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NRI Fund Repatriation: Key Financial Provisions Explained

Updated on: 30 May, 2024 01:17 PM

NRIs may not live in India, but they have always been connected to their roots, and the term ‘root’ could mean anything, whether it’s their close relatives or their ancestors' properties, from which they have been earning some rental income or other income. For instance, an NRI might need to repatriate funds to India to pay for their ancestral property's maintenance or to send money to their parents for their living expenses. On the other hand, they might also need to transfer funds from India to their overseas account to invest in a business or purchase a property. In these situations, NRIs might face some challenges due to a lack of knowledge of the rules and regulations that they have to follow. In this guide, we will discuss what are all these financial provisions.

What is NRI fund repatriation, and why is it important for NRIs?

NRI fund repatriation meaning the transfer of funds between a Non-Resident Indian's (NRI's) bank accounts in India and their bank account in their country of residence. This process can involve both Inward Remittance (Sending funds from abroad to an NRI account in India) and Outward Remittance (Transferring funds held in India back to an NRI's overseas account).

This two-way movement of funds allows NRIs to manage their finances across borders, providing them with greater control and flexibility over their money.

Here's why NRI fund repatriation is important:

  • Access to Funds: It allows NRIs to access their money held in India for various purposes like retirement planning, investment opportunities abroad, or unexpected expenses.
  • Financial Planning: Repatriation helps NRIs manage their global finances effectively by bringing their Indian investments into their overall financial picture.
  • Investment Flexibility: NRIs can repatriate funds from certain investments to reinvest them in opportunities outside India that might better suit their financial goals.

Bank accounts for NRIs

For NRIs managing their finances across borders, choosing the right bank account is important. Two primary accounts cater to NRIs: Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts. Let's discuss their functionalities and how they differ in terms of fund repatriation.

Non-Resident External (NRE) Account:

An NRE account is mainly used for holding and managing foreign earnings (income earned abroad in a foreign currency) and offers full repatriation. This means funds deposited in an NRE account, along with any interest earned, can be freely repatriated back to the NRI's overseas account without any restrictions or limitations. Both the principal amount and interest earned on NRE accounts are exempt from Indian income tax.

Non-Resident Ordinary (NRO) Account:

These accounts are a good fit for managing income generated within India, such as rental income, pensions, interest on fixed deposits held in India, or dividends from Indian companies. Deposits can be made in both Indian Rupees (INR) and foreign currency. Funds deposited in INR can only be repatriated up to USD 1 million per financial year, subject to payment of taxes at the applicable rate (typically 30%). Foreign currency deposited in an NRO account can be freely repatriated without any tax implications.

Key financial provisions for repatriation

The Foreign Exchange Management Act (FEMA) plays a critical role in regulating NRI fund repatriation. FEMA establishes guidelines to ensure legitimate and taxed funds are transferred across borders. Here's how FEMA impacts NRI repatriation:

FEMA and Repatriation Limits:

  • NRO Accounts: FEMA sets a limit of USD 1 million per financial year for repatriating funds held in INR within an NRO account. This limit applies to the principal amount, not including any interest earned.
  • Tax Implications: Any repatriated amount from an NRO account is subject to Indian income tax at the applicable rate (typically 30%). NRIs can claim tax benefits through Double Taxation Avoidance Agreements (DTAAs), which are bilateral agreements between two countries that aim to avoid the taxation of the same income in both countries. If their country of residence has such an agreement with India, NRIs can benefit from reduced or eliminated tax burden on repatriated funds.

Repatriation Advantages for Other Accounts:

NRE and FCNR (B) Accounts: Unlike NRO accounts, there are no restrictions on repatriating funds held in these accounts. NRE accounts hold foreign currency earnings, which means the funds are converted into Indian Rupees when deposited and can be converted back to the original currency when withdrawn. On the other hand, FCNR (B) accounts are fixed deposits denominated in foreign currency, which means the funds are held in the original foreign currency and can be withdrawn in the same currency. Both these accounts offer complete repatriation freedom and are generally exempt from Indian income tax.

Investment options with repatriation benefits

NRIs looking for repatriable investment in India have several investment options. Here are some of the investment options with full repatriation flexibility:

  • Equity Investments through PIS: NRIs can invest directly in Indian stocks listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) through the Portfolio Investment Scheme (PIS). Investment under this scheme is fully repatriable for both the invested capital and any capital gains earned.
  • Mutual Funds: A diverse range of India-focused mutual funds cater to NRIs. Some specifically designed "NRI Mutual Funds" offer full repatriation of the invested amount and capital gains. These funds invest in various asset classes like equities, debt, or a combination of both, depending on the chosen scheme.
  • Government Securities: NRIs can invest in Indian government bonds and treasury bills. These investments offer attractive returns with low risk and allow for full repatriation of the principal amount and interest earned upon maturity.
  • Real Estate (with limitations): NRIs can invest in residential and commercial properties in India, excluding agricultural land, plantations, and farmhouses. While the property itself cannot be directly repatriated, rental income earned from the property can be freely repatriated after paying applicable taxes. Additionally, the sale proceeds of the property can also be repatriated after settling any taxes and capital gains charges.
  • Specific Investment Products: NRIs can explore investment options like "Masala Bonds" - rupee-denominated bonds issued by Indian companies in foreign markets - and Overseas Direct Investment (ODI) funds. These products are designed with NRI repatriation needs in mind and allow for full repatriation of the principal amount and any earned returns.

It's important to consult a financial advisor specializing in NRI investments before making any decisions. They can guide you based on your risk tolerance, financial goals, and investment horizon to choose options that align with your repatriation needs. For e filing Income Tax Return for resident Indians, book eCA now.

Frequently Asked Questions

Q- Can I repatriate money from NRO account?

Yes, but with limitations. You can repatriate up to USD 1 million per year in INR, subject to Indian income tax.

Q- Is NRO account repatriable?

Partially. Foreign currency in an NRO can be freely repatriated, but INR has limitations.

Q- How to repatriate money from India to UK?

The process depends on your account type (NRE or NRO) and the amount. Consult your bank for specific steps, but it generally involves submitting a request and relevant documents.

Q- How to repatriate money from NRE account?

There are no restrictions on repatriating funds from an NRE account. You can freely transfer both the principal amount and any interest earned to your overseas account.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.