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It is illegal for NRIs to hold normal bank accounts in India

November 22, 2007 19:29 IST

A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.

A Rediff India Abroad feature:

Could you please tell me where to apply for PAN (Permanent Account Number)?

-- B Krishan Mohindra

UTI Investor Services Ltd, and National Securities Depository Limited are authorized to handle this service of issuing PAN cards. The fee for preparation and delivery of a tamper proof PAN card is Rs 60, plus Service Tax as applicable, and to be paid in cash at IT PAN Service Center or the TIN Facilitation Center.

PAN application should be made only on Form-49A. This Form can be downloaded from the Web site of the Department or UTIISL or NSDL (www.incometaxindia., or or printed by local printers or photocopied (on A4 size 70 GSM paper) or obtained from any other source.

The form is also available at IT PAN service centers and TIN facilitation centers.

If an application for allotment of PAN is submitted through the Internet and payment made through a 'nominated' credit card, PAN is allotted on priority (Tatkal) and communicated through e-mail.

For a two- to three-week visit to India, should one take dollars and convert them into rupees in India or convert them in the United States itself and carry rupees? Are there any limits on the amount? Kindly share any other pertinent information too.

-- Harbans Bhardwaj

It is possible for you to adopt both the routes. Your final choice would depend upon the exchange rates offered to you by your bank abroad or banks in India. If you carry Indian rupees with you, you will have to also have a certificate from the bank abroad for having converted dollars into rupees. We personally would suggest carrying dollars and converting the same into rupees in India.

Persons bringing in foreign exchange in the form of foreign currency, bank notes and travelers' checks are required to declare them to the customs authorities in Currency Declaration Form, if the aggregate value thereof exceeds US$10,000 or its equivalent and/or the value of foreign currency notes exceeds US$5,000 or its equivalent. This facility is per individual, including children, major or minor.

Banks and their exchange bureaus are required to issue Encashment Certificates (EC) in Form-ECF in all cases of purchase of foreign exchange from the public, irrespective of whether the Currency Declaration Form (CDF) has been submitted or not by the tenderer of foreign exchange and whether the tenderer requests for the certificate or not.

In the absence of encashment certificate, unspent local currency held by non-resident visitors will not be allowed to be converted into foreign currency.

I am an Indian with an American passport. My questions are as follow:

Since I am 65 years old, do I still have pay income tax on a savings bank account that is funded with UTI dividends and housing bond dividends? If yes, is there an income limit above which income tax is levied?

If the bank withholds income tax on an SB account and I am not required to file income tax because of my age or income limit how do I go about getting back the tax withheld?

-- Pamini Shenai

On becoming a Non-Resident Indian, legally you are required to inform all your banks and also all the companies where you have investments about the change in your status within a reasonable time. The banks will redesignate your accounts as NRO (Non-Resident Ordinary). You can use this account the same way as you used it before becoming an NRI.

First published in India Abroad

It is illegal for an NRI to continue to hold their normal Resident bank accounts.

It is also necessary to inform all the companies of whose shares you hold, and mutual funds about the change in your status. If you have a demat account, it is not necessary to inform the companies but informing the Depository Participant is a must.

The interest on NRO is fully taxable at the rates applicable to Residents. But there is no income threshold under which TDS (Tax Deduction at Source) is not chargeable. However, TDS is applicable @30.9% on the entire NRO interest (without any threshold) and nothing can be done in practice, to avoid it.

TDS is applicable on accrual basis on cumulative deposits. The only practical recourse open is to claim refund by filing tax returns. TDS is not the same as your tax liability. This liability will be computed on the basis of the income tax rates, which again depend upon your income and the exemptions, deductions and rebates you can claim.

If your tax liability is less than the TDS, the only practical way to get the refund is to file the tax returns. Form 15-G (for non-seniors) or 15-H (for senior citizens).

We wonder how you are going to encash the dividends from housing bonds without sending them to a bank.

I came to the United States on April 16, 1995 and am now a US citizen. I had a savings bank account that was subsequently designated as an NRO account. My Public Provident Fund account is maturing. Please let me know if the balance of my NRO account can be remitted to the US. If so, please let me know the procedure.

-- Bal K Garg

Master Circular /0402006-07, dated July 1, 2006 makes it possible for an NRI or a PIO (Person of Indian Origin) to remit as much as US$1 million per calendar year for bona fide purposes out of the sale proceeds of assets held in NRO accounts. He should have acquired the assets in question, out of rupee resources when he was in India or by way of legacy/inheritance from a person who was a resident in India.

The following funds/assets are eligible for remittance:

  • Sale proceeds of immovable property.
  • Assets acquired by way of inheritance/legacy.
  • Deposit with a bank or a firm or a company.
  • Provident fund balance or superannuation benefits.
  • Amount of claim or maturity proceeds of insurance policy.
  • Sale proceeds of shares and securities.
  • Any other asset held in India, in accordance with the Foreign Exchange Management Act.

The remittance can be effected only when it is sought for all bona fide purposes to the satisfaction of the Authorized Dealer. An undertaking by the remitter and a certificate by a chartered accountant in the format prescribed by the Central Bureau of Direct Taxes vide their Circular 10/2002, dated October 9, 2002, has to be produced.

It is necessary to file Form-A2, FEMA declaration, a certificate from an accountant, and undertaking for payment of income tax, in the specified format. A no-objection certificate from the Income Tax Department will be useful, but not mandatory.

The authors may be contacted at

A N Shanbhag & Sandeep Shanbhag