Demonetisation: Stricter norms for NRIs

Non-resident Indians (NRIs) could run into difficulties if they possess discontinued currency notes amounting to a high value. Not only do NRIs have limited options for exchanging/ depositing old notes; in some cases, they might need to provide additional disclosures.

Foreign branches of Indian banks are not accepting the Rs 500 and Rs 1,000 notes for either depositing or exchanging. The only way NRIs can deposit or exchange currency is either by coming to India or authorising someone in writing to deposit the notes into their Non Resident Ordinary (NRO) Account, provided they are able to send the money back home or it is in India. The authorised person will need an authorisation letter and a valid identity proof, such as an Aadhaar card, driving licence, voter ID card, passport, PAN card, etc.

The deadlines and rules are the same for residents and NRIs. There is no limit on the amount one can deposit. But, if the deposit exceeds Rs 2.5 lakh, the NRI may face an enquiry about the source of the money, irrespective of whether he files a tax return in India or abroad. “If an individual has not filed a return of income (since he does not pay taxes in India), he may receive a notice from the income tax authorities to either file a return of income or produce relevant information or records, to substantiate the income/deposits made. If able to substantiate the source of income/deposit, there is no need to worry,” says Amarpal Chadha, partner, EY.

While depositing money in an NRO account, the NRI may need to disclose the source of funds at the branch itself. “The deposit needs to be in line with the profile of the customer,” says Jose Skaria, assistant general manager, international banking department, Federal Bank. He explains that banks graded customers before the government’s demonetisation drive started. If you deposit this in an NRO account, and it’s a high-value transaction, you might need to provide a copy of the currency exchange receipt.

According to norms, if a person’s response is found unsatisfactory, the bank needs to file a Suspicious Transaction Report (STR) within seven days, which is passed to the Financial Intelligence Unit of India. 

“We have an NRI client who had withdrawn Rs 10 lakh in old notes from his account earlier in the year for a medical emergency in the family. On depositing these old notes, he had to disclose his earlier transactions,” says Gautam Nayak, a chartered accountant. An NRI also needs to keep in mind that he is not allowed to take more than Rs 25,000 in cash outside India, under the Foreign Exchange Management Act.

Many are also not aware that the government had last year restricted cash transactions to Rs 20,000 for loans, deposits and immovable property. If an NRI had accepted cash payment of more than Rs 20,000 as part of the total consideration for the sale of a property, he might need to pay a penalty. “The penalty is a sum equal to the amount of the loan or deposit or specified sum so taken or accepted,” says Chadha.

Procedural tangles

• NRIs can only exchange or deposit old notes in India
• They can authorise someone to deposit or exchange notes on their behalf
• May need to produce documents showing source of funds at bank for high-value transactions
• Bank may file a Suspicious Transaction Report, if documents are not satisfactory
• FEMA norms restrict NRIs to take only up to Rs 25,000 outside India
• For deposits over Rs 2.5 lakh, they can get a notice requiring them to disclose source of funds and/or file returns