FEMA,1999 – ANOMALIES & REMEDIAL SUGGESTIONS

Pg. 2

Under the Wealth Tax Act, 1957 bank balances  are not taxable wealth at all and not being subject matter of tax, can not be made exempt to Wealth Tax.

This para therefore should be redrafted as under:  
“Tax Exemption – Income from interest on balances standing to the credit of NRE accounts is exempt from income-tax.  

Whereas balances held in such accounts are not liable to Wealth Tax.”

Schedule 4 of Foreign Exchange Management (Deposit) Regulations, 2000 pertaining  to Non Resident (Non-Repatriable) Rupee Deposits Scheme enumerates various features of said deposits.

However the Scheme is silent about

1.

Manner of payment of interest i.e. quarterly or half yearly.

2.

Tax exemption,

3. 

Operation by Power of Attorney, and

4.

Change of Status.

Appropriate changes should be made by insertion of appropriate paragraphs e.g. for change of Resident Status following para be inserted

“ Change of Resident status of Account Holder:

NRNR accounts should be re-designated as Resident accounts immediately upon return of account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period.”

Regulation 5(1)(b) of  Foreign Exchange Management ( Acquisition and Transfer of Immovable Property Outside India.) Regulations. 2000 provides :-

“Acquisition and Transfer of Immovable Property Outside India.

5.

(1)

A person resident in India may acquire immovable property outside India;

(2)

by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency accounts by a person resident in India) Regulations, 2000”

Said regulations do not permit and provide for utilization of  funds./balances held outside India for acquisition of an immovable property outside India as permitted vide provisions of Section 6(4) of the Act to this extent, the regulations restrict the permission granted by Section 6(4) of  the Act.

The said regulation be amended as :

“Acquisition and Transfer of Immovable Property Outside India.

5.

(1)

A person resident in India may acquire immovable property outside India;-

(2)

by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency accounts by a person resident in India) Regulations, 2000 or out of foreign exchange held outside India under the provisions of Section 6(4) of Foreign Exchange Management Act, 1999.”

Regulation 5  of Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000, provides for opening, holding and maintaining a Resident Foreign Currency Account.

Whereas Para 7 of Schedule 1 of Foreign Exchange Management (Deposit) Regulations, 2000, allows transfer of balances held in NRE account to RFC Account providing:

7

NRE Accounts should be redesignated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts ( if the account holder is eligible for maintaining RFC  account )  at the option of the account holder immediately upon the return of the account holder to India for taking up employment or for carrying on business or vacation or for any other purpose indicating intention to stay in India for an uncertain period…“

Similarly Para 10 of Schedule 2 of said Regulations provide for transfer of balances held in FCNR(B) Account to RFC Account.

However, aforesaid Regulation 5 pertaining to RFC Account ; Enumerated credits  do not 

include

Transfer of balances held in NRE account and FCNR(B) account to RFC account  upon NRI’s

return to India for permanent settlement.

Sub regulation 5(e) & (f) be inserted as under :

“5.(e) Balances held in NRE Accounts at the option of the account holder upon return to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period.”

“5.(e) Balances held in NRE Accounts at the option of the account holder upon return to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period.”

Regulation 5 of Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India), Regulations, 2000, provides for opening, holding and maintaining Resident Foreign Currency (RFC) Accounts.

These provisions do not specify /  include :

.01

Eligibility norms / conditions

.02

Rate of interest

.03

Provisions regarding loans against funds in such accounts.

.04

Change of residential  status of account holder i.e. a resident once again becoming a non resident  and

.05

Tax exemption

"Appropriate changes should be made so as to include and / or notify the above.”

1.

Regulation 5 of Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000, enumerates various amounts that can be credited to Resident Foreign Currency Account.

2.   

Terms of offer of State Bank of India’s Resurgent India Bonds under para “Repayment on Maturity” states that :

“If the holder becomes a resident in India before maturity of the RIBs, he has, if eligible, the option of receiving the entire principal amount of the RIBs, on maturity, and the interest earned thereon in USD / GBP / DEM, as the case may be, by credit to a Resident Foreign Currency (RFC) Account, or in non-repatriable Indian rupees.”

3.

Similarly, terms and conditions of State Bank of India’s India Millennium Deposits under the head “Repayment on Maturity” states that :

“If the depositor entitled to receive the repayment becomes a resident in India before maturity of the IMDs, he has, if eligible, the option of receiving the entire principal amount of the IMDs, on maturity, and the interest earned thereon in USD / GBP / EUR as the case may be, by credit to a Resident Foreign Currency (RFC) account, or in non-repatriable Indian rupees.”

However, aforesaid Regulation 5 does not enumerate said maturity proceeds of  Resurgent India Bonds and India Millennium Deposits as permissible foreign exchange / credits for credit to RFC Account.