The Citizenship (Amendment) Act, 2015 and major overhauls to galvanize expat investments (Part 6)

Further to our Part V, this post seeks to examine the amendments brought about by RBI to permit NRIs to subscribe to the National Pension System and the clarification issued by Employees Provident Fund Organization towards provident fund contributions to be made by certain establishments towards ‘International Workers’.

9. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Ninth Amendment) Regulations, 2015

Vide notification dated 6 October 2015, RBI has notified amendment to the Principal Regulation whereby it is now permissible for NRIs to subscribe to the National Pension System[1] (“NPS”), which is a voluntary pension scheme regulated by the Pension Fund Regulatory and Development Authority (“PFRDA”).

Payment for such subscription shall be made either by inward remittance through normal banking channels or out of funds held in their NRE / FCNR / NRO / Non-Resident (Special) Rupee account[2] (“NRSR”) and Non-Resident Non-Repatriable account (“NRNR”).

RBI has further clarified that the annuity/accumulated saving of NRI will be repatriable outside India and provisions of Income Tax Act, 1961 as amended from time to time shall be applicable.

Further under Schedule 5, following are the list of securities that can be purchased by NRIs on a repatriation basis:

Without limits

Within Prescribed Limits

Government dated securities or treasury bills or units of domestic mutual funds; Bonds issued by a PSU in India; Shares in public sector enterprises being disinvested by the GOI; Bonds/units issued by infrastructure debt funds; and Listed non-convertible / redeemable preference shares or debentures issued in terms of regulation 7(2) of the Principal Regulations.

Perpetual Debt Instruments eligible for inclusion as Tier I capital issued by banks in India, not exceeding an aggregate ceiling of 24% (twenty-four percent) of each issue. Additionally, investment by a single NRI should not exceed 5% (five percent) of each issue; and Debt Capital Instruments eligible for inclusion as upper Tier II capital issued by banks in India, in accordance with the extant policy for investment by NRIs in other debt instruments.

Further, vide press note dated 17 June 2016, the Ministry of Finance has announced that NRIs can join and subscribe to NPS online through eNPS. NRIs can open NPS accounts online if they have an Aadhaar Card or PAN card.

Further, NRIs will be able to open NPS accounts both on repatriable and on non-repatriable basis. On a repatriable basis, NRIs will have to remit the amount through their NRE/FCNR/NRO account.

For non-repatriable scheme, NRIs will be able to join NPS through their NRE/FCNR/NRO accounts at the time of maturity or during partial withdrawal, the NPS funds would be deposited only in their NRO accounts.

10. Effect on Employees’ Provident Fund Scheme 1952 (“EPS”)

Vide clarification dated 12 February 2015, the Employees Provident Fund Organization (“EPFO”), stated that any employee holding a foreign passport / other than Indian passport (including OCI and PIO) and working in an establishment in India to which the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (“EPF Act”) applies, would be considered as ‘International Worker’ and accordingly, such establishments would have to make provident fund contributions on the entire monthly pay of such OCIs and PIOs, without any wage or upper limit.

Further, International Worker who has contributed for 10 (ten) years under EPS shall be eligible to get pension benefit under EPS.

However, should an International Worker not have completed 10 (ten) years, only employees from countries with which India has Social Security Agreements in force, such employees would be eligible to avail the benefit of totalization.

Conclusion

It is evident from the above that these major regulatory overhauls have granted Indian expats several economic rights, however, without attached political rights.

These regulatory changes have been brought about to help increase the inflow of foreign exchange remittances into India thereby narrowing trade deficits and increasing availability of capital for developmental activities. Here’s hoping that the GOI can utilize the capital inflow by way of foreign exchange remittances, towards payment of import bills thereby minimizing its dependence on external borrowings and help bring in more economic stability.

Expat investing has since many years been one of the biggest sources of foreign exchange in India. But over the years due to cumbersome regulatory formalities, investments had drastically reduced. It remains to be seen whether the above measures will turn the tide and encourage Indian expats to invest in India and play an active role in this new chapter in India’s growth story.

[This is the last of a series of 6 posts that seeks to consolidate all the regulatory changes that have been brought about by the GOI, post the notification of the Citizenship (Amendment) Act, 2015, to encourage expat investments.]

[1] National Pension Scheme is a government approved pension scheme for Indian citizens in the age group of 18 years – 60 years. While central and state government employees have to compulsorily subscribe to NPS, it is optional for others.

[2] Any person resident outside India, having a business interest in India, may open an SNRR account in Indian Rupee with authorized dealers for the purpose of putting through bona fide transactions in rupees, subject to the conditions specified in Schedule 4 of the Deposit Regulations.

To read other posts in this series click here.