Re fully convertible for NRIs, PIOs

There's great news for NRIs, PIOs and even a few foreign nationals. The rupee has become fully convertible for them, thanks to the RBI Circular 5/2003-04 dated July 1, 2003. Should this be occasion for them to celebrate? Yes, of course.

However, they could face legal challenges because the authors of the legislation have carried out a very poor job as is frequently the case these days.

The following is a verbatim reproduction of the Circular --
"(i) NRIs/PIOs/Foreign Nationals (including retired employees or non-resident widows of Indian citizens) can remit, through the Authorised Dealer upto $1 million per calendar year, out of the balances held by them in the Non-Resident Ordinary Rupee account/sale proceeds of assets, for all bona fide purposes, to the satisfaction of the authorised dealer, on production of an undertaking and certificate by the person making the remittance in the format as prescribed in the Central Board of Direct Taxes Circular No, 10/2002, dated October 9, 2002.

"(ii) NRIs/PIOs are allowed to remit through the AD, within the overall limit of $1 million as stated at (i) above, sale proceeds of immovable property, held by them for a period of not less than 10 years, subject to payment of applicable taxes.

"(iii) NRIs/PIOs are allowed to remit through the AD, within the overall limit of $1 million per calendar year, as stated at (i) above, the amount representing the sale proceeds of assets in India, acquired by way of inheritance/legacy.

"(iv) The above facility is not available to the citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan."

It is necessary to file Form A-2, FEMA Declaration, CA certificate and undertaking for payment of income tax, in the specified format.

For the remitter it is necessary to produce i) Documentary evidence in support of acquisition of assets by the remitter and ii) A tax clearance certificate or NOC from the income tax authority or a declaration from the assessee with a certificate from a chartered accountant.

It is necessary to make the remittance of all instalments through the same AD.

For arriving at annual ceiling of remittance, the funds representing sale proceeds of shares and immovable property owned or held by the citizen of foreign state on repatriation basis in accordance with the FEMR (Acquisition and transfer of immovable property in India) and FEMR (Transfer of Indian security by a person resident outside India) shall not be included.

Comments
Yes, this is good news indeed! Many NRIs and PIOs were smarting under a feeling of injustice arising out of the fact that they have plenty of assets in India but their utility was zero.

Now, not only the income arising from these assets but also the base capital can be converted into forex of their choice and taken abroad to be utilised any which way of their choice.

The process is simple; there is no need to approach the RBI or the Ministry of Finance or any other authority. A trip to your bank or a mail sent to it with a request to do the needful is more than enough.

I personally feel a little apprehensive about this notification. It appears to have been issued in a hurry, without carrying out the much-needed homework. I am afraid, this lackadaisical approach will surely be the subject matter of much litigation in the near future. Let us see why.

Note that all the provisions of the ITA are related with the financial year (Apr-Mar) but this one is related with the calendar year (Jan-Dec).

Even on this there is no consistency. Clause-i and clause-iii are related with the calendar year but not the clause-ii. Can the assessee assume that clause-ii is also related with the calendar year, for the sake of consistency? May be yes.

On the other hand, many experts can claim that the omission is with a purpose and therefore, clause-ii is related to the financial year.

Clause-i permits remittance abroad out of the balances held in the NRO account and sale proceeds of assets. Clause-ii permits remittance of sale proceeds of immovable property held for not less than 10 years. There is a mutual contradiction.

This contradiction is further compounded by clause-iii which does not require the holding period of 10 years or more.

Clause-ii permits remittances subject to payment of applicable taxes whereas clause-iii does not make a mention of taxes.

Does this mean that the sale proceeds of properties acquired by the assessee before he became NRI or purchased from his the erstwhile non-repatriable funds cannot be remitted abroad unless the holding period is 10 years or more and this minimum holding period is not applicable to properties acquired by way of inheritance or legacy?

Can anyone make any sense out of this nonsense? Well, let me make an honest attempt by making two logical assumptions.

The first one is that all these provisions are related to the calendar year and the second one is that the amount can be remitted abroad if and only if the related taxes on the sale proceeds are paid or arranged to be paid.

Unfortunately, the ADs will be required to analyse the balances in NRO accounts for distinguishing between a) normal transactions b) sale proceeds of property held or acquired on non-repatriable basis and c) sale proceeds of property acquired through inheritance or legacy.

Finally, the last but not the least complication
Prior to this notification there were many transactions, which could not be remitted abroad. Take the instance of gifts given to an NRI/PIO by a resident, close relative or not.

Take also the instance of loans given to a resident or investments in shares/units on non-repatriable basis. Take the instance of … well, the list is long, very long. Have they suddenly become remittable?

The answer appears to be in the affirmative but if that is the case, this notification has opened up a Pandora's box.

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