News: 'Treat foreigners on a par with NRIs on taxes, convertibility'

(BS 02/09/2006) Mumbai - The report of the committee on fuller capital account convertibility (FCAC) has recommended bringing foreign (non-resident) individuals on par with non-resident Indians (NRIs) in terms of convertibility and tax treatment.

The committee has said the government should review tax benefits offered to NRIs for investments in foreign currency non-resident (banks) and non-resident (external) rupee account deposit schemes, while suggesting that foreign individuals be allowed to invest in these deposit schemes but without any tax concessions.

The committee said a movement towards FCAC implied that all non-residents (corporates and individuals) should get equal treatment. This means that the tax benefits extended to NRIs under these schemes should be removed.

The Committee recommends that these deposit schemes should be extended to non-residents (other than NRIs), in two phases.

In Phase I, non-residents could first be provided the FCNR (B) deposit facility, without tax benefits, subject to know-your-customer (customer identification) and financial action task force's (FATF) anti-money laundering norms.

Similarly, in Phase II, the NR(E)RA deposit scheme, with cheque writing facility, could also be extended to non-residents.

With respect to the capital market, at present only NRIs are allowed to invest in companies listed on the Indian stock exchanges, subject to certain stipulations.

The committee said all individual non-residents and non-resident corporates should be allowed to invest in the Indian stock market through Sebi-registered entities, including mutual funds and portfolio management schemes.

These entities will be responsible for meeting KYC and FATF norms and the money should come through bank accounts in India.

The committee recommended that the resident foreign currency (RFC) and RFC (deposit) accounts should be merged. The account holders should be allowed to move foreign currency balances to overseas banks.

For those wishing to continue with the RFC accounts, foreign currency current/savings chequable accounts should be provided, in addition to the foreign currency term deposits.