payments to persons resident outside India.
FEMA is silent on the issue of maintenance of foreign currency accounts abroad by returning NRls. Section 6(4) permits returning NRls to hold, own, transfer or invest in foreign currency, foreign security, or immovable property outside India; however, it does not mention about bank account abroad. Thus, technically a returning NRI would require approval from RBI to maintain bank accounts abroad. However, there is a school of thoughts that believes that the beneficial provisions of FERA would continue and no permission would be required in such cases. Yet, it is advisable to approach RBI for approval to be on right side of the law.
BANK ACCOUNTS ON RETURN TO INDIA
(a) Ordinary Non-Resident Accounts:Ordinary Non-Resident Accounts have to be converted to resident accounts by banks on return of the account holders to India and consequently becoming resident in India.
(b) Non-resident (External) Rupee Accounts:Non-resident (External) Rupee Accounts can be converted to resident rupee accounts or RFC (Resident Foreign Currency) accounts (which is explained below videitem d) at the option of the account holder on his return to India and becoming resident in India. In case of NR(E) fixed deposits, the accounts will continue to earn agreed higher rates of interest till maturity, even after being converted to resident account.
(c) FCNR (Banks) Account:FCNR (Banks) deposits can be converted to resident rupee account or RFC account at the option of the account holder on his return to India and becoming resident in India.
In case the deposit is converted to resident rupee account the foreign currency amount will be converted to Indian rupees at IT buying rate ruling on the day of conversion. Interest on the new deposit would be payable at the relevant rate applicable for such a deposit. In case the amount is transferred to RFC account, the rate of interest as applicable to RFC deposit will be allowed.
(d) Resident Foreign Currency Account: The returning NRI being the citizen of India or a PIO who has permanently settled in India and is in India for a period of more than one year can open an RFC account on account of the following receipts:
(i) Funds received as pension or any other superannuation or other monetary benefits from his employer outside India.
(ii) Funds realized on conversion of assets referred to in sub-section (4) of section 6 of the FEMA, and repatriated to India (i.e. foreign currency, foreign security or any immovable property situated outside India).
(iii) Received or acquired as gift or inheritance from a person Funds referred to in sub-section (4) of section 6 of FEMA (i.e. returning non- resident).
(iv) Funds Acquired or received before July 8, 1947 or any income arising or accruing thereon which is held outside India by any person, or acquired as gift or inheritance therefrom [i.e. under section 9(c)].
Funds held in the RFC Account are free from all restrictions regarding utilization of foreign balances including any restrictions on investment in any form outside India. Thus, RFC account is convertible on Capital account.