When an NRI becomes a resident, can the foreign currency non-resident account FD be freely repatriated without coming under the ambit of the liberalised remittance scheme (LRS)?
– Name withheld on request.
When an NRI becomes a resident under FEMA, the FCNR (B) deposit held in India would be recharacterized as a resident account, and therefore, any remittance out of such account would be within the limits of the LRS scheme. Only an NRI or a non-resident of Indian origin is permitted to open a foreign currency (non-resident) account (Bank) or the FCNR(B) account as the name suggests, is a foreign currency deposit account in India.
When an NRI returns to India and becomes a resident, he is required to convert all his non-resident accounts into resident accounts by informing the concerned bank of the change in his residential status. Regulations permit a returning NRI to keep the foreign currency held in the FCNR account in India by crediting the funds to a resident foreign currency (RFC) account.
The foreign currency in such an RFC account can be remitted outside India without conversion. The remittance from RFC account undertaken after the NRI has become a resident for FEMA purposes would not be subject to the conditions of the LRS scheme or the annual limit of $250,000. Accordingly, if the funds are required outside India, you can consider remitting the funds from the FCNR account to RFC account or transferring and retaining them abroad before you return to India. Keep in mind the penalty on premature withdrawal of FCNR deposit.
Furthermore, while interest earned in an FCNR (B) account by a non-resident is exempt from tax under section 10(15), such exemption can also be claimed on interest from RFC accounts by the returning NRI only so long as his residential status under the Income Tax Act is that of a non-resident or not ordinarily resident.
One should also keep in mind that the determination of residential status under FEMA is different from the residential status for tax purposes and therefore, the intimation to the bank needs to be undertaken immediately on the return of the NRI for the purposes of employment in India or for stay in India for an uncertain period.
Mahesh Nayak, chartered accountant, CNK & Associates