421. Know your Customer

(KYC) regulations India . . .

Questions: Dear Sir, I want to know about the KYC requirements of OCI for Mutual fund investments. Since an OCI is treated at par with NRI for all practical purposes, I was under the impression that the status of an OCI should be of an NRI. But as OCI can stay in India for unlimited time period, what would be the situation when an OCI resides in India for 3 years at a stretch. As per Income Tax Act, since he has resided in India for more than 182 days, he is a Resident Indian. So, does this mean that an OCI who stays for more than 182 days becomes a resident Indian and his KYC should be changed to a Resident Indian KYC. Does the condition of 182 days apply for an OCI? I do not think that one can say that they are both resident as well as non resident or is it that only for the purpose of filing IT returns they are treated as resident Indian but for all other purposes they are NRI. The other problem is regarding the bank accounts which are maintained by OCI. An NRI can have only NRE/NRO/FCNR accounts. He cannot have resident saving accounts. But many OCI maintain both Resident savings accounts as well NRE/NRO account. Is it not wrong to have both resident and non resident bank account? I have seen many instances of OCI maintaining resident savings account and making investments through that account. I was under the impression that the investments can be done by OCI only by using NRE/NRO account. Kindly throw some light on these. I would appreciate if you can help in resolving these queries. Thanks & regards, K.Karthik Answer: Resident and Non Resident classifications are for income tax purposes, as per the Income Tax Act, 1961. Citizenship does not matter here, A person could be a resident or non resident of India regardless of their citizenship. For mutual fund transactions, KYC compliance is required. I am not sure what you mean when you say that for an OCI holder who is considered a resident,their KYC should be changed to a Resident Indian KYC. Financial institutions in India are required to follow the KYC guidelines set by the Reserve Bank of India. The only change for an OCI holder living in India, as far as KYC is concerned would probably be a correction of the OCI holders address. The citizenship of an OCI holder who lives in India does not change, they are still foreign citizens and to comply with KYC guidelines, financial restitutions will still require documents such as copies of passport etc. OCI holders who have bank accounts in India such as NRE and NRO accounts, when they return to India with the intention of settling in India, must notify their financial institutions and change their non resident accounts to resident accounts. NRE account balances, money that they wish to maintain in foreign currency, can be deposited in ‘Resident Foreign Currency’ (RFC) accounts Having resident and non resident accounts is not allowed and is considered to be illegal. You mention that some people continue to hold resident as well as non resident bank accounts, such persons have probably not bothered to advise their banks that they have settled in India. I can’t see any financial institution not following RBI rules and risking penalties. OCI holders can make investments through NRE/NRO accounts if they reside abroad. When OCI holders reside in India, they must re- designate their accounts to resident status. OCI RETURNING TO INDIA - WILL MY FOREIGN INCOME BE TAXED IN INDIA - SEE NEXT PAGE