OCI card becomes compulsory

Rajesh Dhruva

A relaxed holiday in home sweet home in the country of origin is cherished by every Indian abroad. A few weeks back home in India also provide a great connecting opportunity to bring together families across the seas.

Well, from time immemorial, non-resident Indians (NRIs) being Indian citizens as also foreign citizens of Indian origin residing abroad did not require any additional documents other than proof of their residence abroad for purchase or sale of properties or investing in businesses .

As such, Indian citizens and foreign citizens of Indian origin were required to provide copies of their passports, business or permanent residency visas, proof of overseas residence by way of utility bills, and driving license only. Also, since the last few years, with the incorporation of the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRSs), foreign tax identification number became an additional necessity but otherwise Indian citizens and foreign citizens of Indian origin continued to be treated at par.
But on November 7, 2017, a major change was introduced as provisions of Foreign Exchange Management Act, 1999 (FEMA) have made it compulsory for foreign citizens of Indian origin to hold an OCI (Overseas Citizen of India) card to actively participate in business by way of partnership firm, proprietorship firm or limited liability partnership (LLP) and also for passive investments under portfolio investment schemes (PIS) on repatriation basis.
So, now a foreign citizen of Indian origin is required to be an OCI cardholder if he wishes to undertake active business as proprietor or partner in an Indian partnership firm, proprietorship firm or LLP.
Another far reaching change was introduced in March 2018 when these requirements for OCI card were extended to purchase, sale or transfer of immovable property in India by foreign citizens of Indian origin residing abroad. As such, if a foreign citizen of Indian origin residing abroad wishes to purchase a property or sell or transfer by way of gift or exchange even a pre-owned existing immovable property, he or she will have to hold an OCI card since otherwise it will be in contravention of the provisions of FEMA law.
These requirements for holding OCI card by a foreign citizen of Indian origin for undertaking business in India through a partnership firm, proprietorship firm or LLP have been introduced vide Notification No. FEMA 20(R)/ 017-RB November 07, 2017 whereas OCI card requirements for transfer of immovable property by foreign citizen of Indian origin were introduced vide Notification No. FEMA 21(R) / 2018-B of March 26, 2018.

For immovable properties, since March 26, 2018, OCI Card has become necessary for a person of Indian origin (PIO) for purchase, sale or transfer of immovable property. As such every PIO who wishes to purchase, sale or transfer any immovable property after March 26, 2018, will be required to be a OCI cardholder. PIOs owning property prior to March 26, 2018, will also need to apply for and avail OCI Card for sale, gift or transfer even an existing property on or after March 26, 2018.It is possible that property registrar’s office or bankers crediting sale value in NRO account and thereafter permitting repatriation under $1 million scheme may not be aware about these amendments which will add to the responsibility of NRIs to ensure that as PIOs they have to hold OCI Card while acquiring new property or selling and transferring existing property.

Likewise, foreign citizens of Indian origin are also required to be OCI cardholders for actively participating in businesses as a partner in partnership firm or LLP or a proprietorship firm. OCI Card will also be required for portfolio investments in listed securities of Indian companies on non-repatriation basis.

It may be noted that OCI card is not required for direct investments in securities of Indian private limited companies; direct investments in shares and debentures of non-listed public limited company; and PIS of listed Indian stocks on repatriation basis.

OCI card will also not be required for opening and maintaining non-resident external (NRE), non-resident ordinary (NRO) rupee bank accounts;oOpeningand maintaining US dollar , British pound, euro, Canadian dollar, Australian dollar and Japanese yen foreign currency non-resident (FCNR) deposits; investments in Indian government securities; and investments in Indian mutual funds.
It is important to note that if foreign citizens of Indian origin are already conducting business of proprietorship firm, partnership firm , LLP or has a PIS on non-repatriation basis prior to incorporation of these regulations in November 2017, such PIOs will have to apply for and avail OCI card for continuing such businesses. as a Proprietor or Partner in Partnership Firm or LLP or continuing PIS on non repatriation basis.

(For more information, contact Rajesh Dhruva or Rima K. Joshi at rajesh@femaonline.com)