Ultimate Guide to NRI Status: Everything You Need to Know About Taxes, Remittances, and Accounts

by Deepak Madan | Feb 22, 2024 | Blog

Non-resident Indians (NRI) are individuals who are of Indian origin and are living abroad. An NRI is a person who has lived outside India for more than 182 days in a financial year or who has left India with the intention of residing outside the country for an indefinite period. NRIs may be working or studying abroad or may have migrated to another country for personal reasons.

NRIs have specific financial needs and requirements, which are different from those of resident Indians. The Indian government has implemented various policies and regulations to address these needs and facilitate the smooth transfer of funds to and from NRI accounts.

Permitted Remittances from and to NRI Accounts

NRIs have the facility to open NRI accounts in India, which can be used to remit funds to and from their home country. The types of accounts available to NRIs include Non-Resident External (NRE) accounts, Non-Resident Ordinary (NRO) accounts, and Foreign Currency Non-Resident (FCNR) accounts.

Non-Resident External (NRE) Accounts

An NRE account is a savings or current account that can be opened by an NRI in India. Funds in an NRE account are held in Indian Rupees, and the account holder can repatriate the funds in a foreign currency of their choice. NRE accounts can be held jointly with another NRI or a resident Indian.

The following are the permitted remittances from NRE accounts:

• Funds can be remitted to any account held in the name of the account holder in India.
• Funds can be remitted to the account holder’s foreign account in any foreign currency.
• Funds can be used to make investments in India, subject to the rules and regulations set by the Reserve Bank of India (RBI).
• Funds can be used to make donations to charitable organizations in India.

Non-Resident Ordinary (NRO) Accounts

An NRO account is a savings or current account that can be opened by an NRI in India. Funds in an NRO account are held in Indian Rupees and cannot be repatriated to a foreign currency. NRO accounts can be held jointly with another NRI or a resident Indian.

The following are the permitted remittances from NRO accounts:

• Funds can be remitted to any account held in the name of the account holder in India.
• Funds can be used for local payments in India, such as paying bills, rent, or taxes.
• Funds can be used for investments in India, subject to the rules and regulations set by the RBI.
• Funds can be used to make donations to charitable organizations in India.

Foreign Currency Non-Resident (FCNR) Accounts

An FCNR account is a term deposit account that can be opened by an NRI in India. Funds in an FCNR account are held in foreign currency, and the account holder can repatriate the funds in the same foreign currency. FCNR accounts can be held jointly with another NRI or a resident Indian.

The following are the permitted remittances from FCNR accounts:

• Funds can be repatriated to the account holder’s foreign account in the same foreign currency.
• Funds can be used to make investments in India, subject to the rules and regulations set by the RBI.

Key Difference between NRE & NRO accounts:

While both accounts are designed for NRIs, there are some key differences between them. Here are some of the main differences between NRE and NRO accounts:

1. Purpose of the Account: NRE (Non-Resident External) accounts are used to park and manage funds that originate outside of India. These accounts are typically used for maintaining income earned overseas, such as salary, rent, dividends, etc.

NRO (Non-Resident Ordinary) accounts, on the other hand, are used for managing income that is earned in India, such as rent, dividends, and other types of income that originate from within the country.

1. Repatriation of Funds: One of the key differences between NRE and NRO accounts is the ease with which funds can be repatriated to the NRI’s country of residence. Funds in NRE accounts are freely repatriable, which means that they can be transferred outside India without any restrictions. This means that the funds held in an NRE account can be easily repatriated to the NRI’s country of residence in a foreign currency.

Funds in NRO accounts, on the other hand, are not freely repatriable. The amount of money that can be transferred outside of India from an NRO account is subject to certain limits and requires approval from the Reserve Bank of India (RBI).

1. Taxation: Another key difference between NRE and NRO accounts is the tax treatment of the funds held in each account. Interest earned on funds held in an NRE account is tax-free in India, which means that NRIs do not have to pay tax on the interest earned on these accounts. However, NRIs may be required to pay tax on the interest earned on funds held in an NRO account.
2. Currency: NRE accounts can be maintained in Indian rupees or foreign currency. NRO accounts, on the other hand, can only be maintained in Indian rupees.
3. Joint Accounts: NRE accounts can be held jointly with another NRI, while NRO accounts can be held jointly with an NRI or a resident Indian.

Taxation of Non-Resident Indians (NRI) in India

NRIs are subject to different tax rules and regulations in India compared to resident Indians. The taxation of NRIs in India depends on their residential status, i.e., whether they are considered a resident or non-resident for tax purposes.

Residential Status of NRIs for Tax Purposes

The notification from the income tax department clarifies that an NRI is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. To determine the residential status of an individual, Section 6 of the Income-tax Act is used. An individual is deemed to be a resident of India if he or she satisfies any of the following conditions:

1. If he or she is in India for a period of 182 days or more during the previous year.
2. If he or she is in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.

However, there are exceptions to these conditions. For example, in the case of an Indian citizen or a person of Indian origin who visits India during the year, the period of 60 days mentioned above is substituted with 182 days. Additionally, an Indian citizen whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year is deemed to be a resident in India if he or she is not liable to pay tax in any country.

Tax Implications for NRIs in India

1. Income earned in India: NRIs are subject to tax in India on the income they have earned in India. This includes income from employment, business or profession, rental income, capital gains from the sale of property or investments in India, etc.
2. Income earned abroad: NRIs are not subject to tax in India on the income they have earned abroad. However, they may be required to pay tax on the income they have earned abroad in the country where it was earned.
3. TDS (Tax Deducted at Source): TDS is deducted from the income of NRIs in India, just like resident Indians. The TDS rates for NRIs are higher than those for resident Indians.
4. Double Taxation Avoidance Agreement (DTAA): India has signed DTAA with various countries to avoid double taxation of income. NRIs can claim tax relief under DTAA if they have paid tax on the same income in India and another country.
5. Tax Return Filing: NRIs are required to file a tax return in India if their income in India exceeds the basic exemption limit (currently INR 2.5 lakhs). NRIs are also required to file a tax return if they have any income from capital gains or any income that is not subject to TDS.

Will a student going abroad to study be treated as an NRI?

Yes, a student who is going abroad to study will generally be treated as an NRI (Non-Resident Indian) for income tax purposes in India. The student’s residential status is determined based on the number of days he or she stays in India during a financial year (which runs from April 1 to March 31).

As per the Income Tax Act, an individual is considered an NRI if he or she satisfies either of the following conditions:

1. The individual has been outside of India for 182 days or more during the financial year, or
2. The individual has been outside of India for a period of 60 days or more during the financial year and has been outside of India for a total of 365 days or more in the preceding four financial years.

Read Here: https://ibrlive.com/understanding-the-difference-between-nri-and-pio-key-features-and-benefits/

The Importer/Exporter Code: The Key to Successful International Trade

by Deepak Madan | Feb 22, 2024 | Blog

In today’s global economy, international trade has become a vital component of many businesses. Whether you are an importer or an exporter, you need to be familiar with the unique codes that are used to identify your business and the goods you are trading. In this article, we will explore the importer/exporter code(dgft iec), also known as the IEC, and why it is important for businesses engaged in international trade.

Importer/Exporter Code(dgft iec): What Is It?

(DGFT) of India issues Importer/Exporter Codes (IEC), which are 10-digit codes. Businesses involved in international trade use this special identification number to let customs officials and other government organizations know who they are. All companies in Import or export business activities from India must have an IEC.

The IEC is a one-time registration, and once a business is registered, it is valid for all future imports and exports. The registration process is straightforward and can be done online through the DGFT’s website. Businesses are required to provide basic information about themselves, such as their legal name, address, and contact details, as well as information about their business activities.

The Importer/Exporter Code: Why Is It Important?

IEC certification is a crucial prerequisite for companies involved in international trade. Banks and other monetary institutions use it to handle foreign payments, while customs authorities use it to monitor the flow of commodities within and outside of the country. Businesses are unable to import or export products from India without an IEC.

The IEC is also essential for businesses that wish to take advantage of various government schemes and incentives. For example, businesses that are registered under the Export Promotion Capital Goods (EPCG) scheme are required to have a valid IEC.

How to Get an Importer/Exporter Code(IEC)?

To obtain an IEC, businesses need to apply to the DGFT. The application can be submitted online, and the process is relatively simple. Businesses are required to provide basic information about themselves, such as their legal name, address, and contact details. Once the application is submitted, the DGFT will verify the information provided and issue the IEC within a few days.

Am I eligible to have IEC without having any GST number?

Yes, IEC can be applied even without a GST number.

Can a person obtain an IEC code?

Who may obtain IEC? An IEC can be obtained by a person or a firm that wants to conduct international business. Individuals may use either their or business names to apply for IEC.

Conclusion:

For enterprises involved in international trade, it is a prerequisite to have this code. To monitor the movement of commodities within and outside of the country, customs officials and other governmental organizations utilize this special identifying number. All companies that ship or import goods from India must have an IEC; otherwise, they cannot conduct international commerce. You must secure a valid IEC to ensure efficient and trouble-free operations if you are involved in foreign trade.

Understanding the Difference Between NRI and PIO: Key Features and Benefits

by Deepak Madan | Feb 22, 2024 | Blog

As India continues to grow and develop, more and more people are exploring opportunities to live, work, and invest in the country. However, with different types of visas, residency statuses, and investment options available, it can be challenging to navigate the system and figure out what works best for you. Two common categories that are often confused are Non-Resident Indian (NRI) and Person of Indian Origin (PIO). In this blog post, we’ll clearly understand the differences between NRI and PIO, including the key features and benefits of each.

NRI vs. PIO: Key Features

Non-Resident Indian (NRI)

An NRI is an individual who holds an Indian passport but lives outside of India. This can be due to various reasons, including work, education, or personal choice. To be considered an NRI, an individual must have spent fewer than 182 days in India in a financial year or 365 days in the four years before the financial year. NRIs can invest in Indian markets, but their investments are subject to certain restrictions and may be subject to taxes on their Indian income. Additionally, NRIs are not eligible to vote in Indian elections.

Person of Indian Origin (PIO)

A PIO is an individual who is not a citizen of India but can prove their Indian origin through birth, marriage, or descent. PIOs are typically foreign nationals with at least one Indian parent or grandparent. PIOs are eligible to apply for a PIO Card, which allows them to enter and exit India without a visa for up to 15 years. PIOs can also open a Non-Resident External (NRE) account, which allows them to hold and transfer their income earned outside India in Indian currency. Additionally, PIOs can invest in Indian markets without restrictions and are eligible to vote in Indian elections.

NRI vs. PIO: Key Benefits

Non-Resident Indian (NRI)

• Access to Indian markets: NRIs can invest in the Indian stock market, mutual funds, and other investment vehicles. However, their investments are subject to certain restrictions and may be subject to taxes on their Indian income.
• Taxation: NRIs are taxed differently than Indian residents. For example, they are not taxed on foreign income, but they may be taxed on income earned in India.
• Banking: NRIs can open an NRE account, which allows them to hold and transfer foreign currency into India. They can also open a Non-Resident Ordinary (NRO) account, which allows them to hold income earned in India in Indian currency.
• Repatriation: NRIs can repatriate their income earned in India to their country of residence, subject to certain conditions.

Person of Indian Origin (PIO)

• Visa-free travel: PIOs are eligible for a PIO Card, which allows them to enter and exit India without a visa for up to 15 years.
• Investment: PIOs can invest in Indian markets without restrictions.
• Banking: PIOs can open an NRE account, which allows them to hold and transfer their income earned outside India in Indian currency.
• Voting rights: PIOs are eligible to vote in Indian elections.

Understanding the concept of Interbank exchange rates (IBR Rate)

by Deepak Madan | Feb 21, 2024 | Blog

Interbank exchange rates refer to the exchange rates at which banks buy and sell currencies from each other. These rates are important because they affect the value of currencies for businesses and individuals who need to exchange money across different countries. In this blog, we’ll explore what is IBR Rate, how they’re determined, where to find authentic & real-time exchange rates and why they matter.

• What are interbank exchange rates?

Interbank exchange rates are the exchange rates at which banks buy and sell currencies from each other. Interbank exchange rates are also commonly referred to as spot rates. The spot rate is the exchange rate at which a currency can be bought or sold for delivery within two business days. These rates are typically used as a benchmark for exchange rates in the wider market, as they reflect the rates at which banks with significant trading volumes can exchange currencies with each other.

The interbank rate is used by banks to settle transactions between themselves, such as when one bank needs to pay another bank in a different currency. These rates are typically quoted with a bid-ask spread, which represents the difference between the price at which banks are willing to buy and sell currencies. The bid price is the price at which a bank is willing to buy a currency, while the asking price is the price at which it’s willing to sell the currency.

• How are interbank exchange rates determined?

Interbank exchange rates are determined by supply and demand in the foreign exchange market. Banks with excess currencies will offer them for sale, while banks that need those currencies will buy them. The exchange rate at which these transactions occur is determined by the market, based on the supply and demand for each currency.

Many factors can affect the supply and demand for currencies in the foreign exchange market. These include factors such as economic data, central bank policies, political events, and natural disasters, among others. Changes in any of these factors can cause fluctuations in exchange rates.

• Where you can find authentic & real-time interbank exchange rates?

Although many sources are available online to find interbank exchange rates, not all are authentic and real-time. The best platform that displays accurate & live interbank exchange rates is https://ibrlive.com. You can find IBR rates of almost all currencies on this website, which is free of charge.

• Why do interbank exchange rates matter?

Interbank exchange rates are important because they affect the value of currencies for businesses and individuals who need to exchange money across different countries. For example, if you’re a business that needs to pay a supplier in another country, you’ll need to exchange your local currency for the currency of the country where your supplier is located. The exchange rate you receive will determine how much of your local currency you need to exchange to pay your supplier.

In addition, IBR rates can affect the profitability of businesses that operate in multiple countries. If a company earns revenue in one currency but has expenses in another currency, changes in the exchange rate can affect its profit margin.

Finally, IBR rates can also have an impact on the wider economy. For example, strengthening a country’s currency can make its exports more expensive and less competitive in foreign markets. This can lead to a reduction in exports and a negative impact on the country’s economy.

In conclusion, interbank exchange rates are an important component of the foreign exchange market. They are used by banks to settle transactions between themselves and serve as a benchmark for exchange rates in the wider market. Understanding how these rates are determined and why they matter can help businesses and individuals make better decisions when it comes to exchanging currencies.