ROR has to pay tax on his total global income which includes all income from whatever source derived.

RNOR also has to pay tax on his global income except on the income which accrues or arises outside India, unless it is derived from a business controlled in or a profession set up in India.

NRI is not at all liable to tax in respect of income accruing or arising outside India, even if it is remitted to India. He is liable to pay tax only in respect of income received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India.

Salary or pension received in India from abroad by a non-resident is taxable in India as income received in India. However, if the pension is received by or on behalf of the employee in a foreign country and later on remitted to India, it will be exempt from tax in India since it is not treated as income received in India.

'Residents Outside India' which covers NRIs, can own several accounts. Non Resident External (NRE) and Foreign Currency Non Resident (FCNR) are with repatriation rights (NRNR --- Non Resident Non Repatriable --- account which was available earlier was without repatriation rights and used to earn higher rate of interest). The NRE account is maintained in INR and the FCNR in foreign currencies. All these accounts can be opened and maintained by remitting funds through normal banking channels in freely convertible currency from abroad or by transfer of funds from NRE or FCNR accounts. The interest is tax-free in India as long as the account holders remains an NRI.

The non-repatriable account that NRIs can maintain is called the Non-Resident Ordinary (NRO). This is akin to the savings bank account that Residents have. The NRO account enables handling investments and income arising out of Indian sources before the account holder became an NRI and also the non-repatriable income.

As soon as a Resident  becomes a NRI, his Resident accounts as such should be converted to NRO accounts.

Typically a NRI finds it difficult to operate bank accounts in India because of the distance. He may authorise a trusted person with PoA (Power of Attorney). PoA is to be executed on a stamp paper of proper denomination and can cover many areas other than bank operations only. It is better if one gets it drafted by a lawyer. If the NRI wishes to limit it only for bank operations, a LoA (Letter of Authority) will be enough. The banks will provide the forms for LoA.

The holder of the LoA can issue cheques to third parties for bonafide reasons. He should avoid withdrawal in cash. The amounts withdrawn can be construed as his income for services rendered and would be taxable in his hands. There should be an express agreement between the NRI and the holder of LOA in writing that the cash withdrawals are gifts to the LoA holder.

The interest on NRE and FCNR is free from Indian taxes, whether an NRI operates the account directly from his host country or from India. However, he will have to check on the taxability of this income in his host country. It is a known fact that some of the branches of foreign banks have been asked to submit a list of the NRE and FCNR account holders. Fortunately, the governments of the foreign countries cannot make any such demand on the Indian banks.

Sec. 10(4ii) exempts interest on NRE in the hands of an individual provided such an individual is a person resident outside India as defined by Sec. 2(q) of FERA. FEMA has replaced FERA but the ITA continues to refer to FERA.

On maturity, an ex-NRI cannot renew these accounts. In respect of interest on FCNR, it is exempt u/s 10(15fa) in the hands of an NRI or RNOR until its maturity. The NRE interest, however, becomes taxable from the date of arrival to India permanently.

You are allowed a reasonable time before you inform all the companies and banks about the change in your status wherever you have your investments.  What is reasonable time within which you should inform the bank about the change of your status? I strongly feel that a period of 3 months is a reasonable assumption. This was the period allowed by RIFEE (Returning Indians Foreign Exchange Entitlement scheme) before it was abolished.

You are allowed to continue with your all NRI-related bank accounts, including NRE FDs, until their maturity. Thereafter, you will have to convert the NRE and FCNR into repatriable RFC accounts or non-convertible ordinary bank accounts. The interest on NRE would become taxable and it would be from the date of your return, irrespective of the date when you inform the bank about the change of the status. The interest on FCNR, however, is tax-free if you become an  RNOR after your return.

Allowances granted to cover expenses incurred wholly, necessarily and exclusively in performance of office duties are not taxable. It would be illogical to impose any tax on such allowances. Some unscrupulous employers used to take undue advantage of this and dole out allowances far in excess of what is necessary. Therefore, it is logical to tax any savings effected out of this allowance. Such savings obtains the colour and character of salary income.

In a few cases, the individual gets some payment directly from the foreign company, over and above the salary paid in India by the Indian employer. If there is an employer-employee relationship between the individual and the foreign employer, this payment is tax-free in India. It may be taxed in the host country and the amount is dependent upon the tax provisions of the country.

If the said relationship does not exist, the foreign payment is also taxable in India since its nexus is of Indian origin. If an income is taxable in both the countries, it is eligible for the benefit of DTAA between the two countries. DTAA is available on www.incometaxdelhi.nic.in.

Now let us turn to the right to hold NRE / FCNR accounts in India. This is governed by FEMA. Yes, the individual is abroad but his employment is not. Therefore, he is not a Resident Outside India. He is not entitled to open NRE / FCNR accounts which are related with forex. Obviously, a Resident does not normally earn any foreign exchange, and therefore, what will he do with the NRI-related accounts?

However, once his stay outside India is over 182 days in a FY, he will become a Resident Outside India, in the next FY, thanks to the FEMA definition. It is possible for him to open the NRI-related accounts after the first financial year.

If the individual earns any side income by way of moonlighting assignments, the taxability of this income is dependent upon his residential status for income tax. It is tax-free in India if he is an NRI and taxable if he is a Resident.

This is theory. In practice, I am aware that some of the banks allow the deputies (and even students!) to open and operate the NRI-related accounts and this was the situation even during the old FERA regime. They are quite keen to have accounts earning forex and are not too careful. The phrase, 'for or on taking up employment outside India' is interpreted broadly and extrapolated to even the deputies. Note that when a person is allowed by a bank to open such accounts, the Department normally assumes that this is in accordance with FEMA. You need not worry much for having breached the law. The bank (AD) is more responsible than you.

You are required to inform all your banks and also all the companies where you have investments about the change in your status. The banks will re-designate your accounts as NRO.

It is also necessary to inform all the companies whose shares you hold, and UTI / MFs about change in your status. In practice, most of the NRIs do not follow these rules and do not face any problems because the regulatory mechanism of the income tax department is not yet in place. Obviously, a few are apprehended and I hope you are not one of them. Realise that you do not gain anything by not following the rules.

When you inform a company about your changed status, it will inform the RBI, if necessary, to enable it to keep a track of the percentage investment of individual NRIs and also all the NRIs put together in a company. There are some specified limits, beyond which, the investments are not permitted.

You will also start filing your tax returns in your new NRI status. True, if the Indian income is below the taxable threshold, there is no need to file the returns but it is prudent to do so for maintaining the continuity.

Even after you become an NRI, you are free to deal with all your investments and assets you held prior to becoming an NRI any which way you desire. The only restriction is that the original corpus is non-repatriable. Fortunately, income arising out of these assets is repatriable if you have paid proper taxes thereon.

It would be advisable to give a power of attorney or letter of authority to anyone of your choice to operate your NRE bank account. Withdrawals can be effected from this account for local disbursements, investment in units of UTI, some MF schemes, government securities, etc. In the case of NRO or NRSR, you can have a Resident as a joint holder. The maturity proceeds of PPF, KVPs, NSCs, etc., can be credited freely to your NRO account by the joint holder.

Your PPF will have to be run until its maturity. In the unlikely event of your Indian income becoming taxable, you can use it to save taxes. On the other hand, if your Indian income is not likely to come into the tax net, even in the distant future, you need not contribute even the Rs. 100 and let the account become discontinued. I strongly recommend you to keep it alive so that you will be entitled to make partial withdrawals and earn higher interest from other sources in place of PPF.

Give some thought to surrendering your LIC policies unless the maturity date is in the near future. If you are going abroad permanently along with your family, repatriability of the payment made by LIC on your demise may be problematic if the family decides to continue to stay abroad.

Since your Indian income would have gone down substantially, you will be in a good position to withdraw from your NSS account. If the total income inclusive of NSS withdrawals is less than the minimum chargeable to tax a resident individual can file Form 15-I in duplicate with the post office declaring that the tax payable for the year is nil and therefore, no tax should be deducted at source. For some strange reasons, once you become an NRI, you are not allowed the privilege of filing Form 15-I. If however, the income crosses the minimum level because of NSS withdrawals, you may use your PPF account to bring the tax liability down to nil level.

There is no limit on the foreign exchange an NRI can carry with him while visiting India. There is no need to make a declaration to the customs authorities at the airport (or seaport) if at any one time the value of foreign currency notes brought does not exceed US$ 5,000 and the aggregate value of the foreign currency up to
US$ 2,000 or its equivalent provided the forex was acquired as permitted.

NRIs are allowed 10% tax on LT gains arising out of only listed shares and securities. The same privilege is also applicable to units of UTI/MFs. The intention is to provide the NRIs protection against the exchange risk but not against inflation. On all the rest of the assets, such as residential flats, land, jewellery, etc., the rate is 20% with the protection against inflation through cost inflation index.

In the case of equities and units, the Residents can opt for 10% tax without indexation or 20% with indexation but not the NRIs.

Then again, it is true that the NRIs stand protected against the slippage of the Rupee but what if it stops slipping? They should have also been offered the privilege of opting between 10% and 20%.

This 'at par with NRIs' business appears to have turned the tables.

No one need worry much about it any longer. The tax is levied only on 'unproductive assets' and therefore investments in shares, debentures, UTI, MFs, etc., are exempt from wealth tax. One house or part of a house (residential or otherwise) or a plot of land not exceeding 500 square metres, belonging to an individual (NRI or otherwise) or an HUF is exempt from wealth tax. Jewellery, cars, aeroplanes, yachts, etc., are taxed but then again, the minimum threshold of wealth tax is as high as Rs. 15 lakhs. Above that limit, the tax is as low as 1%.

Gifts by NRIs in foreign exchange was always tax-free. Now that the Gift Tax Act has been abolished, all gifts, made by anyone, NRI or otherwise, through foreign exchange or Indian assets, are free from gift tax. All that is required is an offer by the donor and acceptance thereof by them. To safeguard against any hassles, the donee should request the donor for a gift and then the donor should remit the amount to the donee. Alternatively, the donor can offer the gift. In either case, it is necessary for the donee to accept the gift in writing (maybe through a thank you note).  Only then it would be considered as a gift in India.

It is better to prepare a gift deed and get it registered (with related plus stamp duty) but such a precaution is normally needed in the case of high-value gifts, particularly related with real estate.

However, take note of the fact that the Department has a right to inquire into the genuineness of the gift to ensure that it is not a payment made for any havala or smuggling transaction.

Gift Tax Act stands abolished now. There is no gift tax, either donor or donee-based, on gifts. There is no clubbing provision in respect of gifts to major children. It is applicable only to minors. All the same, I would recommend that you avoid giving a gift to your children, unless there are some need-based reasons to do so.

Before the GTA was abolished, aggregate gifts over Rs. 30,000 in a financial year was taxable at the penal rate of 30% and therefore, it was a wise strategy to give a gift up to that limit and build up a corpus for the children (and also spouse). When the child needed a large sum for some specific need such as education or marriage or start up of a business or profession, the money would be readily available. This strategy avoided the need to give a gift of a large sum when needed. Now that you can give need-based gifts as and when it arises, there is no need to build a corpus for your child and take the risk of the child running away (and worst, your wife eloping) with the money.

There is a residual advantage in giving gifts. The income earned  on the gifted corpus by your minor children is taxed in your hands. Incidentally, the spouse is treated as a minor and the income is clubbable. The only difference is that in the case of minor children the entire income, with a paltry exemption of Rs. 1,500  per year per child (more, the merrier), is taxable in your hands whereas in the case of the spouse, the income on gifted corpus is clubbable. Once you have paid the tax, on this first-stage interest, and if your wife invests the money somewhere, the income thereon is not clubbed in your hands.

Purchasing the house in the name of the wife by applying your own funds means that you are using her as a name-lender and this is a 'benami transaction'. This is illegal. The house squarely belongs to you and you will have to treat it as such. It can be made legal by gifting the money to the wife to enable her purchase the property in her own name. But much of its utility is lost because of the clubbing provision which means that the property income will be added to your income for income tax and its value will be added to your wealth for wealth tax.

Nonetheless, there is some slender advantage in giving a gift. The income on income is not clubbable. In other words, once you have paid tax on the income of your wife (through your own funds), it becomes her own asset. Any income earned on this asset is not required to be clubbed in your hands.

The repayment of loans and the interest paid carry certain tax concessions. For an NRI the tax concessions are meaningless unless he has taxable Indian income. The concessions are not available if you employ your own funds. Therefore, it is always advantageous to take a loan for purchasing a house and invest your own funds gainfully.

All persons, whether resident in India or outside  India, who are citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan, require prior permission of RBI for acquiring or transferring any immovable property in India.

The NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from the Reserve Bank. The rental income being a current account transaction is freely repatriable outside India.

The AD may allow repatriation of the sale proceeds outside India, provided the immovable property was acquired by the PIO or NRI by direct remittances from abroad or through his NRE / FCNR accounts. The sale should take place after 3 years from the date of acquisition of such immovable property or from the date of payment of final instalment of consideration for its acquisition, whichever is later. The amount sought to be repatriated should / does not exceed the amount of forex applied for its acquisition. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

Foreign nationals of foreign origin as well as persons of Indian origin with foreign passport who have taken up residence in India temporarily on account of their employment, profession or other activity (irrespective of its duration) with the intention of retiring eventually to a foreign country, fall under the category, 'foreign nationals not permanently resident in India'. If the period of engagement of such a person is up to 3 months, he should hold any valid visa such as employment, business, tourist, etc. whereas a valid employment visa is necessary for higher periods.

Salaries to the employees deputed by foreign companies to their Indian offices may be directly paid abroad to the extent of 75% of the net salary (after-tax on full salary) and balance may be paid in India. [Notification No. GSR 103(E) dt 22.1.01].

If the entire salary is paid in India, ADs are permitted to allow such an individual to make remittances for family maintenance, etc., up to 75% of his income or net salary (i.e., after deduction of contribution to PF, etc., and taxes) provided he makes an application (Form-A2) together with a statement (Form-EFT in duplicate) and 'No Objection Certificate' from the income-tax authorities indicating the remittable amount. Even higher remittances may be allowed if the employee is in receipt of perquisites such as free housing, conveyance and medical facilities and his family (wife and children) is resident outside India.

When the foreign national eventually retires and leaves India, all his current assets such as savings from salary, dividend, interest, commission, provident fund balance, sale proceeds of personal effects, etc., can be repatriated in full. Same rule is applicable to pension from India received in future. In addition, he will also be allowed to repatriate his Indian assets of a capital nature such as sale proceeds of investments, up to a limit of Rs. 10 lakhs at the time of retirement and upto Rs. 5 lakhs annually thereafter. For this purpose, the entire family will be considered as a single unit. However, RBI permission for the repatriation is necessary (Form-RFN). Same facility is available to foreign-born widows of Indian nationals who desire to go back (Form-EMG).

Strangely, it appears that such a person is not allowed to have an FCNR account in India since he has become ipso-facto, a Resident in India.

When the PIO card scheme was introduced, many NRIs who had taken foreign citizenship were excited about the anticipated benefits such as a visa free entry and indefinite stay, more opportunities of investment and possibly work and similar apparent benefits. Now, in retrospect, one wonders about its real utility. The PIO card looks just like a 20 year multiple entry visa and adds no additional value. All that at considerably extra cost of  Rs. 15,000 per adult and Rs. 7,500 per minor. Until June '02, the rates were much steeper at $1,000 and $500 respectively. 

So what then are the real benefits of the PIO card? Why should anyone go for it instead of much cheaper long-term multiple entry visas? Can one still not freely hold and sell property in India without PIO cards? Can one not inherit ancestral property and later dispose it, if he so wished? Can this money not be repatriated totally or partly? Can one not live in India indefinitely, say upon retirement? What about children applying for PIO cards?

The PIO card has become more useless after the advent of FEMA which has many more liberalised provisions.

ESOP or sweat equity allotted or transferred by the employer free of cost or at concessional rates was considered as a perquisite taxable in the year in which the option is exercised. Such stocks are normally granted with a lock-in period, which on vesting, entitled the employee to get shares allotted at a pre-determined price. If the employee resigns during this lock-in, there will be no vesting.  This value was taken as the difference between the fair market value and amount actually paid. Thankfully, FA00 has clarified that this will not be treated as a perk any more. Consequently, when the employee exercises the option by paying for it, the cost of acquisition will be taken as the amount actually paid by him. Eventually, when he sells the shares, the provisions of tax on capital gains will be attracted. Normally, the cost of these shares is so high that an employee finds it difficult to pay the cost. In such situations, the sale and the exercise of the option is effected on the same day and the cost of acquisition is paid out of the sale proceeds.

All this is also applicable to stock options offered by a foreign parent company to employees of its Indian subsidiary even when the transfer takes place 'on behalf of' an employee.

The right to accept is understandably not transferable. As and when you sell the shares or transfer them (to your parents through the gift channel) you will be liable to the tax on capital gains. Nomination is a different story. The shares would be transferred in the name of your parents after your death. This transfer does not attract any tax (or stamp duty for the transfer).

If you decide to pay the premium in the future, it is necessary to file with LIC a special form giving the details, among other things, of your NRE bank account through which you will be paying the premium. The survival benefits should be credited to the same bank account through which you have paid the premium. However, your bank will hold this amount either in your NRO account or in suspense. You will have to obtain a certificate from the bank declaring the veracity of the premium payments through the account and then apply to RBI for permission to repatriate the amount. When you receive the permission, the bank will credit the amount to your NRE account. Thereafter, you can take the money abroad, if you wish to do so.

God! Quite complicated indeed!! In the first place, why does LIC require a certificate from the bank when it has all the necessary details with it? Then again, why should you need any special permission from RBI every time you receive the survival benefit, leave alone the maturity proceeds.

In the case of the death of the policy holder, the proceeds are not repatriable if the nominee happens to be a Resident. This is understandable. But an NRI nominee has to go through the same process as mentioned above and obtain RBI permission. I feel that this is unreasonable. The bereaved nominee may not even know the existence of such a policy and the bank details.

I am sorry if I am hurting you but I feel that you are treating your investments casually. Please realise that your strategy is dependent upon several factors such as your current income and also that of the members of your family, current investments, age, future requirements of liquidity, your risk appetite and several other factors. There cannot be a thumb rule. With this casual approach, you are not only hurting yourself but your wife and children.

There is no legal obligation to file tax returns unless the income chargeable to tax exceeds the minimum tax threshold of Rs. 50,000. This is so whether you are an NRI or a Resident. The only exception is 1-by-6 scheme which requires an individual to file returns if he passes any 1 of the 6 specified conditions. This 1-by-6 scheme is not applicable to NRIs. Therefore, most of the NRIs are not required to file the returns.

Nevertheless, it is prudent to file the returns to ensure continuity after the individual returns to India.

As I have repeatedly asserted, though it is not necessary to file the returns if your taxable income, after claiming the exemptions u/s 10 and deductions u/s 80L, 80G, 80D, etc., is less than the threshold of Rs. 50,000 it is advisable to file the returns for the sake of continuity when the NRI eventually returns to India. It is necessary to file the returns even if your tax liability becomes nil after taking advantage of the tax rebates.

Thanks to the process of liberalisation a new avenue serving as panacea for all investment problems has emerged in the form of pure-growth, open-ended, debt-based schemes of UTI / MFS. Being pure-growth, these are so much tax efficient that you can earn as much take-home (= tax-free) income as Rs. 5 lakhs on a corpus of Rs. 50 lakhs. Being open-ended, these behave like an SB account where you can deposit and withdraw at will. The only difference is that the banks take 5 minutes to effect an withdrawal but MFs take 5 working days or less. Being debt-based, the safety of the capital as well as the income (around 10%+ at this juncture) is implicitly certain but not explicitly assured.