Q667. USA citizen living in India &

keeping foreign currency accounts

. . .

Question: Dear Sir, An OCI card holder having American passport is living in India for more than 10 years and he does not have any address in USA to fulfil KYC requirement meant for NRIs in India. Can he continue with FCNR/NRI accounts in India opened when he was actually living in USA ? With which country is his tax liability on interest income of FCNR/NRI accounts? Regards Yogesh. Answer: A OCI holder who decides to live in India at some point of time becomes a resident of India and cannot hold FCNR or NRI bank accounts in India. FCNR and NRI bank accounts are meant for non- residents. It is illegal to continue to hold non-resident bank accounts in India after becoming a resident of India. The American citizen with OCI to whom you refer in your email can close his/her FCNR and NRI accounts and move the funds to the appropriate resident accounts. NRIs who return to India have the option of keeping the foreign currency they bring to India in a Resident Foreign Currency account (RFC). This type of account can be opened by any NRI, who is returning to settle in India after residing abroad for a period of at least one or more years. RFC accounts can be opened and maintained with banks in India in any freely convertible foreign currency. As far as tax liability for an American citizen living in India for over ten years, since the person is a resident of India he/she is taxable in India and also in the United States on their worldwide income. The Double Taxation Avoidance Agreement (DTAA) between India and USA will help such a person to claim credit for taxes paid in India when filing USA tax returns. Kindly be aware that the US passport holder living in India for the last 10 years or more, would be liable to pay taxes in the United States on any income in India, this includes the interest income on Indian bank accounts. I believe under the United States 'Foreign Account Tax Compliance Act' (FATCA) which became effective on January 1, 2013. Foreign Banks are now required to provide the IRS with information on bank accounts opened/maintained by those who hold US passports. Failing to file United States tax returns in a timely manner can lead to financial penalties and prosecution by the IRS.

KYC requirement in India

The KYC requirement applies to not only NRIs but to all bank account holders in India. Needless to say if you have a FCNR account, you must have a foreign address. Its best under such circumstances to follow the law, close the FCNR account and transfer the money to a RFC account and provide the applicable Indian address.