Generally Non-Resident Indians (NRI) or Persons of Indian Origin (POI) have funds and other properties in India even when they are residing outside India. Revenue is also generated from investments made in India or from some other sources in India. At some points, NRI or POI are required to repatriate funds lying in Indian bank accounts to their current country of residence. 

Apart from NRIs or PIO, certain people of foreign nations also make investments in India and eventually they are required to remit their revenue in India to their home country.

For the purpose of making this process of remittance hassle-free and keeping requisite control over such transactions, The Reserve Bank of India has notified various rules for remittance of assets from India vide  Notification No. FEMA 13/2000-RB dated May 3, 2000. Compiled instructions of remittance are also given in “Master Direction – Remittance of Assets’ issued vide RBI/FED/2015-16/8 FED Master Direction No. 13/2015-16 dated 1st January, 2016. In this article a detailed discussion has been carried out of provisions notified by RBI on remittance of funds from India.

1 What do you mean by “Remittance of Asset”

• ‘Remittance of assets’ means remittance outside India of funds that are deposited in India.
• These funds may be kept in a:
  • bank/firm/company, 
  • provident fund balance or superannuation benefits, 
  • amount of claim or maturity proceeds of insurance policy, 
  • sale proceeds of shares, securities, immovable property or any other asset held in India in accordance with provisions of FEMA.

2. What is the meaning of Non-Resident Indian(“NRI”) or Person of Indian Origin (POI)

• ‘Non-Resident Indian’ (NRI) means a citizen of India but who is a resident outside India.
• ‘Person of Indian Origin (PIO)’ is a person resident outside India and he is a citizen of any country other than Bangladesh or Pakistan and he satisfying the following conditions:
  • He is a citizen of India under the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
  • He belongs to territory that became part of India after the 15th day of August, 1947; or
  • 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
  • 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 (c)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955.

3. Types of Assets/Funds held in India by NRIs and POIs in India

• In term of Bank Accounts, NRI and POI are permitted to open and operate Non-Resident Ordinary (NRO) Account, Non-Resident External (NRE) Rupee Account and Foreign Currency (Non-Resident) (FCNR) Account.
• NRE Account are used to keep income earned outside India. Whereas, NRO Accounts are used to keep income earned in India. 
• Apart from Bank Account, a NRI or POI may also held any of following asset in India:
  • Funds, movable or immovable property held in Indian Bank Account by an NRI when they moved abroad. However, on the date of becoming non-resident, an NRI is required to convert his Indian Rupee Account to NRO Account.
  • Property acquired through inheritance after becoming NRI.
  • Investments made in India through overseas funds whether in movable property or immovable property
  • Income earned in India through various assets or investments held in India.

4 What are the repatriation norms for NRI/POI

4.1 NRE Account:

• NRE Account is maintained to keep the income earned outside India. Therefore, following are permissible credits to NRE Accounts:
  • Inward remittance from outside India
  • Amount transfer from other NRE Account or FCNR Account
  • Interest Income earned on Balance held in NRE Account
  • Maturity proceeds, if any, made from investment made through this account
  • Current income like rent, dividend, pension, interest etc. is also permitted to credit to NRE Account provided the Authorised Dealer is satisfied that the credit represents current income of the NRI/PIO account holder and income tax thereon has been deducted/ paid.

• Funds held in NRO Account, whether principal or interest income, are freely remitable outside India.

4.2 NRO Account:

• NRO Account is maintained for income earned in India such as rental income, Interest Income, income on investment etc.
• Following amounts are permitted to be credited to NRO Account:
  • Inward remittance from outside India
  • Legitimate dues in India
  • Transfer from other NRO Account
  • Rupee gift/ loan made by a resident to a NRI/PIO relative within the limits prescribed under the Liberalised Remittance Scheme may be credited to the latter’s NRO account.

• Funds held in the NRO Account are generally non-repatriable outside India. However, Current income like rent, dividend, pension etc. can be remitted without any monetary limit.
• Further, Authorised dealer may allow NRI/POI to remit upto USD 1 Million per Financial Year out of balance held in NRO Account subject to submission of documentary evidence.
• Where the remittance is to be made from NRO account, the Authorised Dealer should obtain an undertaking from the account holder stating that “the said remittance is sought to be made out of the remitter’s balances held in the account arising from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer from any other NRO account and if such is found to be the case, the account holder will render himself/ herself liable for penal action under FEMA.”

4.3 Immovable Property

Following are the norms for the repatriation of funds collected through sale of immovable Property by NRI or POI:

1. Immovable Property acquired by way of inheritance/ legacy/ out of Rupee funds

• Repatriation shall be permitted subject to production of following documents:
  • documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter and 
  • a tax clearance/no dues certificate from the income tax authority for the remittance.

• Where remittance is made in more than one instalment, the remittance of all instalments should be made through the same Authorised dealer

. 

2. Immovable Property acquired by way of Purchase

• However, in case of residential property, the repatriation of sale proceeds is restricted to maximum two such properties.

3. Repatriation of sale proceeds of the property by NRIs, bought as a resident of India

• If you are selling a property that you purchased prior to relocating overseas, that is, while you were a resident of India, the revenues must be deposited to your NRO account. 
• You are allowed to repatriate up to USD 1 million per financial year (April-March), including all other capital transactions, if you have fulfilled all of your tax obligations. 
• Only two residential properties can be sold for repatriation.
• If you’ve owned the property for at least ten years, you can execute this repatriation. 
• You cannot instantly repatriate the money if you have owned the property for less than ten years provided that the cumulative period of holding of the immovable property in India and retention of the sale proceeds of the property in the NRO Account is not less than 10 years.. 

For example, you are selling a property after holding it for 8 years. Then you need to keep the sale proceeds in an NRO account for 2 years. After this 2 year period you can repatriate.

4. Repatriation of sale proceeds of the property by NRIs bought as a Non-resident of India

• The sale proceeds of the property purchased after you become an NRI can be remitted outside India only after certain conditions are met:
  • The property must be purchased in compliance with the foreign exchange laws prevalent at the time of the purchase.
  • The repatriation cannot exceed the amount of foreign exchange remitted by the NRI to India via normal banking channels for the purchase of the said property.
  • The remittance cannot exceed the funds paid through Foreign Currency Non Resident (FCNR) Account in buying the property.
  • The repatriation cannot exceed the amount of loan repayment made using foreign inward remittance or debit to Non Resident External (NRE) or FCNR accounts.
  • The remittance cannot exceed the amount paid through an NRE account at the time of purchase.
  • In all cases, the amount of sale proceeds must be credited to NRO account and only then up to USD 1 million per financial year can be repatriated. Such repatriation is allowed for only two properties.

• The Lock in period of 10 years to complete for repatriation’ doesn’t apply for properties bought by NRIs from their foreign money.

5. Documentary Evidence Required

Here is the list of the required documentary evidence for repatriation by NRI:

1. Form 15CA:

Undertaking by the remitter to be signed either physically or through a digital signature and submitted online on the Tax Department website. 

2. Form 15CB:

Certificate to be obtained from a Chartered Accountant confirming that applicable taxes are paid on the remittances. 

3. Form A2/Outward Remittance Form 

In case of transfer of funds from NRO account to overseas bank account.

4. FEMA Declaration/Transfer Request 

In case of transfer of funds from NRO account to NRE account.

5. Any other documents required by the AD Bank.

6. Taxation on Sale of Property by NRI

6.1 Sale of Immovable property after 3 years of acquisition.

• If NRIs sell the property after three years from date of purchase, they will incur long term capital gains of 20%.  The gains are calculated as the difference between indexed cost of purchase and sale value.
• The cost of purchasing adjusted for inflation is referred to as the indexed cost of buy. 
• In the event of inherited property, the date and cost of purchase are assumed to represent the date and cost to the original owner for the purposes of computing the length of holding and cost of purchase. 
• NRIs are liable to a TDS of 20% under the law.

6.2 Sale of Immovable property within 3 years of acquisition.

If they sell the property within three years from the date of purchase, they are liable for short term capital gains of a TDS of 30% irrespective of tax slab. 

• Short term capital gains are calculated as the difference between the sale value and cost of purchase. No indexation benefit is applicable on short term capital gains.

7. Tax Exemption on Sale of Property by NRIs

• NRIs can avail tax exemption in certain instances. 

If they sell their property after three years of purchase and reinvest the sale proceeds into another residential property within two years of sale, gains will be exempt to the extent of the cost of new property.

• Another instance of exemption is investment in capital gain bonds. 

If NRIs sell their property after three years of purchase and reinvest the proceeds in bonds of National Highways Authority of India and Rural Electrification Corp. of India within six months of sale, they will be exempt from paying capital gains tax. 

The bonds are going to be locked in for a period of three years.

There are various other exemptions available under Income Tax provisions to optimize income tax liability.

The above-mentioned facts are to illustrate the due procedure involved with purchase and sale of property by NRIs and repatriation of sale proceeds. It is advisable to consult a professional to look into finer details of such transactions.