G B O I
T O I M
DISCLAIMER
This Guide Book has been compiled/summarised from information available in ofcial documents/
circulars/websites of the Govt. of India, RBI and other reliable sources. Every possible care has been
taken to provide current and authentic information. This Guide Book for Overseas Indians is intended
to serve as a guide to them and does not purport to be a legal document. In case of any variation be-
tween what has been stated in this Guide Book and the relevant Act, Rules, Regulations, Policy State-
ments etc., the latter shall prevail.
Price: 500.00 (INR)
Overseas Indian Facilitation Centre
The Indian Diaspora is the largest in the world to day after China and has roots in every country
in the globe. The Diaspora contribution to their state of origin has been made in various ways,
through remittances, foreign direct investment (FDI), transfer of knowledge and entrepreneurial
networks.
In order to expand the entrepreneurial ties and engage them as partners in India’s progress, an
Overseas Indian Facilitation Centre, a not for prot public private initiative of Ministry of Overseas
Indian Affairs (MOIA) and Confederation of Indian Industry (CII), was launched on 28th May
2007.
With a strong intention to facilitate and bridge the gap between the Overseas Indians and India,
OIFC has a mandate to cover broad areas: investment facilitation, knowledge networking and
ensuring business-to-business partnerships in focus sectors like real estate, wealth management,
taxation, legal, healthcare, education and infrastructure.
The key objectives of OIFC are:
• Promote overseas Indian investment into India and facilitate business partnership by giving
authentic & real time information
• Establish and maintain a Diaspora Knowledge Network by creating a database of Overseas
Indians
• Function as a clearing house for all investment related information
• Assist States to project and promote investment opportunities to overseas Indians in key
focus sectors.
In line with the above objectives, OIFC provides the following services:
• To appraise the Indian Diaspora with the up-to-date investment opportunities existing in
India provide hand-holding services via its knowledge partners
• To provide customized services in the form of nding sector and state specic investment
projects, preparing feasibility reports and organizing and assisting in overseas road shows to
attract FDI
• To assist in effective business-to-business partnerships
• To maintain a strong Diaspora Knowledge Network
• To provide consular services in the long run
CONTENTS
PART - I : TAXATION
1. Residential Status for Tax Purposes 9
2. Special Provisions Relating to Certain Income of NRIs 18
3. Tax Exemptions from Income Tax, Wealth Tax and Gift Tax 20
4. Presumptive Tax Provisions 23
5. Tax Incentives for Industries 25
6. Authority for Advance Rulings 27
7. Transfer Pricing 31
8. Double Tax Avoidance Agreements 38
PART-II : OTHER IMPORTANT MATTERS & OVERSEAS INDIANS
9. Overseas Citizenship of India (OCI) 41
10. PIO Card 53
11. Foreign Contribution Regulation Act, 1976 56
12. Special Economic Zones 70
13. List of Important Websites 75
14. Contact Details 77
PART - I
TAXATION
9
RESIDENTIAL STATUS FOR
TAX PURPOSES
In India, as in many other countries, the charge
of income tax and the scope of taxable income
varies with the factor of residence. There
are two categories of taxable entities viz. (1)
residents and (2) non-residents. Residents are
further classied into two sub-categories (i)
resident and ordinarily resident and (ii) resident
but not ordinarily resident. The law prescribes
two alternative technical tests of residence for
individual taxpayers. Each of the two tests
relate to the physical presence of the taxpayer
in India in the course of the “previous year”
which would be the twelve months from April
1 to March 31.
A person is said to be “resident” in India in any
previous year if he
(a) is in India in that year for an aggregate
period of 182 days or more; or
(b) having within the four years preceding
that year been in India for a period of
365 days or more, is in India in that year
for an aggregate period of 60 days or
more.
The above provisions are applicable to all
individuals irrespective of their nationality.
However, as a special concession for Indian
citizens and foreign citizens of Indian origin,
the period of 60 days referred to in Clause
(b) above, will be extended to 182 days in
two cases: (i) where an Indian citizen
leaves India in any year for employment
outside India; and (ii) where an Indian
citizen or a foreign citizen of Indian
origin (NRI), who is outside India,
comes on a visit to India.
In the above context, an individual visiting India
several times during the relevant “previous
year” should note that judicial authorities in
India have held that both the days of entry and
exit are counted while calculating the number
of days stay in India, irrespective of however
short the time spent in India on those two days
may be.
A “non-resident” is merely dened as a person
who is not a “resident” i.e. one who does not
satisfy either of the two prescribed tests of
residence.
An individual, who is dened as Resident in a
given nancial year is said to be “not ordinarily
resident” in any previous year if he has been a
non-resident in India 9 out of the 10 preceding
previous years or he has during the 7 preceding
previous years been in India for a period of, or
periods amounting in all to, 729 days or less.
Till 31st March 2003, “not ordinarily resident”
was dened as a person who has not been resident
in India in 9 out of 10 preceding previous years
or he has not during the 7 preceding previous
years been in India for a period of, or periods
amounting in all to, 730 days or more.
Section 6 of the Income-tax Act, 1961, prescribes
the tests for determining the residential status
of a person. Section 6, as amended, reads as
follows:
For the purposes of this Act,
(1) An individual is said to be resident in
India in any previous year, if he-
1
G B O I T O I M
10
a) is in India in that year for a period
or periods amounting in all to one
hundred and eighty-two days or
more; or
b) [* * *]
c) having within the four years
preceding that year been in India
for a period or periods amounting
in all to three hundred and sixty ve
days or more, is in India for a period
or periods amounting in all to sixty
days or more in that year.
Explanation.- In the case of an individual,
(a) being a citizen of India, who leaves
India in any previous year [as a
member of the crew of an Indian
ship as dened in clause (18) of
section 3 of the Merchant Shipping
Act, 1958 (44 of 1958), or] for the
purpose of employment outside
India, the provisions of sub-clause
(c) shall apply in relation to that
year as if for the words “sixty days”,
occurring therein, the words “one
hundred and eighty-two days” had
been substituted
(b) being a citizen of India, or a person
of Indian origin within the meaning
of Explanation to clause (e) of
section 115C, who, being outside
India, comes on a visit to India in
any previous year, the provisions of
sub-clause
(c) shall apply in relation to that year
as if for the words “sixty days”,
occurring therein, the words “one
hundred and eighty-two days” had
been substituted.
(2) A Hindu undivided family, rm or
other association of persons is said to
be resident in India in any previous year
in every case except where during that
year the control and management of its
affairs is situated wholly outside India.
(3) A company is said to be resident in India
in any previous year, if
(a) it is an Indian company; or
(b) during that year, the control and
management of its affairs is situated
wholly in India.
(4) Every other person is said to be resident
in India in any previous year in every
case, except where during that year the
control and management of his affairs
is situated wholly outside India.
(5) If a person is resident in India in a
previous year relevant to an assessment
year in respect of any source of income,
he shall be deemed to be resident in
India in the previous year relevant to the
assessment year in respect of each of
his other sources of income.
(6) A person is said to be “not ordinarily
resident” in India in any previous year if
such person is
(a) an individual who has not been a
non-resident in India in nine out
of the ten previous years preceding
that year, or has not during the
seven previous years preceding that
year been in India for a period of,
or periods amounting in all to, seven
hundred and twenty-nine days or
less; or
(b) a Hindu undivided family whose
11
R S T P R S T P
G B O I T O I M
12
13
R S T P
manager has not been non-resident
in India in nine out of the ten
previous years preceding that year,
or has not during the seven previous
years preceding that year been in
India for a period of, or periods
amounting in all to, seven hundred
and twenty-nine days or less.
An analysis of the above provisions would
indicate that -
1. To become a non-resident for
income- tax purposes, an Indian citizen
leaving India for the rst time to take up
employment abroad should be out of
the country latest by 28th September
and should not return to India before
1st April of the next year. However, in
case of a person leaving India for taking
up a business or profession, the criteria
of 60 days will apply, as dened earlier.
2. An NRI individual, whose total stay
in India in 4 preceding years exceeds
364 days, will not lose his non-resident
status in the following year(s) if his total
stay in India in that year (from April 1 to
March 31) does not exceed-
(a) 181 days, if he is on a “visit” to
India; or
(b) 59 days, if he comes to India on
“transfer of residence”.
3. An NRI who has returned to India for
settlement, whose total stay in India for
4 preceding years does not exceed 364
days will not lose his non-resident status
in the following year(s) if his total stay
in India in such year(s) (from April 1 to
March 31) does not exceed 181 days.
4. A new-comer to India would be treated
as “not ordinarily resident” for the rst
two years of his stay in India or if treated
as Non Resident in the year of arrival
then for the second and third year of
his stay in India. An individual (whether
Indian or foreign citizen) who has left
India and remains non-resident for at
least nine years preceding his return to
India or whose stay in 7 years preceding
the year of return has not exceeded 729
days would, upon his return, be treated
as “non-resident” or “not ordinarily
resident” depending upon the number
of days stay in India in the year of
return. The status of “not ordinarily
resident” will remain effective for 2
years including or following the year of
return as the case may be.
Important Points to be Borne in Mind
while Determining the Residential
Status of an Individual
(a) Residential status is always determined
for the Previous Year because the
assessee has to determine the total
income of the Previous Year only. In
other words, as the tax is on the income
of a particular Previous Year, the enquiry
and determination of the residence
qualication must conne to the facts
obtaining in that Previous Year.
(b) If a person is resident in India in a
Previous Year in respect of any source
of income, he shall be deemed to be
resident in India in the Previous Year
relevant to the Assessment Year in
respect of each of his other sources of
Income. [Section 6(5)]
(c) Relevant Previous Year means, the
Previous Year for which residential
status is to be determined
(d) It is not necessary that the stay should
be for a continuous period.
(e) It is not necessary that the stay should
R S T P
G B O I T O I M
14
be at one place in India.
(f) Both the day of entry and the day of
departure should be treated as the day
of stay in India [Petition No.7 of 1995
225 ITR 462 (AAR)]
(g) Presence in territorial waters in India
would also be regarded as stay in India.
(h) A person is said to be of Indian Origin
if he or either of his parents or any of
his grand parents was born in undivided
India [Section 115C]
(i) Ofcial tours abroad in connection
with employment in India shall not be
regarded as employment outside India.
(j) A person may be resident of more than
one country for any Previous Year.
(k) Citizenship of a country and residential
status of that country are two separate
concepts. A person may be an Indian
national/Citizen but may not be a
resident in India and vice versa.
Points to be Considered by NRIs
• Previous Year is period of 12 months
from 1st April to 31st March. Number
of days stay in India is to be counted
during this period.
• Both the Day of Arrival into India and
the Day of Departure from India are
counted as the days of stay in India (i.e.
2 days stay in India).
• Dates stamped on Passport are normally
considered as proof of dates of
departure from and arrival in India.
• It is advisable to keep several
photocopies of the relevant passport
pages for present and future use.
• Ensure that date stamped on the
passport is legible.
• Keep track of no. of days in India
from year to year and check the same
before making the next trip to India.
It is advisable to maintain a chart for
the number of days stay in the current
and in the preceding seven (7) previous
years.
• In the 1st year of leaving India for
employment outside India, ensure
that you leave before 29th September.
Otherwise total income of the nancial
year (including the foreign income) will
be taxable in India if it exceeds the basic
exemption limit.
• During the last year of stay abroad, on
transfer of residence to India, ensure
to come back on or after Feb 1st (or
Feb 2nd in case of a leap year). Since
arrival before this date will result in stay
in India exceeding 59 days. However, a
person whose stay in India in preceding
four (4) previous years does not exceed
365 days, he may return after September
30th of the relevant year without loss of
non-resident status.
Implications of Residential Status for
NRIs/PIOs
The complexities of determining the residential
status for individual NRI/PIO under various
statutes and regulations will be obvious from the
provisions outlined above and in this context it
would be important to note the following:
1 The concepts and rules for determining
the residential status income-tax laws
and FEMA are quite different and it
would be possible to be a resident under
one law and non-resident under the
other.
2 For exemption of income tax in respect
of NRE and FCNR deposits investor
should be non-resident under FEMA.
3 The special tax rate concessions on
income and long-term capital gains on
specied assets, purchased in convertible
15
R S T P
foreign exchange are available to non-
residents under the Income-tax Act.
CHARGEABLE INCOME
Section 5 of the Income-tax Act lays down the
scope of total income of any previous year of
any person. The Section reads as follows:
(1) Subject to the provisions of this Act,
the total income of any previous year of
a person who is a resident includes all
income from whatever source derived
which-
(a) is received or is deemed to be
received in India in such year by or
on behalf of such person ;or
(b) accrues or arises or is deemed to
accrue or arise to him in India during
such year; or
(c) accrues or arises to him outside India
during such year:
Provided that, in the case of a person
not ordinarily resident in India
within the meaning of sub-section
(6) of Section 6, the income which
accrues or arises to him outside India
shall not be so included unless it is
derived from a business controlled
in or a profession set up in India.
(2) Subject to the provisions of this Act,
the total income of any previous year of
a person who is a non-resident includes
all income from whatever source derived
which
(a) is received or is deemed to be
received in India in such year by or
on behalf of such person; or
(b) accrues or arises or is deemed to
accrue or arise to him in India during
such year.
Explanation I.-Income accruing or arising
outside India shall not be deemed to be received
in India within the meaning of this section by
reason only of the fact that it is taken into
account in a balance sheet prepared in India.
Explanation 2.-For the removal of doubts, it
is hereby declared that income which has been
included in the total income of a person on the
basis that it has accrued or arisen or is deemed
to have accrued or arisen to him shall not again
be so included on the basis that it is received or
deemed to be received by him in India.”
Thus, it is clear from the above that the incidence
of tax depends upon a person’s Residential
Status and also upon the place and time of
accrual and receipt of income.
As stated earlier, the charge of income tax varies
with the factor of residence in the previous year
and the general position with regard to the three
categories of taxpayers can be summarised as
follows:
1. Taxpayers in all categories are chargeable
on income, from whatever source
derived, which is received or is deemed
to be received in India by or on behalf
of them or which accrues or arises or
is deemed to accrue or arise to them
in India other than income specied as
exempt income.
R S T P
G B O I T O I M
16
Sources of Income R & OR R & NOR NR
Indian Income
Income received or deemed to
be received in India during the
current nancial year.
Taxable in India Taxable in India Taxable in India
Income accruing or arising or
deemed to accrue or arise in
India during the current
nancial year.
Taxable in India Taxable in India
Taxable in India
Income accruing or arising or
deemed to accrue or arise out-
side India, but rst receipt
is in India during the current
nancial year
Taxable in India Taxable in India
Taxable in India
Foreign Income
Income accruing or arising
or deemed to accrue or arise
outside India and recieved
outside India, during the current
nancial year.
Taxable in India Taxable in India
Not Taxable in
India
Income accruing or arising or
outside India from a Business/
profession controlled in/from
India during the current
nancial year.
Taxable in India Taxable in India
Not Taxable in
India
Income accruing or arising out-
side India from any source
other than Business Profession
controlled from India
Taxable in India Taxable in India
Not Taxable in
India.
In the above context, it may be noted
that the ‘receipt’ of income refers to the
rst occasion when the recipient gets the
money under his own control and it is
the rst receipt that determines the year
and place of receipt for the purposes
of taxation. If the income is already
received outside India, no tax liability
will arise when the whole or any part of
such income is remitted to India.
In tabular form, the above may be stated as under:
2. A “resident and ordinarily resident” pays
tax in India on his entire world income,
wherever accrued or received.
3. A “non-resident” pays tax only on his
taxable Indian income and his foreign
income (earned and received outside
India) is totally exempt from Indian
taxes.
4. A “not ordinarily resident” pays tax
on taxable Indian income and on
17
R S T P
foreign income derived from a business
controlled in or a profession set up in
India
5. An individual upon acquiring the status
of “not ordinarily resident” would not
pay tax, for a period of two years, on the
interest on :
a) the continued Foreign Currency
Non-Resident (FCNR) account;
(b) the Resident Foreign Currency
(RFC) account; and
(c) on income earned from foreign
sources unless such income is
directly received in India or is earned
from a business controlled in or a
profession set up in India.
R S T P
18
SPECIAL PROVISIONS RELATING TO
CERTAIN INCOME OF NRIs
Some of the special tax concessions for NRIs/
PIO investing in India were introduced in the
Finance Act, 1983, which became effective on
June 1, 1983. The tax provisions were further
liberalised by subsequent Finance Acts and
other amending laws.
Special Concessions
Investment income from ‘foreign exchange
assets’ comprising shares and debenture of
and deposits with Indian companies and
central government securities, subscribed to
or purchased in convertible foreign exchange,
is charged to income tax at a at rate of 20%.
No deductions are, however, allowed and tax is
levied on gross income. The basic exemption,
below which income is not taxed in India, is also
not allowed.
Under these special concessions a reduced rate
of 10% is applied to the long-term capital gains
on transfer of any foreign exchange asset held
by the NRI/PIO. In order to qualify for long-
term capital gains, the minimum holding period
for shares held in a company or any other
security listed in a recognised Stock Exchange
in India or units of Unit Trust of India or of
a specied Mutual Fund is 12 months and for
other assets it is 36 months. Long-term capital
gains on foreign exchange assets are, however,
exempted from tax if the net proceeds realized
on transfer are re-invested, within six months of
such transfer, in any specied securities and the
new assets are retained for at least three years.
The Finance Act, 2003 has withdrawn the
taxing provision in respect of dividend received
by the shareholders on shares held in Indian
companies. Accordingly, dividend received by
the shareholders of Indian companies will be
exempt from tax. The income received from
units of Unit Trust of India and of specied
mutual funds will also be exempt.
Finance Act 2004 has:
(a) granted tax exemption as regards long
term capital gains arising from transfer
of equity shares in a company and/
or units of equity oriented schemes
of Mutual Funds, which are subject to
securities transaction tax; and
(b) xed at 10% the tax on short-term
capital gains arising from such shares
and/or units.
The tax concessions in respect of investment
income (and not long term capital gain) will
continue to apply even after the NRI/PIO
returns to India but such exemption would be
available only in respect of foreign exchange
assets other than shares in Indian companies
and the exemption will continue until such time
as the assets are transferred or converted into
money. However, as dividend is exempt income
from 1st April 2003, exclusion of shares from
said provision is redundant.
In the circumstances where the income of NRI/
PIO from such foreign exchange assets is below
the taxable limit or the average level of tax is
below 20%, he may elect not to be governed by
the special tax concessions referred to above. He
would then have to furnish a Return of Income
in the normal course together with a declaration
of such election and he would be entitled to
claim a refund of the whole or a part of the tax
2
S P R C I NRIs
19
deducted at source, as may be appropriate.
As mentioned above, short-term capital gains
arising from transfer of equity shares and/or
units of equity-oriented schemes of Mutual
Funds, which are subject to securities transaction
tax, are taxed at 10%. Other Short-term capital
gain is taxable at normal slab rates as applicable
to residents, and the return of income has to be
led by the NRI/ PIO making such gain.
Capital gain from transfer of shares or debentures
of Indian companies will be computed by
converting the cost of acquisition, expenses
incurred in connection with such transfer
and the sale price of the capital asset into the
same foreign currency as was initially used in
the purchase of these assets and the capital
gain so computed in such foreign currency
will be reconverted into Indian currency. This
computation effectively gives the NRI/PIO
the benet of claiming exchange loss, if any,
on all capital gains arising from sale of shares
or debentures of Indian companies, whether
these are long term or short term. It may be
noted that the aforesaid benet is available only
if the investment is made from convertible
foreign exchange. In respect of investment
made from funds other than convertible foreign
exchange, and if the asset is a long-term capital
asset benet of indexation can be availed.
However, indexation is not available in respect
of debentures.
20
TAX EXEMPTIONS FROM INCOME TAX,
WEALTH TAX AND GIFT TAX
Tax exemptions from income tax
Income from the following investments made by
NRIs/PIO out of convertible foreign exchange
is totally exempt from tax.
(a) Deposits in under mentioned bank
accounts :
(i) Non Resident External Rupee
Account (NRE)
(ii) Foreign Currency Non-resident
Account (FCNR)
(b) Units of Unit Trust of India and
specied mutual funds, other specic
securities, bonds and savings certicates
(subject to conditions and prescribed
limits under the Income-tax laws and
regulations).
(c) Dividend declared by Indian company.
(d) Long term capital gains arising from
transfer of equity shares in a company
and/or equity oriented schemes of
Mutual Funds, which are subject to
securities transaction tax.
It should be noted that the tax exemptions
relating to NRE bank deposits will cease
immediately upon the NRI/PIO becoming a
resident in India whereas the interest on FCNR
bank deposits will continue to be tax free as long
as the NRI maintains the status of Resident
but Not Ordinarily Resident or until maturity,
whichever is earlier.
Tax exemptions from wealth tax
Where an NRI/PIO returns to India for
permanent residence, moneys and the value of
assets brought by him into India and the value
of assets acquired by him out of such moneys
within one year immediately preceding the date
of his return and at any time thereafter are
totally exempt from Wealth-tax for a period of
seven years after return to India.
The above exemption may not have much
relevance now since the Finance Act 1992 has
considerably reduced the scope of Wealth-tax.
With effect from 1st April, 1993, Wealth-tax
is being levied only on non-productive assets
like urban land, buildings (except one house
property), jewellery, bullion and vehicles, cash
over Rs.50,000- etc. The current rate of Wealth-
tax is 1 % on the aggregate market value of
chargeable assets as on 31st March every year in
excess of Rs.1.5 million.
However, it may be noted that NRIs are also
liable to pay wealth tax if the market value of
taxable assets as on 31st March exceeds Rs.l.5
million.
Tax exemptions from gift tax
Gift Tax Act, 1958 has been repealed with effect
from 1st October, 1998 and as such, Gift Tax is
not chargeable on any gifts made on or after
that date.
With regard to gifts of foreign exchange or
specied assets made by NRIs to their relatives
in India, it should be noted that
1 Gifts made by an NRI/PIO to his or her
spouse, minor children or son’s wife will
involve clubbing of income and wealth
in the hands of the donor-NRI/ PIO.
2 In the case of gifts to minor children the
clubbing of income, as above, will cease
upon such children attaining the age of
3
21
18 years.
3. The clubbing provisions will apply,
in case of gift to spouse or son’s wife
in India, only to the’ rst-stage of
income from the original gift. Second-
stage income arising from investment
of the income from the original gift is
not clubbed and this will constitute the
separate wealth/income of the donee
spouse.
Generally, the income of minor children, from
any source (including income from gifts from
parents) is clubbed with the income of the parent
whose total chargeable income is greater.
Other matters to be noted regarding gifts are
1 All gifts received by residents from
NRIs/PIO may be subject to the tax
authorities requiring the recipient to
provide evidence as regards the identity
and nancial capacity of the donor and
genuineness of the gift.
2 Under the Foreign Exchange
Management Act, 1999 no approval
from Reserve Bank of India (RBI) is
necessary for the resident donee to
hold gifted immovable property outside
India provided the said property is
gifted by a person resident outside
India. General permission, subject to
certain conditions, is granted by RBI
for the resident donees to hold foreign
moveable properties such as shares and
securities gifted by NRI/PIO donors.
3 The Income Tax Act has provided that
any sum of money exceeding Rs.50,000
received without consideration (i.e., gift)
by an individual or Hindu undivided
Family from any person on or after
1st April, 2006 the whole of such sum
will be chargeable to income-tax in the
assessment of recipient (i.e., donee)
under that head “Income from other
sources” for and from assessment year
2007-08 and onwards. Any sum of
money exceeding Rs. 25,000 received
without consideration (i.e. gift) by an
individual or Hindu undivided family
from any person on or after September
1, 2004 but before April 1, 2006, the
whole of sum will be chargeable to
income tax.
However, the above provisions will not apply to
any sum of money /gift received:
(a) from any relative; or
(b) on the occasion of the marriage of the
individual; or
(c) under a will or by way of inheritance;
or
(d) in contemplation of death of the payer;
or
(e) from a local authority; or
(f) from any fund, foundation, university,
other educational institution, hospital,
medical institution, any trust or
institution referred to in section 10
(23C); or
(g) from a charitable institute registered
under section 12AA.
The term “relative” is dened as:
(1) spouse of the individual;
(2) brother or sister of the individual;
(3) brother or sister of the spouse of the
individual;
(4) brother or sister of either of the parents
of the individual;
(5) any lineal ascendant or descendant of
the individual;
(6) any lineal ascendant or descendant of
the spouse of the individual; and
(7) spouse of the person referred to in (2)
to (6).
T E F I T, W T G T
G B O I T O I M
22
Scope of Receipts
l As per plain reading of the provision,
any receipt without consideration, save
exclusions, whether capital or otherwise,
may be considered as income. l
l Similar receipts by any person (such as, a
partnership rm, a company, and AOP
etc.), other than an individual or a Hindu
undivided Family, would not constitute
income in its hands.
l The provision would apply to an
individual irrespective of his residential
status. Accordingly, any receipt in India
by a non-resident of the nature discussed
above would be considered as income in
his hands.
l Gifts on occasion other than marriage,
for example, birthday, marriage
anniversary and other social occasions,
religious ceremonies etc., would be
taxable as income. Gifts received on
the occasion of the marriage of the
individual, irrespective of any limit,
(but within reasonable limits) would not
constitute income.
l The receipts should be in the form of
money. Accordingly, any gift in kind
would not be taxable.
l The receipts must be without
consideration, implying in the nature of
gift.
23
PRESUMPTIVE TAX PROVISIONS
Certain provisions have been incorporated in
the Income-tax Act whereby the total income
of certain non-resident assessee is computed on
the basis of certain percentage of their gross
total receipts. This estimated income approach
is expected to reduce areas of uncertainty and
resultant tax litigation. However, a non-resident
assessee has the option to maintain books of
account and get his books of account audited
u/s 44AB (“Tax Audit”) and offer lower prots
and gains for taxation in India than the prots
and gains estimated under Sections 44BB and
44BBB on presumptive basis.
Special provisions applicable to non-residents
for computing their income under the head
“Business Income”
Shipping Business (Sections 44B & 172)
Section 44B contains special provisions for
computing prots and gains of shipping
business of a non-resident assessee. In the case
of non-residents, such prots and gains will be
taken at an amount equal to 7.5% (seven and a
half per cent) of the amount paid or payable
to the non-resident or to any other person
on his behalf on account of the carriage of
passengers, livestock, mail or goods shipped at
any Indian port as also of the amount received
or deemed to be received in India on account
of the carriage of passengers, livestock, mail or
goods shipped at any port outside India.
Section 172, which is a complete code in itself,
contains provisions for taxation of occasional
shipping business of non-residents in respect
of prots made by them from carriage of
passengers, livestock, mail or goods shipped at
a port in India.
Business of Providing Services and
Facilities in Connection with Exploration
etc. of Mineral Oils (Section 44BB)
Section 44BB contains special provisions for
computation of taxable income of a non-
resident assessee engaged in the business of
providing services or facilities in connection
with, or supplying plant and machinery on
hire, used or to be used, in the prospecting for,
or extraction or production of, mineral oils.
It provides that 10% of the amount paid or
payable to, or the amount received or receivable
by, the assessee for provision of such services
or facilities or supply of plant and machinery
shall be deemed to be the taxable income of
such non-resident assessee.
Business of Operation of Aircraft
(Section 44BBA)
Section 44BBA contains special provisions for
computing prots and gains of the business
of operation of aircraft of non-residents. It
provides for determination of the income of
non-resident taxpayers on presumptive basis
at a at rate of 5% of the amount received or
receivable for carriage of persons, livestock,
mail or goods from any place in India or the
amount received or deemed to be received
within India on account of such carriage from
any place outside India.
Prots and Gains of Foreign Companies
Engaged in the Business of Civil
Construction or Erection of Plant and
Machinery or Testing or Commissioning
thereof, in Connection with certain
Turnkey Power Projects (Section
44BBB)
Section 44BBB provides that, notwithstanding
anything to the contrary contained in Sections
4
G B O I T O I M
24
28 to 44AA of the Income-tax Act, the income
of foreign companies who are engaged in the
business of civil construction or erection or
testing or commissioning of plant or machinery
in connection with a turnkey power project shall
be deemed at 10 per cent of the amount paid or
payable to such assessee or to any person on
his behalf, whether in or out of India. For this
purpose, the turnkey power project should be
approved by the Central Government. It has
also been claried that erection of plant or
machinery or testing or commissioning thereof
will include lying of transmission lines and
systems.
Taxation of Non-Resident’s Royalty
Income or Fees for Technical Services
(Section 44DA)
Royalties and fees for Technical Services
received from the Government or an Indian
concern by a Non-Resident or a foreign
company in pursuance of an agreement entered
into after 31-3-2003 shall be computed under
the head “Business Income” in accordance
with the provisions of the Income Tax Act i.e.
after allowing deduction for various permissible
expenses and allowances.
Section 44DA does not Permit Deduction
of following Expenses
(i) expenditure which is not wholly and
exclusively incurred for the business of
such permanent establishment or xed
place of profession in India, and
(ii) amounts reimbursed by permanent
establishment to its head ofce or to
any of its other ofces (Other than,
reimbursement of actual expenses).
Restriction on Deduction of Head Ofce
Expenses (Section 44C)
Section 44C is intended to be made applicable
only in the cases of those non-residents who
carry on business in India through their
branches.
The deduction in respect of head ofce expenses
will be limited to:
a) An amount equal to 5 per cent of the
“adjusted total income” for the relevant
year: or
b) The actual amount of head ofce
expenditure attributable to the business
in India, whichever is least.
25
TAX INCENTIVES FOR INDUSTRIES
Tax holidays in the form of deductions are
available for private sectors and incentives to
industries located in special area/regions are
listed below:
Infrastructure Sectors (Section 80-IA)
Deduction of 100% of the prots from business
for a period of 10 years for:
(a) Development or operation and
maintenance of ports, airports, roads,
highways, bridges, rail systems, inland
water ways, inland port or navigational
channel in sea, water supply projects,
water treatment systems, irrigation
projects, sanitation and sewage projects,
and solid waste management systems.
(b) Generation and distribution of power
that commence before March 31, 2010
(c) Laying and operating a cross country
natural gas distribution network.
Mineral Oil (Section 80-IB)
Deduction of 100% of prots from the
Business of Rening Mineral Oil for a period
of 10 Years for:
a. Undertaking wholly owned by a public
sector Company or any other company
in which Public Sector Company hold
Forty Nine Percent of voting rights.
b. Undertaking starts Rening on or before
March 31, 2012.
Hospital (Section 80-IB)
Deduction of 100% of prots from business
of operating and maintaining Hospital for a
period of 5 years for:
a. Hospital is constructed and has started
or starts functioning at any time during
April 1, 2008 & March 31, 2013.
b. Hospital has at least one hundred beds
for patients.
c. Hospital is located anywhere in India
other than excluded area.
Hotels and Convention Centre in NCR
(Sec 80-ID)
Deduction of 100% of the prots from business
of hotels and convention centres for a period
of 5 years for
a. Hotel and Convention Centre located
in National Capital Territory of
Delhi and the districts of Faridabad,
Gurgaon, Gautam Budh Nagar and
Ghaziabad.
Hotel is constructed and has started or
starts functioning at any time during
April 1, 2007 and March 31, 2010.
Likewise, the Convention Centre is
constructed at any time during April
1, 2007 and March 31, 2010.
b. Hotel located in the specied district
having a World Heritage site. Hotel is
constructed and has started or starts
functioning at any time during April 1,
2008 and March 31, 2013.
Undertakings in North Eastern States
(Sec 80-IE)
Deduction of 100% of the prots from business
for a period of 10 years for:
a. Manufacture or production of goods or
undertakes substantial expansion during
April 1, 2007 and March 31, 2017.
Providing eligible services during April
1, 2007 and March 31, 2017.
b. Deduction is not available in respect of
manufacture or production of tobacco,
pan masala, plastic carry bag of less
than 20 microns or goods produced by
petroleum and gas reneries.
5
G B O I T O I M
26
c. Eligible services are hotel (2 star or above),
nursing home(25 beds or more), old age
homes, vocational training institutes for
hotel management, catering and food
crafts, entrepreneurship development,
nursing and paramedical, civil aviation
related training, fashion designing and
industrial training, IT related training
centres, IT hardware manufacture units
and bio-technology.
d. The aforesaid activity takes place in any
North-Eastern States(i.e., Arunachal
Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim and
Tripura).
Tax Exemptions
Following tax exemptions are available in
different sectors:
Deduction of 100% of the Prot from
Business of
(a) Development or operation and
maintenance of ports, airports, roads,
highways, bridges etc. (Sec 80-IA).
(b) Generation, distribution and
transmission of power (Sec 80-IA).
(c) Development, operation and
maintenance of an Industrial Park or
SEZ (Sec 80-IAB).
(d) By undertakings set up in certain
notied areas or in certain thrust sector
industries in the North Eastern states
and Sikkim (Sec 80-IC).
(e) By undertakings set up in certain
notied areas or in certain thrust sector
industries in Uttaranchal and Himachal
Pradesh (Sec 80-IC).
(f) Derived from export of articles or
software by undertakings in FTZ,
EHTP/STP (Sec 10A).
(g) Derived from export of articles or
software by undertakings in SEZ
(Sec 10AA).
(h) Derived from export of articles or
software by 100% EOU (Sec 10B).
(i) An offshore banking unit situated in
SEZ from business activities with units
located in the SEZ (Sec 80LA).
(j) Derived by undertakings engaged in
Business of operating and maintaining
Hospital located anywhere in India
other than excluded area. (Sec 80-IB)
(k) Derived by an undertaking engaged in
the integrated business of handling,
storage and transportation of food
grains (Sec 80-IB).
(l) Derived by an undertaking engaged in
the commercial production or rening
of mineral oil (Sec 80-IB).
(m) Derived by an undertaking from export
of wood based handicraft (Sec 10BA).
27
AUTHORITY FOR ADVANCE RULINGS
Introduction
The scheme of advance rulings was introduced
by the Finance Act, 1993, Chapter XIX-B of
the Income-tax Act, which deals with advance
rulings, came into force with effect from 1-6-
1993. Under the scheme, the power of giving
advance rulings has been entrusted to an
independent adjudicatory body. Accordingly,
a high level body headed by a retired judge of
the Supreme Court has been set up. This is
empowered to issue rulings, which are binding
both on the Income-tax Department and the
applicant. The procedure prescribed is simple,
inexpensive, expeditious and authoritative.
Advance Ruling, means written opinion
or authoritative decision by an Authority
empowered to render it with regard to the tax
consequences of a transaction or proposed
transaction or an assessment in regard thereto.
It has been dened in section 245N(a) of the
Income-tax Act, 1961 as amended from time
to time. Under section 245N, a ruling can be
obtained by an applicant (who may be either a
non-resident or a resident having a transaction
with a non-resident) in respect of any question
of law or fact in relation to the tax liability of
the non-resident arising out of a transaction
undertaken or proposed to be undertaken.
Salient features:
a. Available only for Income-tax:—
The procedure of advance ruling is
available only under the Income-tax
Act, 1961.
b. Must relate to a transaction entered into
or proposed to be entered into by the
applicant: -
The advance ruling is to be given on questions
specied in relation to such a transaction by the
applicant.
c. Questions on which ruling can be
sought:—
i. Even though the word used in the
denition is the word “question”,
it is clear that the non-resident can
raise more than one question in one
application. This has been made
amply clear by Column No. 8 of the
form of application for obtaining an
advance ruling (Form No. 34C)
ii. Though the word “question” is
unqualied, it is only proper to read
it as a reference to questions of law
or fact, pertaining to the income tax
liability of the non-resident qua the
transaction undertaken or proposed
to be undertaken.
iii. The question may be on points of law
as well as on fact; therefore, mixed
questions of law and fact can also
be included in the application. The
questions should be so drafted that
each question is capable of a brief
answer. This may need breaking-up
of complex question into two or
more simple questions.
iv. The questions should arise out of
the statement of facts given with the
application. No ruling will be given
on a purely hypothetical question.
No question not specied in the
application can be urged. Normally
a question is not allowed to be
amended but in deserving cases the
Authority may allow amendment of
one or more questions.
6
G B O I T O I M
28
v. Subject to the limitations to be
presently referred to, the question
may relate to any aspect of the
non-resident’s liability including
international aspects and aspects
governed by double tax agreements.
The questions may even cover
aspects of allied laws that may have
a bearing on tax liability such as the
law of contracts, the law of trusts
and the like, but the question must
have a direct bearing, on and nexus
with the interpretation of the Indian
Income-tax Act.
d. Time limit for ruling:
The Authority shall pronounce it advance
ruling within 6 months of receipt of the
application.
e. Binding nature of advance ruling:
The effect of the ruling is stated to be
limited to the parties appear before the
authority and the transaction in relation
to which the ruling was given. This is
because the ruling was rendered on a set
of facts before the Authority and can
not be of general application.
Question precluded: Under section 245R,
certain restrictions have been imposed on the
admissibility of an application, if the question
concerned is pending before other authorities.
According to it, the authority shall not allow
an application where the question raised by the
non-resident applicant (or a resident applicant
having transaction with a non-resident) is already
pending before any income-tax authority or
appellate Tribunal or any court of law. Further,
the authority shall not allow the application
where the question raised in it:—
i. involves determination of fair market
value of any property; or
ii. it relates to a transaction or issue which
is designed prima facie for the avoidance
of income-tax.
The Authority and Its Powers
The authority is constituted by the Central
Government and is known as “Authority for
Advance Ruling” (AAR) [Section 245-O (1)].
AAR consist of three member, viz :
l Chairman (who is a retired judge of the
Supreme Court)
l An IRS ofcer (who is qualied to be a
member of CBDT); and
l An ILS ofcer (who is qualied to be an
additional secretary to the Government
of India) [Section 245-O(2)]
The AAR enjoys all powers of a Civil Court
under the code of Civil Procedure, 1908, as are
referred to in Section 131 of the Income Tax
Act, 1961 [Section 245U(1)]
The AAR also enjoys the status of a Civil Court
for the purpose of section 195 of the Code of
Criminal Procedure, 1973. [Section 245U(2)].
Every proceedings before the AAR is deemed
to be a judicial proceedings within the meaning
of Sections 193 & 228 and for the purpose of
Section 196 of the Indian Penal Code,1860.
Meaning of “Advance Ruling”
The term “Advance ruling” is dened in Section
245N(a) of the Act. Following are the main
features of the denition:
l Advance ruling means the determination
of a question specied in the application
by the applicant;
l Such question may be a question of
law or a question of fact. Such question
must be in relation to a transaction and
cannot be a hypothetical or academic
question;
29
l The transaction may be the one which
is already undertaken or the one which
is proposed to be undertaken by the
applicant;
l The determination of such question on
such a transaction is to be done by the
AAR.
This term also indicates the determination or
decision in respect of an issue pending before:
(i) An Income-tax Authority; or
(ii) The Appellate Tribunal.
Such determination could be determination on
a question of law or on a question of fact.
Who can Apply
An application for advance ruling can be made
by a NON-RESIDENT as also by a resident
in respect of a transaction with a non-resident.
Besides, a resident falling within a notied class
or category may also make an application. The
class or category so notied by the Government
till date are:
l Public Sector Company; and
l A resident seeking advance ruling in
relation to the tax liability of a non-
resident arising out of a transaction with
a non-resident.
In case of resident applicants, no Income-
tax Authority or the Appellate Tribunal shall
proceed to decide any issue in respect of which
an application has been made.
Procedure for Making an Application
The application has to be made in following
forms:
l By Non-Residents : Form 34C
l By resident in relation to transaction
with Non-Residents : Form 34D
l By residents notied by the
Government : Form 34E
l Application must be made in
quadruplicate.
l It should be presented by the applicant in
person or by an authorized representative
or may be sent by post;
l The AAR, at present, holds its sittings at
its headquarters at Delhi.
l The application must be accompanied
by draft of Rs. 2500 drawn in favor of
“Authority of Advance Ruling” payable
at New Delhi.
l The secretary may send the application
back to the applicant if it is defective in
any manner for removing the defect.
The application must be signed as per the
provisions of Rule 44E (2) of the Income Tax
Rule, 1962.
Enclosures to the Application
l A statement listing question(s) in relation
to the transaction on which the advance
ruling is required. This is optional. The
question(s) may be stated in the
application form itself. If, however,
space provided is insufcient, separate
enclosure may be used for this purpose.
It may be noted that the question(s) raised
in the application should be exhaustively
drafted covering all aspects of the issue
involved and all alternative claims that
the applicant may wish to make without
prejudice to each other. This is because
if at a later stage the applicant desires
to raise any additional question which is
not set-forth in the application, he may
have to obtain permission of the AAR.
Granting of such permission is at the
discretion of the AAR.
A A R
G B O I T O I M
30
l A statement of relevant facts having a
bearing on the question(s) on which the
advance ruling is required.
l A statement containing the applicant’s
interpretation of law or facts, as the
case may be, in respect of the
question(s) on which the advance
ruling is required.
l Where the application is signed by an
authorized representative, the power of
attorney authorizing him to sign.
l Where the application is signed by an
authorized representative, an afdavit
setting out the unavoidable reasons
which entitles him to sign.
l Separate enclosures may be used where
the space provided for any of the items
in the relevant forms is insufcient.
l In the covering letter, the applicant may
make a request for being heard before
pronouncing the ruling.
Procedure After Making of the
Appliation
l On receipt of the application, the
AAR will forward a copy to the
Commissioner.
l Commissioner may be called upon to
furnish the relevant records.
l AAR shall examine the application and
such records.
l After examination, an order shall be
passed u/s 245R(2) to either allow or
reject the application
l A copy of order u/s 245R(2) is sent to
the applicant and to the commissioner.
l If the application is allowed vide order
u/s 245R(2), the AAR shall :
(i) Examine such further material
as may be placed before it by the
applicant;
(ii) Examine such further material as
may be obtained by the Authority
suo moto; and
(iii) Pronounce its advance ruling on the
question specied in the application
within six months of the receipt of
the application either with or without
giving the assessee a hearing.
31
TRANSFER PRICING
Meaning
Commercial transactions between the different
parts of the multinational groups may not
be subject to the same market forces shaping
relations between the two independent rms.
One party transfers to another goods or services,
for a price. That price is known as transfer
price. This may be arbitrary and dictated, with
no relation to cost and added value, diverge
from the market forces. Transfer price is, thus,
a price which represents the value of goods; or
services between independently operating units
of an organisation. But, the expression transfer
pricing generally refers to prices of transactions
between associated enterprises which may take
place under conditions differing from those
taking place between independent enterprises.
It refers to the value attached to transfers of
goods, services and technology between related
entities. It also refers to the value attached to
transfers between unrelated parties which are
controlled by a common entity.
Suppose a company A purchases goods for 100
rupees and sales it to its associated company B
in another country for 200 rupees, who in turn
sells in the open market for 400 rupees. Had A
sold it direct, it would have made a prot of 300
rupees. But by routing it through B, it restricted
it to 100 rupees, permitting B to appropriate
the balance. The transaction between A and B
is arranged and not governed by market forces.
The prot of 200 rupees is, thereby, shifted to
the country of B. The goods are transferred
on a price (transfer price) which is arbitrary or
dictated (200 hundred rupees), but not on the
market price (400 rupees).
Thus, the effect of transfer pricing is that the
parent company or a specic subsidiary tends to
produce insufcient taxable income or excessive
loss on a transaction. For instance, prots
accruing to the parent can be increased by
setting high transfer prices siphon prots from
subsidiaries domiciled in high tax countries,
and low transfer prices to move prots to
subsidiaries located in low tax jurisdiction. As
an example of this, a group which manufacture
products in a high tax countries may decide
to sell them at a low prot to its afliate sales
company based in a tax heaven country. That
company would in turn sell the product at an
arm’s length price and the resulting (inated)
prot would be subject to little or no tax in that
country. The result is revenue loss and also a
drain on foreign exchange reserves.
Transfer pricing – Arm’s length price
92F(ii) Arms length price means a price which is
applied or proposed to be applied in a transaction
between persons other than associated
enterprises, in uncontrolled conditions;
Enterprise
92F(iii) enterprises means a person (including a
permanent establishment of such person) who
is, or has been, or is proposed to be, engaged in
any activity, relating to the production storage,
supply, distribution, acquisition or control
of articles or goods, or know-how, patents,
copyright, trademarks, licences, franchises or any
other business or commercial rights of similar
nature, or any data, documentation, drawing or
specication relating to any patent, invention,
model, design, secret formula or process, of
which the other enterprise is the owner or
in respect of which the other enterprise has
exclusive rights, or the provision of service
of any kind, [or in carrying out any work in
pursuance of a contract,] or in Investment, or
7
G B O I T O I M
32
providing loan or in the business of acquiring,
holding, underwriting or dealing with shares,
debentures or other securities of any other body
corporate, whether such activity or business is
carried on, directly or through one or more of
its units or divisions or subsidiaries, or whether
such unit or division or subsidiary is located at
the same place where the enterprise is located
or at a different place or places;
Permanent establishment
92F [(iiia) permanent establishment, referred to
in clause (iii), includes a xed place of business
through which the business of the enterprise is
wholly or partly carried on;
Transaction
92F (v) transaction includes an arrangement,
understanding or action in concert,
(a) whether or not such arrangement,
understanding or action is formal or in
writing; or
(b) Whether or not such arrangement,
understanding or action is intended to
be enforceable by legal proceeding.
Computation of arms length price.
92C. (1) The arms length price in relation to an
international transaction shall be determined by
any of the following methods, being the most
appropriate method, having regard to the nature
of transaction or class of transaction or class of
associated persons or functions performed by
such persons or such other relevant factors as
the Board may prescribe, namely :
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) prot split method;
(e) transactional net margin method;
(f) such other method as may be prescribed
by the Board.
(2) The most appropriate method referred
to in sub-section (1) shall be applied, for
determination of arms length price, in
the manner as may be prescribed :
Provided that where more than one price is
determined by the most appropriate method,
the arms length price shall be taken to be the
arithmetical mean of such prices, or, at the
option of the assessee, a price which may vary
from the arithmetical mean by an amount not
exceeding ve per cent of such arithmetical
mean.
(3) Where during the course of any
proceeding for the assessment of
income, the Assessing Ofcer is, on
the basis of material or information
or document in his possession, of the
opinion that
(a) the price charged or paid in an
international transaction has not
been determined in accordance with
sub-sections (1) and (2); or
(b) any information and document
relating to an international
transaction have not been kept
and maintained by the assessee in
accordance with the provisions
contained in sub-section (1) of
section 92D and the rules made in
this behalf; or
(c) the information or data used in
computation of the arms length
price is not reliable or correct; or
(d) the assessee has failed to furnish,
within the specied time, any
information or document which
he was required to furnish by a
notice issued under sub-section
(3) of section 92D. the Assessing
Ofcer may proceed to determine
the arms length price in relation to
33
T P
the said international transaction in
accordance with sub-sections (1) and
(2), on the basis of such material or
information or document available
with him:
Provided that an opportunity shall be given by
the Assessing Ofcer by serving a notice calling
upon the assessee to show cause, on a date and
time to be specied in the notice, why the arms
length price should not be so determined on the
basis of material or information or document in
the possession of the Assessing Ofcer.
(4) Where an arm’s length price is
determined by the Assessing Ofcer
under sub-section (3), the Assessing
Ofcer may compute the total income
of the assessee having regard to the
arms length price so determined :
Provided that no deduction under section 10A
[or section 10AA] or section 10B or under
Chapter VI-A shall be allowed in respect of the
amount of income by which the total income
of the assessee is enhanced after computation
of income under this sub-section :
Provided further that where the total income of
an associated enterprise is computed under this
sub-section on determination of the arms length
price paid to another associated enterprise from
which tax has been deducted [or was deductible]
under the provisions of Chapter XVIIB, the
income of the other associated enterprise
shall not be recomputed by reason of such
determination of arms length price in the case
of the rst mentioned enterprise.
Meaning of international transaction.
92B. (1) For the purposes of this
section and sections 92, 92C, 92D and
92E, international transaction means
a transaction between two or more
associated enterprises, either or both of
whom are non-residents, in the nature
of purchase, sale or lease of tangible
or intangible property, or provision
of services, or lending or borrowing
money, or any other transaction having
a bearing on the prots, income,
losses or assets of such enterprises,
and shall include a mutual agreement
or arrangement between two or more
associated enterprises for the allocation
or apportionment of, or any contribution
to, any cost or expense incurred or to be
incurred in connection with a benet,
service or facility provided or to be
provided to any one or more of such
enterprises.
(2) A transaction entered into by an
enterprise with a person other than
an associated enterprise shall, for the
purposes of sub-section (1), be deemed
to be a transaction entered into between
two associated enterprises, if there exists
a prior agreement in relation to the
relevant transaction between such other
person and the associated enterprise, or
the terms of the relevant transaction
are determined in substance between
such other person and the associated
enterprise.
Meaning of associated enterprise.
92A. (1) For the purposes of this section
and sections 92, 92B, 92C, 92D, 92E and
92F, associated enterprise, in relation to
another enterprise, means an enterprise
(a) which participates, directly or indirectly,
or through one or more intermediaries,
in the management or control or capital
of the other enterprise; or
(b) in respect of which one or more persons
G B O I T O I M
34
who participate, directly or indirectly, or
through one or more intermediaries, in
its management or control or capital,
are the same persons who participate,
directly or indirectly, or through one or
more intermediaries, in the management
or control or capital of the other
enterprise.
(2) For the purposes of sub-section (1),
two enterprises shall be deemed to be
associated enterprises if, at any time
during the previous year,
(a) one enterprise holds, directly or
indirectly, shares carrying not less
than twenty-six per cent of the
voting power in the other enterprise;
or
(b) any person or enterprise holds,
directly or indirectly, shares carrying
not less than twenty-six per cent of
the voting power in each of such
enterprises; or
(c) a loan advanced by one enterprise to
the other enterprise constitutes not
less than fty-one per cent of the
book value of the total assets of the
other enterprise; or
(d) one enterprise guarantees not
less than ten per cent of the total
borrowings of the other enterprise;
or
(e) more than half of the board
of directors or members of the
governing board, or one or more
executive directors or executive
members of the governing board of
one enterprise, are appointed by the
other enterprise; or
(f) more than half of the directors or
members of the governing board,
or one or more of the executive
directors or members of the
governing board, of each of the
two enterprises are appointed by the
same person or persons; or
(g) the manufacture or processing
of goods or articles or business
carried out by one enterprise is
wholly dependent on the use of
know-how, patents, copyrights,
trade-marks, licences, franchises or
any other business or commercial
rights of similar nature, or any
data, documentation, drawing or
specication relating to any patent,
invention, model, design, secret
formula or process, of which the
other enterprise is the owner or in
respect of which the other enterprise
has exclusive rights; or
(h) ninety per cent or more of the raw
materials and consumables required
for the manufacture or processing of
goods or articles carried out by one
enterprise, are supplied by the other
enterprise, or by persons specied by
the other enterprise, and the prices
and other conditions relating to the
supply are inuenced by such other
enterprise; or
(i) the goods or articles manufactured or
processed by one enterprise, are sold
to the other enterprise or to persons
specied by the other enterprise,
and the prices and other conditions
relating thereto are inuenced by
such other enterprise; or
(j) where one enterprise is controlled
by an individual, the other enterprise
is also controlled by such individual
or his relative or jointly by such
individual and relative of such
individual; or
(k) where one enterprise is controlled by
35
a Hindu undivided family, the other
enterprise is controlled by a member
of such Hindu undivided family or
by a relative of a member of such
Hindu undivided family or jointly by
such member and his relative; or
(l) where one enterprise is a rm,
association of persons or body of
individuals, the other enterprise
holds not less than ten per cent
interest in such rm, association of
persons or body of individuals; or
(m) there exists between the two
enterprises, any relationship
of mutual interest, as may be
prescribed.
Reference to Transfer Pricing Ofcer.
92CA. (1) Where any person, being the
assessee, has entered into an international
transaction in any previous year, and the
Assessing Ofcer considers it necessary
or expedient so to do, he may, with the
previous approval of the Commissioner,
refer the computation of the arms length
price in relation to the said international
transaction under section 92C to the
Transfer Pricing Ofcer.
(2) Where a reference is made under sub-
section (1), the Transfer Pricing Ofcer
shall serve a notice on the assessee
requiring him to produce or cause to
be produced on a date to be specied
therein, any evidence on which the
assessee may rely in support of the
computation made by him of the
arms length price in relation to the
international transaction referred to in
sub-section (1).
(3) On the date specied in the notice under
sub-section (2), or as soon thereafter as
may be, after hearing such evidence as
the assessee may produce, including any
information or documents referred to
in sub-section (3) of section 92D and
after considering such evidence as the
Transfer Pricing Ofcer may require on
any specied points and after taking into
account all relevant materials which he
has gathered, the Transfer Pricing Ofcer
shall, by order in writing, determine
the arms length price in relation to the
international transaction in accordance
with sub-section (3) of section 92C and
send a copy of his order to the Assessing
Ofcer and to the assessee.
(3A) Where a reference was made under sub-
section (1) before the 1st day of June,
2007 but the order under sub-section
(3) has not been made by the Transfer
Pricing Ofcer before the said date, or a
reference under sub-section (1) is made
on or after the 1st day of June, 2007, an
order under sub-section (3) may be made
at any time before sixty days prior to the
date on which the period of limitation
referred to in section 153, or as the case
may be, in section 153B for making the
order of assessment or reassessment or
recomputation or fresh assessment, as
the case may be, expires.
(4) On receipt of the order under sub-
section (3), the Assessing Ofcer shall
proceed to compute the total income
of the assessee under sub-section (4)
of section 92C in conformity with the
arms length price as so determined by
the Transfer Pricing Ofcer.
(5) With a view to rectifying any mistake
apparent from the record, the Transfer
Pricing Ofcer may amend any order
passed by him under sub-section (3),
and the provisions of section 154 shall,
so far as may be, apply accordingly.
(6) Where any amendment is made by the
Transfer Pricing Ofcer under sub-
T P
G B O I T O I M
36
section (5), he shall send a copy of his
order to the Assessing Ofcer who shall
thereafter proceed to amend the order
of assessment in conformity with such
order of the Transfer Pricing Ofcer.
(7) The Transfer Pricing Ofcer may, for the
purposes of determining the arms length
price under this section, exercise all or
any of the powers specied in clauses (a)
to (d) of sub-section (1) of section 131
or sub-section (6) of section 133.
Explanation.For the purposes of this section,
Transfer Pricing Ofcer means a Joint
Commissioner or Deputy Commissioner or
Assistant Commissioner authorised by the
Board85 to perform all or any of the functions
of an Assessing Ofcer specied in sections
92C and 92D in respect of any person or class
of persons.
Maintenance and keeping of information
and document by persons entering into an
international transaction.
92D. (1) Every person who has entered
into an international transaction shall
keep and maintain such information and
document in respect thereof, as may be
prescribed
(2) Without prejudice to the provisions
contained in sub-section (1), the Board
may prescribe the period for which the
information and document shall be kept
and maintained under that sub-section.
(3) The Assessing Ofcer or the
Commissioner (Appeals) may, in the
course of any proceeding under this Act,
require any person who has entered into
an international transaction to furnish
any information or document in respect
thereof, as may be prescribed under
sub-section (1), within a period of thirty
days from the date of receipt of a notice
issued in this regard :
Provided that the Assessing Ofcer or the
Commissioner (Appeals) may, on an application
made by such person, extend the period of
thirty days by a further period not exceeding
thirty days.
Report from an accountant to be furnished by
persons entering into international transaction.
92E. Every person who has entered
into an international transaction during
a previous year shall obtain a report
from an accountant and furnish such
report on or before the specied date
in the prescribed form duly signed and
veried in the prescribed manner by
such accountant and setting forth such
particulars as may be prescribed
Penalty for failure to keep and maintain
information and document in respect of
international transaction.
271AA. Without prejudice to the
provisions of section 271, if any person
fails to keep and maintain any such
information and document as required
by sub-section (1) or sub-section (2) of
section 92D, the Assessing Ofcer or
Commissioner (Appeals) may direct that
such person shall pay, by way of penalty,
a sum equal to two per cent of the value
of each international transaction entered
into by such person.
Penalty for failure to furnish information or
document under section 92D
271G. If any person who has entered
into an international transaction fails
to furnish any such information or
document as required by sub-section (3)
37
of section 92D, the Assessing Ofcer or
the Commissioner (Appeals) may direct
that such person shall pay, by way of
penalty, a sum equal to two per cent of
the value of the international transaction
for each such failure.]
Penalty for failure to furnish report under
section 92E.
271BA. If any person fails to furnish a
report from an accountant as required
by section 92E, the Assessing Ofcer
may direct that such person shall pay, by
way of penalty, a sum of one hundred
thousand rupees.
Time Limit for furnishing Form No. 3CEB
On or before 31st October of the relevant
Assessment Year.
T P
38
DOUBLE TAX AVOIDANCE
AGREEMENTS (DTAA)
The Government of India has entered into
double taxation avoidance agreements (tax
treaties) with several countries with the principal
objective of evolving a system for the respective
countries to allocate the right to tax different
types of income on an equitable basis. Tax treaties
serve the purpose of providing full protection
to taxpayers against double taxation and also
aim at preventing discrimination between the
taxpayers in the international eld. The NRIs/
PIO would, therefore, be well advised to take
advantage of such treaties in tax planning for
their investments in India.
DTAA can be dened as an “international
agreement between two sovereign States
reaching an understanding as to how their
residents will be taxed in respect of cross order
transactions in order to avoid double taxation
on the same income”.
In yet another way, DTAA can be dened as
“an agreement of compromise between two
contracting States whereby each country agrees
to give up something in consideration of
the other country giving up something in its
favour”.
It may sometime happen that owing to reduction
in tax rates under the domestic law-taking place
after coming into existence of the treaty, the
domestic rates become more favorable to the
NRIs/PIO. Since the object of the tax treaties
is to benet the NRIs/PIO, they have, under
such circumstances, the option to be assessed
either as per the provisions of the treaty or the
domestic law of the land.
In order to avoid any demand or refund
consequent to assessment and to facilitate the
process of assessment, the concerned authorities
in India have provided that tax shall be deducted
at source out of payments to NRIs/PIO at the
prevailing rates at which the particular income is
made taxable under the tax treaties.
8
PART - II
OTHER IMPORTANT
MAT T ER S
41
OVERSEAS CITIZENSHIP OF
INDIA (OCI)
OCI Scheme Is Operational From
02.12.2005
The Constitution of India does not allow
holding Indian citizenship and citizenship of
a foreign country simultaneously. Based on the
recommendation of the High Level committee
on Indian Diaspora, the Government of India
decided to grant Overseas Citizenship Of
India (OCI) commonly known as ‘dual
Citizenship’. Persons of Indian Origin (PIOs)
of certain category as has been specied in
the Brochure who migrated from India and
acquired citizenship of a foreign country other
than Pakistan and Bangladesh, are eligible for
grant of OCI as long as their home countries
allow dual citizenship in some form or the other
under their local laws.
1. Application for registration as OCI
can be made online. Before ling the
application, Instructions may be
perused so that there is no mistake in
submission of application. Further the
details regarding Fee and ofces where
applications have to be led may also be
perused.
2. Persons registered as OCI have not
been given any voting rights, election
to Lok Sabha / Rajya Sabha /
Legislative Assembly / Council, holding
Constitutional posts such as President,
Vice President, Judge of Supreme Court
/ High Court etc. Registered OCIs shall
be entitled to following benets:
(i) Multiple entry, multi-purpose life
long visa to visit India;
(ii) Exemption from reporting to Police
authorities for any length of stay in
India; and
(iii) Parity with NRIs in nancial,
economic and educational elds
except in the acquisition of
agricultural or plantation
properties.
3. Any further benets to OCIs will be
notied by the Ministry of Overseas
Indian affairs (MOIA) under section 7B
(1) of the citizenship Act, 1955.
4. A person registered as OCI is eligible
to apply for grant of Indian citizenship
under section 5(1) (g) of the citizenship
Act, 1955 if he/she is registered as OCI
for ve years and has been residing in
India for one year out of the ve years
before making the application.
Brochure on Overseas Citizenship of
India (OCI)
1. Eligibility Criteria
A foreign national, who was eligible to become
citizen of India on 26.01.1950 or was a citizen
of India on or at anytime after 26.01.1950 or
belonged to a territory that became part of
India after 15.08.1947 and his/her children
and grand children, provided his/her country
of citizenship allows dual citizenship in some
form or other under the local laws, is eligible for
registration as Overseas Citizenship Of India
(OCI). Minor children of such person are also
eligible for OCI. However, if the applicant had
ever been a citizen of Pakistan or Bangladesh,
he/she will not be eligible for OCI.
2. Application Form and Procedure
A family consisting of spouses and upto two
minor children can apply in the same form i.e.
9
G B O I T O I M
42
Form XIX. The form can be led online or
downloaded from our website www.mha.nic.in.
The following documents shall be enclosed for
each application:
1 Proof of present citizenship.
2 Evidence of self or parents or grand
parents,
(a) Being eligible to become a citizen of
India at the time of commencement
of the Constitution; or
(b) Belonging to a territory that became
part of India after 15th August,
1947; or
(c) Being citizen of India on or after
26th January, 1950
These could be:
(i) Copy of the passport: or
(ii) Copy of the domicile certicate
issued by the Competent authority;
or
(iii) Any other proof.
1 Evidence of relationship as parent /
grand parent, if their Indian origin is
claimed as basis for grant of OCI.
2 Application fee by way of Demand
Draft (US $ 275 for each applicant or
equivalent in local Currency; US $ 25
or equivalent in local currency for each
PIO cardholder.)
3 PIO cardholders should submit a copy
of his/her PIO card.
The application form completed in all respects
along with enclosures should be submitted in
duplicate to the Indian Mission / Post of the
country of applicant’s citizenship or where he/
she is not in the country of citizenship to the
Indian Mission / Post of the country in which
he / she is ordinarily resident. If the applicant
is in India, he / she can apply to the Foreigners
Regional Registration Ofcer (FRRO) at
Delhi, Mumbai, Kolkata or Amritsar or Chief
Immigration Ofcer (CHIO) Chennai or to the
Under Secretary, OCI Cell, Citizenship Section,
Foreigners Division, Ministry of Home Affairs
(MHA), Jaisalmer House, 26 Mansingh Road,
New Delhi – 110011.
3. Procedure for Granting Registration
After Preliminary scrutiny, if there is no adverse
information available against the applicant, the
Indian Mission / Post shall register a person as
OCI within 30 days of application and the case
shall be referred to MHA for post verication
of the antecedents of the applicant. If during
the post verication, any adverse information
comes to the knowledge of the MHA, the
registration as OCI already granted by the
Indian Mission / Post shall be cancelled by an
order under section 7D of the Citizenship Act,
1955.
After preliminary scrutiny, if there is any
adverse information against the applicant, prior
approval of MHA, shall be required before
grant of registration. MHA may approve or
reject the grant of registration within 120 days
from the date of the receipt of the application.
If the grant of registration as OCI is approved
by MHA, the Indian Mission / Post shall register
the person as OCI.
If the application is led in India, registration
shall be granted by MHA by following the above
procedure.
After grant of registration, a registration
certicate in the form of booklet will be issued
and a multiple entry, multi–purpose life long
OCI ‘U’ visa sticker will be pasted on the foreign
passport of the applicant.
43
4. OCI for PIO Card Holders
PIO card holders who are otherwise eligible
for registration as OCI may apply in the same
Form i.e. Form XIX and they will be considered
for grant of registration in the same manner as
other applicants. PIO card holders have to pay
a fee of US $ 25 or equivalent in local currency
instead of US $ 275 for normal applicant. PIO
cardholders will have to surrender his/her
PIO card after knowledge of acceptance of
application.
5. OCI for Persons who have Applied
on the Earlier Prescribed Application
Form
All such applications will be considered for
grant of OCI on the same line as in 3 above
without seeking fresh application and fees.
6. Cancellation of OCI Registration
If it has been found that the registration as
an OCI was obtained by means of fraud,
false representation or concealment of any
material fact or the registered OCI has shown
disaffection towards the Constitution of India
or comes under any of the provisions of section
7D of the Citizenship Act, the registration of
such person will not only be cancelled forthwith
but he / she will also be blacklisted for visiting
India.
7. Benets to OCI
Following benets will accrue to OCI:
(i) A Multiple entry, multi purpose life long
visa for visiting India.
(ii) Exemption from registration with local
police authority for any length of stay in
India.
(iii) Parity with Non resident Indians (NRIs)
in respect of economic, nancial and
educational elds except in relation to
acquisition of agricultural or plantation
properties.
Any other benets to OCIs will be notied
by the Ministry of Overseas Indian Affairs
(MOIA) under Section 7B(1) of the Citizenship
Act, 1955.
8. Benets to which OCI is Not Entitled
to
The OCI is not entitled to vote, be a member
of Legislative Assembly or Legislative Council
or Parliament, cannot hold constitutional posts
such as President, Vice President, Judge of
Supreme Court or High Court etc. and he /
she cannot normally hold employment in the
Government.
9. Help Desk
For any clarication/query on the scheme,
please visit our website www.mha.nic.in. or visit
the website of the local Indian Mission / Post
or contact the Indian Mission / Post or OCI
Cell,Citizenship Section, Foreigners Division,
Ministry of Home Affairs, Jaisalmer House, 26
Mansingh Road, New Delhi – 110011.
APPLICATION FEES
For application to be lled in India, an
amount of Rs. 12,650 has to be paid for each
applicant by demand Draft in Favour of “Pay
and Account Ofcer (Secretariat), Ministry
of Home Affairs” payable at New Delhi. In
case of PIO Card holder, an amount of Rs
1,150 has to be paid.
In case of application to be lled outside
India, for the amount of fee to be paid in
local currency, please visit the web site of the
respective Indian Mission / Post.
O C I (OCI)
G B O I T O I M
44
FREQUENTLY ASKED QUESTION
Q.1. Who is eligible to apply?
A.1 A foreign national, who was eligible to
become citizen of India on 26.01.1950
or was a citizen of India on or at any
time after 26.01.1950 or belonged to a
territory that become part of India after
15.08.1947 and his/her children and
grand children, provided his/her country
of citizenship allows dual citizenship in
some form or other under local laws,
is eligible for registration as Overseas
citizen of India (OCI). Minor children
of such person are also eligible for OCI.
However, if the applicant had ever been
a citizen of Pakistan or Bangladesh, he/
she will not be eligible for OCI.
Q.2 Who was eligible to become Citizen
of India on 26.01.1950?
A.2 Any person who or either of whose
parents or grand-parents were born in
India as dened in the Government of
India Act, 1935(as originally enacted),
and who was ordinarily residing in any
country outside India was eligible to
become citizen of India on 26.01.1950.
Q.3 Which territories became part of
India after 15.08.1947 and from what
date?
A.3 The territories, which became part of
India after 15.08.1947 are:
(i) Sikkim 26.04.1975
(ii) Pondicherry 16.08.1962
(iii) Dadra & 11.08.1961
Nagar Haveli
(iv) Goa, Daman and 20.12.1961
Diu
Q.4 Can the spouse of the eligible person
apply for OCI?
A.4 Yes, if he/she is eligible in his /her own
capacity.
Q.5 Can children of parents, wherein one
of the parents is eligible for OCI,
apply for OCI?
A.5 Yes.
Q.6 In what form should a person apply
for OCI and where are the forms
available?
A.6. A family consisting of spouses and upto
two minor children can apply in the same
form i.e. Form XIX, which can be led
online or downloaded from our website
www.mha.nic.in./oci/oci-main.htm
Q.7 Can application form be lled and
submitted on line?
A.7 Yes. Part A of the application form can
be led online. Upon submission of part
A online, Part B is downloaded instantly
and it can be printed on computer or
by hand in Block letters. Printed Part A
and Part B of the application form have
to be submitted to the Indian Mission/
Post/Ofce.
Q.8 What documents have to be submitted
with the application?
A.8 The following documents shall be
enclosed for each applicant:
1. Proof of present citizenship
2. Evidence of self or parents or grand
parents,
(a) Being eligible to become a citizen of
India at the time of commencement
of the Constitution; or
(b) Belonging to a territory that became
part of India after 15th August,
45
1947; or
(c) Being citizen of India on after 26th
January, 1950
These could be:
(i) Copy of the passport: or
(ii) Copy of the domicile certicate issued
by the Competent authority; or
(iii) Any other proof.
3. Evidence of relationship as parent /
grand parent, if their Indian origin is
claimed as basis for grant of OCI.
4. Application fee by way of Demand
Draft (US $ 275 for each applicant or
equivalent in local currency; US $ 25
or equivalent in local currency for each
PIO cardholder)
5. PIO cardholders should submit a copy
of his/her PIO card.
Q.9. What documents would qualify for
“Any other proof ” for evidence of
self or parents or grand parents being
eligible for grant of OCI?
A.9. Any documentary evidence like a school
certicate, land ownership certicate,
birth certicate, etc. which may
reasonably ascertain eligibility.
Q.10. How many copies of application
have to be submitted?
A.10. Application has to be submitted in
duplicate for each applicant.
Q.11. Whether applicant(s) have to go in
person to submit the application(s)?
A.11. No. Application(s) can be sent by post.
Q.12. Whether the applicant(s) have to take
oath before the Counsel of the Indian
Mission/Post?
A.12. No. Earlier provision in this regard has
been done away with.
Q.13 Where to submit the application?
A.13. To the Indian Mission / Post of the
country of citizenship of the applicant.
If the applicant is not in the country of
citizenship, to the Indian Mission / Post
of the country where he is ordinarily
residing. If the applicant is in India, to
the FRRO Delhi, Mumbai, Kolkata or
Amritsar or to the Under Secretary, OCI
Cell, Citizenship Section, Foreigners
Division, Ministry of Home Affairs
(MHA), Jaisalmer House, 26 Mansingh
Road, New Delhi – 110011
.
Q.14. Can a person apply in the country
where he is ordinarily residing?
A.14. Yes.
Q.15. What are the consequences of
furnishing wrong information or
suppressing material information?
A.15. All the applications will be subject to pre
or post enquiry depending on whether
any adverse information is voluntarily
reported in the application or not. If the
Government comes to the know that
any false information was furnished or
material information was suppressed, the
registration as OCI already granted shall
be cancelled by an order under section
7D of the Citizenship Act, 1955. The
persons will also be blacklisted thereby
banning his/her entry into India.
Q.16. What is the fee for application for
registration as an OCI?
A.16. US $ 275 or equivalent in local currency
for each applicant. In case of PIO card
holder, US $ 25 or equivalent in local
currency for each applicant.
O C I (OCI)
G B O I T O I M
46
Q.17. What is the time taken for registration
as OCI?
A.17. Within 30 days of the application,
if there is no adverse information
available against the applicant. If any
adverse information is available against
the applicant, the decision to grant or
otherwise is taken within 120 days.
Q.18. If the registration as OCI is not
granted, what amount will be
refunded?
A.18. An amount of US $ 250 or equivalent
in local currency shall be refunded,
if registration is refused. US $ 25 is
the processing fees, which is non-
refundable.
Q.19. Can a PIO cardholder apply?
A.19. Yes, provided he/she is otherwise
eligible for grant of OCI like any other
applicant.
Q.20. Will the PIO Cardholder be granted
an OCI registration gratis?
A.20. No. He/she has to make a payment of
US $ 25 equivalent in local currency
along with the application.
Q.21. Will the PIO Card be honored till
the time they are valid even after
acquisition of OCI?
A.21. No. PIO Card will have surrendered to
Indian Mission/Post/MHA for grant of
OCI registration certicate and OCI ‘U’
visa sticker.
Q.22. What will be issued after registration
as an OCI?
A.22. A registration certicate in the form of
a booklet will be issued and a multiple
entry, multi-purpose OCI ‘U’ visa sticker
will be pasted on the foreign passport
of the applicant. For this purpose,
the applicant has to send the original
passport to the Indian Mission / Post
after receipt of the acceptance letter/
verifying the status of the application
online.
Q.23. Will a separate OCI passport be
issued?
A.23 No.
Q.24. Will a duplicate certicate of
registration, as an OCI will be
issued?
A.24. Yes. For this purpose, an application has
to be made to the Indian Mission / Post
with evidence for loss of certicate. In
case of mutilated/ damaged certicate
an application has to be made enclosing
the same. The applications in both
the cases have to be made to the same
Indian Mission / Post which issued the
certicate alongwith with payment of
fee of US $ 25 or equivalent in local
currency.
Q.25. Will a new OCI visa sticker be issued
on the new foreign passport after the
expiry of the old passport?
A.25. Yes. On payment of requisite fee, a
new OCI ‘U’ visa sticker will be issued.
However, the applicant can continue
to carry the old passport wherein the
OCI ‘U’ Visa sticker was pasted along
with new passport for visiting India
without seeking a new visa, as the visa is
lifelong.
Q.26. Will the applicant lose his citizenship
after registering as an OCI?
A.26. No. As only citizen of the country
which allows dual citizenship under the
local laws in some form or the other are
47
eligible for applying for registration as an
OCI, losing foreign citizenship does not
arise.
Q.27. Can a person registered as an OCI
travel to protected area/restricted
area without permission?
A.27. No. He/she will be required to seek
PAP/RAP for such visits.
Q.28. Would the Indian civil/criminal laws
be applicable to persons registered
as OCI?
A.28. Yes. For the period OCI is living in
India.
Q.29. Can a person registered as an OCI be
granted Indian citizenship?
A.29. Yes. As per the provisions of section
5(1)(g) of the citizenship Act, 1955, a
person who is registered as an OCI for 5
years and residing in India for 1 Year out
of the above 5 Years, is eligible to apply
for Indian citizenship.
Q.30. Will OCI be granted gratis to certain
categories of people?
A.30. No.
Q.31. Can OCI be granted to foreign
nationals who are not eligible for
OCI, but married to persons who are
eligible for OCI?
A.31. No.
Q.32. Will foreign-born children of PIOs
be eligible to become an OCI?
A.32 Yes, provided one of the parents is
eligible to become an OCI.
Q.33. What are the benets of an OCI?
A.33. Following benets will be allowed to an
OCI:
a. Multi-purpose, multiple entries,
lifelong visa for visiting India.
b. Exemption from NRIs with local
police authority for any length of
stay in India.
c. Parity with NRIs in respect of
economic, nancial and educational
elds except in matters relating
to acquisition of agricultural/
plantation properties.
Q.34. Will any other benet be granted to
OCI?
A.34. Any other benets to OCI will be
notied by the ministry of Overseas
Indian Affairs (MOIA) under Section 7B
(1) of the Citizenship Act, 1955.
Q.35. Is the OCI is entitled to voting
rights?
A.35. No.
Q.36. Is the OCI is entitled to hold
Constitutional post in India?
A.36. No.
Q.37. Is the OCI is entitled to hold
Government post in India?
A.37. No, except for the posts specied by an
order by the Central Government.
Q.38. If a person is already holding more
than one nationality, can he/she
apply for OCI?
A.38. Yes, as long as the local laws of at
least one of the countries allow dual
citizenship in some form or the other.
Q.39. What are the advantages of OCI
when compared to PIO carholders?
A.39. (a) An OCI is entitled to life long visa
with free travel to India whereas for
O C I (OCI)
G B O I T O I M
48
PIO cardholder, it is only valid for 15
years.
(b) PIO cardholder is required to register
with the local police authority for
any stay exceeding 180 days in India
on any single visit whereas an OCI
is exempted from registration with
police authority for any length of
stay in India.
(c) An OCI gets a specic right to
become an Indian Citizen as in 31,
whereas the PIO card holder does
not have this.
Q.40. Whether an OCI be entitled to apply
for and obtain a normal Indian
passport, which is given to a citizen
of India?
A.40. No. Indian Passport is given only to
Indian citizen.
Q.41. Whether national of commonwealth
countries are eligible for OCI?
A.41. Yes, if they fulll the eligibility criteria.
Q.42. Can a person renounce OCI?
A.42. Yes. He/she has to declare intention
of renunciation in Form XXII to
the Indian Mission /Post where OCI
registration was granted. After receipt of
the declaration, the Indian Mission/Post
shall issue an acknowledgement in Form
XXII A.
Q.43. Do the applicants who have applied
on the earlier prescribed application
form have to apply again in the new
form?
A.43. No. All such application will be considered
for registration as OCI without seeking
fresh applications and fee.
ADDRESSES OF OFFICES TO FILE
OCI APPLICATIONS
Applicants Outside India
Applicants outside India can submit applications to
l The Indian Mission /Post having
jurisdiction over the country of which
applicant is a citizen; or
l If he/she is not living in the country
of his/her citizenship, to the Indian
Mission /post having jurisdiction over
the country of which the applicant is
ordinarily resident.
Applicants in India
Applicants in india can submit the
applications in person or by speed post/
regestered post only
Applicants any where in India can File with
Ministry of Home Affairs (MHA) at the
following Address:
Under Secretary (OCI), Foreigners Division,
Ministry of Home Affairs, 26-Mansingh
Road, Jaisalmer House, New Delhi-110011.
Tel. No. 011-23387436 e-mail: usocimha@
nic.in
Applicants in Delhi, Mumbai, Chennai,
Kolkata and Amritsar can also le with
respective Foreigners Regional Registration
Ofcers (FRROs) at the following
addresses:
i. FRRO, East Block- VIII Level-2
Sector-1, R.K. Puram, New
Delhi¬110066. Tel.No. 011-26711384
ii. FRRO, Badruddin Tayyabji Marg,
Mumbai-1 Tel.No. 022-26571998
iii. FRRO, Shastri Bhavan Annexe, 26,
Haddows Road, Chennai. Tel. No. 044-
28232642
FRRO, 237, A.J.C. Bose Road, Kolkata.
Tel.No. 033-22470549
FRRO, D-123,Ranjeet Avenue,
Amritsar. Tel.No. 0183-2508250.
49
Comparative chart on NRI/PIO/PIO CARD HOLDERS/OCI
NRI PIO PIO Card holder OCI
1. Who? An Indian
citizen who
is ordinarily
residing
outside India
and holds
an Indian
passport
A person who
or whose any of
ancestors was an
Indian national
and who is
presently holding
another country
’s citizenship/
nationality i.e.
he/she is holding
foreign passport
A person registered
as PIO card Holder
under MHA’s scheme
vide Notication No.
26011/4/98-F.I dated
19.08.2002.
A person registered as
Overseas Citizen of India
(OCI) under section 7A of
the citizenship Act,1955
2. Who is
eligible?
– – Any person who at any
time held an Indian
passport; or he or either
of his parents or grand
parents was born in or
was permanently resident
in India as dened in
government of India Act,
1935 and other territories
that become part of
India thereafter provided
neither was at any time a
citizen of Afghanistan,
Bhutan, China, Nepal,
Pakistan and Sri Lanka;
or who is a spouse of
a citizen of India or a
person of Indian origin
as mentioned above.
A foreign national, who was
eligible to become citizen
of India on 26.01.1950 or
was a citizen of India on or
at anytime after 26.01.1950
or belonged to a territory
that become part of India
after 15.08.1947 and his/her
children and grand children,
provided his/her country
of citizenship allows dual
citizenship in some form or
other under the local laws,
is eligible for registration
as overseas citizen of India
(OCI ) Minor children of
such person are also eligible
for OCI. However, if the
applicant had ever been
a citizen of Pakistan or
Bangladesh, he/she will not
be eligible for OCI.
How can
one get?
- -
Eligible persons to apply
in the prescribed form
along with enclosures.
Form available on MHA’s
website:www.mha.nic.in
.
Eligible persons to apply on
line /down load application
form from MHA’s
website:www.mha.nic.in.
O C I (OCI)
G B O I T O I M
50
4. Where to
apply?
- - To the Indian Mission/
Post in the country where
the applicant is ordinarily
resident; if in India on
long term visa (more than
one year), to the FRRO,
Delhi, Mumbai, Kolkata,
Amritsar, CHIO, Chennai
or to the joint secretary
(foreigners), MHA.
To the Indian Mission/
Post of the country of
applicant’s citizenship or
where he/she is not in the
country of citizenship, to
the Indian Mission/Post of
the country in which he/
she is ordinarily resident. If
the applicant is in India he/
she can apply to the FRRO
at Delhi, Mumbai, Kolkata,
Amritsar, CHIO, Chennai or
to the Under Secretary, OCI
Cell, Citizenship Section
Foreigners Division, Ministry
of Home Affairs, Jaisalmer
House, 26 Mansingh Road,
New Delhi-110011.
5. Fees? – – Rs. 15000/-or equivalent
in local currency for
adults. For the children
upto the age of 18 years,
the fee is Rs. 7500/-
or equivalent in local
currency.
US $ 275 or equivalent in
local currency. In case of PIO
card holders, it is US $ 25 or
equivalent in local currency.
6. Which
nationals
are eligible?
– –
PIO of all countries
except Afghanistan,
Bangladesh, Bhutan,
China, Nepal, Pakistan
and Sri Lanka
PIOs of all countries
except Pakistan and
Bangladesh provided the
country of nationality
allows dual citizenship in
some form or other under
local laws.
51
7. What
benets
one is
entitled to?
All benets
as available to
Indian citizen
subject to
notication
issued by the
Government
from time to
time.
No specic
benets.
(1)Shall not require a
separate visa to visit
India. (2) Will be exempt
from the requirements
of registration if his/her
stay on any single visit
in India does not exceed
180 days.
(3) In the event of
continuous stay in
India exceeding 180
days, he/she shall have
to get himself/herself
registered within 30 days
of the expiry of 180
days with the concerned
FRRO/ FRO.
(4) Parity with NRIs in
respect of all facilities
available to the later in
the economic, nancial
and educational elds
except in maters relating
to the acquisition of
agricultural / plantation
properties. No parity shall
be allowed in the sphere
of political rights.
(1)A multiple entry multi-
purpose life long visa for
visiting India. (2)Exemption
from registration with local
police authority for any
length of stay in India.
(3) Parity with non resident
Indians (NRIs) in respect
of economics nancial and
educational elds except in
relation to the acquisition of
agricultural or plantation
properties.
No parity shall be allowed in
the sphere of political rights.
Any other benet to OCIs will
be notied by the Ministry
of Overseas Indian Affairs
(MOIA) under section 7B (1)
of the Citizenship Act 1955.
8. Does
he/ she
require
visa for
visiting
India?
No
Yes and of
specic type
d e p e n d i n g
on his /her
purpose of
visit.
Can visit India without
visa for 15 years from
the date of issue of PIO
card.
Can visit India without
visa for life long.
O C I (OCI)
G B O I T O I M
52
9. Is he
required
to register
with local
police
authorities
in India ?
No Yes
Yes one time when the
stay in India exceeds 180
days for the rst time
No
10. What
activities
can be
under
taken
in India?
All activities Activity as
specied in
the visa
All activities except
m o u n t a i n e e r i n g ,
missionary and research
work and existing PAP/
RAP Which require
specic permit.
All activities except
m o u n t a i n e e r i n g ,
missionary and research
work and existing PAP/
RAP Which require
specic permit.
11. How
can one
acquire
Indian
citizenship?
He/she is
an Indian
citizenship
As per section
5 (1) (a) &
5(1) (c) of the
Citizenship Act,
he/she has to
reside in India
for minimum
7 years before
m a k i n g
application for
granting Indian
citizenship.
As per section 5 (1) (a)
& 5(1) (c) of the
Citizenship Act, he/
she has to reside in
India for minimum 7
years before making
application for granting
Indian citizenship.
Registered OCI may be
granted Indian citizenship
after 5 years from date of
registration provided he/
she stays for one year
in India before making
application.
53
PIO CARD
The Government of India has revised the PIO
Card, Scheme, which was launched in 1999,
aimed at making the journey back to your roots,
simpler, easier, exible and absolutely hassle
free. The PIO card will entitle you a set of
privileges.
Who is Eligible?
Any person:
• who at any time held an Indian Passport;
or
• he/she or either of his/her parents or
grand parents or great grand parents
was born in an permanently resident in
India as dened in the Government of
India Act, 1935 and other territories that
became part of India thereafter provided
neither was at any time a citizen of any
country as may be specied by Central
Government from time to time; or
• who is a spouse of a citizen of India or
a Person of Indian Origin as mentioned
above.
The scheme is broad-based, covers up to four
generations and also the foreign spouse of a
citizen of India or a PIO
What Benets accrue to a PIO card Holder
*No visa required for visiting India.
*No separate “Student Visa” or “Employment
Visa” required for admissions in Colleges/
Institutions or for taking up employment
respectively.
* A PIO Card holder will be exempt from the
requirement of registration if his stay on any
single visit in India does not exceed 180 days.
• In the event of continuous stay in India
of the PIO Card holder exceeding 180
days, he/she shall have to get himself/
herself registered within 30 days of the
expiry of 180 days with the concerned
Foreigners Regional Registration Ofcer
/ Foreigners Registration Ofcer
• Parity with non-resident Indians in
respect of facilities available to the latter
in economic, nancial and educational
eld.
• All PIOs including PIO Card holders
shall enjoy parity with NRIs in respect of
all facilities in the matter of acquisition,
holding, transfer and disposal of
immovable properties in India except
in maters relating to the acquisition of
agricultural/plantation properties. No
parity shall be allowed in the sphere of
political rights.
• Facilities available to children of NRIs
for getting admission to educational
institutions in India including medical
colleges, engineering colleges, Institute
of Technology, Institute of Management,
etc. under the generalcategories.
• Facilities available under the various
housing scheme of LIC, State
Government and other Government
Agencies.
• Special counters at the immigration
check posts for speedy clearance.
How to apply?
An application for issue/renewal of a PIO Card
shall be made in the prescribed form and shall be
accompanied by documentary evidence to show
that the applicant is a person of Indian origin
as dened.Prescribed application from can be
obtained from the ofce of Indian Embassies
10
G B O I T O I M
54
abroad, Foreign Regional Registration Ofcer,
Delhi/Mumbai/Kolkata/Chennai/ Amritsar
and also from the Ministry of Home Affairs,
Foreigners Division, Lok Nayak Bhawan, Khan
Market, New Delhi-110 003.
Where to apply for the PIO card
(i) An application for issue of a PIO Card
shall be made to an Indian Mission in the
country where the applicant is ordinarily
resident.
(ii) Applications already in India on Long
Term Visa (more than one year) shall
make the application for issue of a PIO
Card to the following authorities:-
(A) Those residing in :-
(a) Delhi: - Foreigners Regional Registration
Ofcer,
Level –II, East Block VIII,
R.K. Puram Sector – I, New Delhi.
(b) Mumbai: - Foreigners Regional
Registration Ofcer,
Annexe – II, Commissioner of Police,
Craw Ford Market, Mumbai – 400001.
(c) Kolkata: - Foreigners Regional
Registration Ofcer,
237, Acharya Jagdish Chandra Bose
Road, Kolkata – 700020.
(d) Amritsar: - Additional Deputy Director,
Bureau of Immigration,
B/123 Ranjeet Avenue, Amritsar.
(e) Chennai: - Chief Immigration Ofcer,
Bureau of Immigration, Shastri Bhavan
Annexe, No. 26, Haddows Road,
Chennai – 600006.
(Those residing in areas other than (A)
above :-
Joint Secretary (Foreigners),
Ministry of Home Affairs,
Jaisalmer House, 26, Man Singh Road,
New Delhi – 110011.
What is the validity of the PIO card?
A PIO Card shall be valid for a period of fteen
years from the date of issue subject to the
validity of the passport of the applicant.
What is the fee payable for obtaining the
PIO card
The fee for a PIO Card would be Rs. 15000/-
(or its equivalent in local foreign currency of
the country concerned),payable alongwith the
application. PIO Card to children upto the age
of 18 years will be issued at a fee of Rs. 7,500/-
(or its equivalent in local foreign currency of
the country concerned) for a fteen year card.
Mode of payment of fee
The prescribed fee shall be paid by way of a
Demand Draft in favour of the Indian Mission
Concerned / FRRO, Delhi, Mumbai, Kolkatta,
Amritsar and CHIO, Chennai, where the
application for issue of PIO-Card is required
to be submitted. Applications required to
be submitted to Joint Secretary, (foreigners),
Ministry of Home Affairs, Jaisalmer House, 26,
Man Singh Road, New Delhi - 110011, shall be
accompanied with a Bank Draft of the required
amount drawn in favour of FRRO, Delhi.
What will be the status of PIO cards
issued earlier as per PIO card Scheme
(1999)
PIO Cards issued earlier for US $ 1000 will
continue to remain valid and no refund shall be
admissible.. However, the validity of such cards
shall be extendable by 10 more years without
charging any fee.
Who are eligible for issue of gratis PIO
card
55
P C
Gratis PIO Card may be issued to an exceptionally
eminent person of Indian Origin who plays an
important role in building bridges between India
and the country of his/her adoption, if he/she
expresses a desire to obtain the PIO Card.
Acquisition of Duplicate PIO Card in
case of loss etc:
On a request supported by FIR and other
documents, a duplicate PIO card shall be issued
on depositing a fee of US $ 100. Duplicate
PIO cards will be issued by the same ofce that
issued the original one.
56
FOREIGN CONTRIBUTION
(REGULATION) ACT, 1976
INTRODUCTION
Foreign Contribution (Regulation) Act, 1976
(FCRA) was enacted in the year 1976 with the
prime objective of regulating the acceptance
and utilization of foreign contribution and
foreign hospitality by persons and associations
working in the important areas of national
life. The focus of this Act is to ensure that the
foreign contribution and foreign hospitality
is not utilized to affect or inuence electoral
politics, public servants, judges and other
people working the important areas of national
life like journalists, printers and publishers of
newspapers, etc. The Act also seeks to regulate
ow of foreign funds to voluntary organizations
with objective of preventing any possible
diversion of such funds towards activities
detrimental to the national interest and to
ensure that such individuals and organizations
may function in a manner consistent with the
values of sovereign democratic republic.
The organizations seeking foreign contributions
for denite cultural, social, economic,
educational or religious programmes may
either obtain registration or prior permission
to receive foreign contribution from Ministry
of Home Affairs by making application in the
prescribed format and furnishing details of the
activities and audited accounts. The registration
is granted only to such association, which has
proven track record of functioning in the chosen
eld of work during last three years, and after
registration, such organization is free to receive
foreign contribution from any foreign source
for stated objectives. Registration is granted only
after thorough security vetting of the activities
and antecedents of the organization and ofce
bearers thereof. However, such organizations
which are newly established and do not have
proven track record of functioning may
also receive foreign contribution for specic
activities, for a specic purpose and from a
specic source after seeking project based prior
permission (PP) from the Ministry of Home
Affairs.
In order to bring in transparency in the
administration of the Foreign Contribution
(Regulation) Act, 1976 and the Rules framed
there under, improve the functioning,
disseminate the information and enhance user
friendliness of the various procedures the
web-site is uploaded with all the FCRA forms,
Citizens’ Charter, list of registered associations,
State-wise status of application for registration/
prior permission, etc. In our efforts to bring
in further improvements in the system, the
following additional charters/ materials are
uploaded for information and guidance of all
concerned:
• Citizens charter
• Charter for NGO/Associations
applying for grant of Prior permission/
Registration under the FCRA.
• Charter for NGOs/Associations
granted Prior permission/Registration
under the FCRA.
• Charter for the Chartered Accountants.
• Charter for the Banks.
• Dealing ofcers
Citizens Charter
Receipt of Foreign Contribution
The provisions of the Foreign Contribution
(Regulation) Act, 1976 regulate the receipt of
foreign contribution in the country. The Foreign
11
57
Contribution (Regulation) Rules 1976 contain
the various forms prescribed for this purpose.
What is Foreign Contribution
Foreign contribution means the donation,
delivery or transfer, made by any foreign source
of any,
a) Article, not given to a person as a gift,
for personal use, if the market value,
in India, of such article exceeds one
thousand rupees;
b) Currency, whether Indian or foreign;
or,
c) Foreign security as dened in clause 2(i)
of the Foreign Exchange Regulation
Act, 1973.
NOTE: Contributions made by a citizen of India living
in another country, from his personal savings, through
the normal banking channels, is not treated as foreign
contribution. It is advisable to obtain the passport details
of the concerned citizen of India before accepting such
contributions.
What is a Foreign Source
Foreign source means the government of
any foreign country or territory or its agency;
international agency; a foreign company;
citizen of a foreign country. For more details
see section 2(1)(e) of the Foreign Contribution
(Regulation) Act, 1976.
Who cannot Receive Foreign Contribution
Foreign contribution cannot be accepted
by a candidate for election; correspondent,
columnist, cartoonist, editor, owner, printer
or publisher of a registered newspaper; judge,
government servant or employee of any
corporation; member of any legislature; political
party or ofce bearer thereof.
Who can Receive Foreign Contribution
An association having a denite cultural,
economic, educational, religious or social
programme can receive foreign contribution
after it obtains the prior permission of the
Central Government, or gets itself registered
with the Central Government.
Forms Prescribed for this Purpose
An application for seeking prior permission to
accept foreign contribution is to be made in
Form FC – 1A and for grant of registration in
Form FC – 8 respectively.
Designated Bank Account
An association granted prior permission or
registration under the Act can receive the foreign
contribution and subsequently utilise it using a
single designated bank account, as intimated in
the application form. Do not deposit any local
funds in this bank account.
Maintenance of Accounts
An association granted prior permission or
registration under the Act must maintain a
separate set of accounts and records exclusively
for the foreign contribution received and utilised
in the prescribed manner. For more details see
rule 8 of the Foreign Contribution (Regulation)
Rules, 1976.
Receipt of Scholarships etc
A citizen of India receiving any scholarship,
stipend or any payment of a like nature from
any foreign source is required to give, within
thirty days of such a receipt, an intimation
F C (R) A,
G B O I T O I M
58
to the Central Government as to the amount
of the scholarship, stipend or other payment
received; the foreign source from which and the
purpose for which, such scholarship, stipend or
other payment has been, or is being received.
The intimation is to be given in Form FC – 5.
Time Taken to Dispose Application
An application for registration is normally
disposed within six months. An application
seeking prior permission is disposed within
90/120 days. It is advisable to obtain a certicate,
in the format incorporated at the end of the
application form, from any of the competent
authority mentioned therein viz., Any concerned
Collector of District; Department of the State
Government; Ministry / Department of the
Government of India.
Where should the Application be Sent
An application (one copy only) for seeking
prior permission or registration is to be sent
by registered post to the Secretary, Ministry of
Home Affairs, Foreigners Division, Jaisalmer
House, 26 Man Singh Road, New Delhi
110011.
Proper Filing of Application
Please familiarise yourself with the provisions
of the Foreign Contribution (Regulation) Act,
1976 and the Foreign Contribution (Regulation)
Rules, 1976 before making an application. Please
ll the relevant application form with due care.
Ensure that you furnish information exactly in
the manner stated in the form. An incomplete
application will be summarily rejected.
Filing of Returns
An association permitted to accept foreign
contribution is required to submit an annual
return, duly certied by a Chartered Accountant,
giving details of the receipt and purpose-wise
utilization of the foreign contribution. The
return is to be led for every year (1st April to
31st March) within a period of four months
from the closure of the year i.e. by 31st July
of each year. The return is to be submitted, in
duplicate, in Form FC–3. It is to be accompanied
with the balance sheet and statement of receipt
and payment, duly certied by a Chartered
Accountant, also in duplicate.
Availability of Forms
Please use the correct and current form. The
forms can be obtained, free of cost, from the
above-mentioned address. The forms are also
available on the Ministry of Home Affairs’ web
site – http://mha.nic.in/fore.htm
Penalties for Violation
Whoever accepts, or assists any person, political
party or organisation in accepting any foreign
contribution or any currency from a foreign
source, in contravention of the provisions of
the Foreign Contribution (Regulation) Act,
1976, or the rules made thereunder, shall be
punished with imprisonment for a term, which
may extend to ve years, or with ne or with
both. “All the above services & commitments
will be honoured without the citizens having to
pay any bribe.”
59
Charter for Ngos/Associations
Applying For Grant of Prior Permission
/Registration under the Foreign
Contribution (Regulation) Act, 1976.
• Any NGO wishing to receive Foreign
Contribution (FC) must have a denite
cultural, economic, educational, religious
or social programme.
• It shall neither receive nor utilise any
FC without obtaining either prior
permission or registration from the
Central Government.
• Details of FC received prior to obtaining
either prior permission or registration
should be mentioned clearly at the time
of applying for prior permission or
registration, as the case may be.
• An application for seeking prior
permission to accept foreign
contribution is to be made in Form
FC– 1A, and for grant of registration in
Form FC–8, respectively. The forms can
be downloaded from Ministry of Home
Affairs Web Site at http:// mha.nic.in/
fcra.htm
• The application should be complete in
all respects and no column should be
left blank.
• Each Prior permission application
should be sent for receiving a specic
amount, for a specic purpose and
from a specic donor. The donor’s
commitment letter specifying the
amount of FC and copy of project for
which FC is solicited should invariably
be sent along with the FC-1A form.
• Copies of following documents are
required to be sent along with FC-1A
and FC-8 form.
1. Copy of certicate of registration
issued under the Societies
Registration Act, 1860 or Trust deed,
as the case may be;
2. Details of activities during the last
three years;
3. Copies of audited statement of
accounts for the past three years
(Asset and Liabilities, Receipt and
Payment, Income and Expenditure);
4. If any printed work is brought
out by the association, a certicate
from the Press Registrar that the
publication is not a newspaper in
terms of section 1(1) of the Press
Registration of Books Act, 1867.
Charter for Ngos / Associations Granted
Prior Permission or Registration Under
the Foreign Contribution (Regulation)
Act, 1976.
• An association granted prior permission
or registration under the Foreign
Contribution (Regulation) Act, 1976
(FCRA) should receive the FC and
subsequently utilise it using an exclusive
designated bank account, as intimated
in the application form. Do not deposit
any local funds in this bank account.
• An association granted prior permission
or registration under FCRA is required
to carry out the activities, for which FC
is received, in India only and the amount
should not be utilised for purposes other
than for which it is received.
• Any xed asset acquired out of the FC
and any article received in kind from the
foreign source should be in the name of
the association and not in the name of
any individual in the association.
• Not more than 30% of the FC shall be
defrayed to meet administrative expenses
of the association.
• An association granted prior permission
or registration under FCRA should
F C (R) A,
G B O I T O I M
60
maintain a separate set of accounts
and records, exclusively for foreign
contribution received and utilised.
i. In Form FC-6, where the FC relates
only to articles;
ii. In the cash book and ledger account
on double entry basis, where the
FC relates to currency received and
utilised.
iii. In Form FC-7, where the FC relates
to foreign securities.
• Every account giving details of the receipt
and purpose-wise utilisation of the FC,
including the interest earned on the FC
amount, should be maintained on an
yearly basis, commencing on the 1st day
of April each year and every such yearly
account, duly certied by a chartered
accountant in Form FC-3 along with a
balance sheet and statement of receipt
and payment should be furnished in
duplicate, within four months of the
closure of the year i.e. before 31st July.
Even if no FC is received during a year,
a ‘Nil’ return is required to be led with
the Ministry of Home Affairs within the
prescribed time limit.
• No FC should be transferred to an
association, which has not obtained
either prior permission or registration
under FCRA or to any person or
association, prohibited under FCRA
from receiving any FC.
• Change of name, address, registration,
nature of activities or aims and objectives
of an association should be intimated to
the Ministry of Home Affairs within 30
days of effecting the change, alongwith
the documentary evidence effecting the
change.
• Prior permission of Ministry of Home
Affairs should be obtained for replacing
50% or more of the ofce bearers.
• Prior permission of Ministry of Home
Affairs should be obtained for changing
bank account for valid and convincing
reasons.
• The forms can be downloaded from
Ministry of Home Affairs Web Site at
http//mha.nic.in/fcra.htm.
Charter for the Chartered Accountants
Since the FCRA Act, 1976 is national security
legislation; NGOs are required to exercise
extreme care and caution in dealing with foreign
contribution from the time of its receipt to its
nal utilization. As the Chartered Accountants
(CA’s) audit the accounts of the NGOs and they
certify the accounts before being submitted to
the FCRA division, CA’s are required to provide
meaningful guidance to the NGOs.
• To verify whether the associations are
eligible to receive foreign contribution
• To guide the applicant organization to
apply to the Home Ministry for necessary
registration / prior permission;
• To assist in the proper maintenance of
prescribed books of accounts;
• To furnish the required certicate in the
prescribed format after careful scrutiny
of the accounts of the NGO;
• Before certifying the accounts of an
association in FC-3 returns, the CA
concerned must ensure that they have
been prepared in accordance with the
provisions of FC(R) Act, 1976 and
Rules framed thereunder.
Charter for the Banks
• No bank should credit any foreign
contribution to the account of an
association/NGO unless it produces
documentary evidence of having
obtained registration/prior permission
from the Central Government for the
same.
61
• In case any foreign contribution
is credited to the account of an
NGO/ Association/Trust directly,
the bank should not allow utilization
of such fund and inform the NGO/
Association/ Trust concerned to obtain
necessary permission/registration from
the Central Government for the same.
Simultaneously, the bank should inform
the Deputy Secretary (FCRA), Ministry
of Home Affairs, Govt. of India, New
Delhi about such receipt.
• Non-compliance of the above by the
bank will constitute a violation and will
render the defaulting bank liable for
appropriate action by the Reserve Bank
of India.
Checklist for Ensuring Proper
Submission of Applications, Under the
Provisions of the Foreign Contribution
(Regulation) Act, 1976, for Acceptance
of Foreign Contribution
Eligible Category
An association with a denite cultural, economic,
educational, religious or social programme.
Types of Permission
(i) Registration under section 6(1)(a); and,
(ii) Prior permission under section 6 (1A).
Application Form
(i) For grant of registration in form FC– 8
and,
(ii) For grant of prior permission in form
FC-1A.
Essential Requirements
(A) Bank Account
Open a separate bank account for the receipt
and utilisation of foreign contribution in a bank
of your choice and furnish particulars of the
same at the appropriate place.
Note: Do not deposit any local funds, other
than the essential initial deposit specied by the
bank for opening an account, in this account.
(B) Documents
Remember to enclose copies of the following
documents with your application –
a) Certied copy of registration certicate
or Trust deed, as the case may be;
b) Details of activities during the last three
years;
c) Copies of audited statement of
accounts for the past three years (Asset
and Liabilities, Receipt and Payment,
Income and Expenditure);
d) Commitment letter from foreign donor
specifying the amount of foreign
contribution (only with prior permission
application);
e) Copy of project for which foreign
contribution was solicited is being
offered (only with prior permission
application);
f) If functioning as editor, owner, printer
or publisher of a publication registered
under the Press and Registration of
Books Act, 1867, a certicate from the
Press Registrar that the publication is
not a newspaper in terms of section
1(1) of the said Act.
F C (R) A,
G B O I T O I M
62
Miscellaneous
Furnish information exactly in the manner
asked for in the form, especially the names and
addresses of the members of the Executive
Committee/Governing Council etc. The forms
can be downloaded from Ministry of Home
Affairs Web Site at http:/ /mha.nic.in/fcra/
intro/forms.htm
Chartered Accountants / Banks
Chartered Accountants, before certifying the
accounts of an association in form FC – 3,
must ensure that they have been prepared in
accordance with the provisions of the Foreign
Contribution (Regulation) Act, 1976 and the
Rules framed thereunder.
No bank should credit any foreign contribution
to the account of an association/ organisation
unless it produces documentary proof of having
obtained registration/prior permission from the
Central Government for the same. Crediting of
foreign contribution by a bank to the account
of an association / organisation that has not
obtained registration or prior permission from
the Central Government constitutes a violation
and will render the defaulting bank liable for
action by the Reserve Bank of India.
Common Ground for Rejection of
Application Under FCRA
To remove certain lacunae noticed during
administration of the FCRA and the Rules
made there under, certain guidelines were laid
down for considering applications for grant of
prior permission /registration under the Act.
Some of the common grounds for rejection of
applications are enlisted below as illustrations to
bring in transparency and benet the applicants
in taking due care and caution:
• If the association is not registered under
the Societies Registration Act, 1860 or
Indian Trusts Act, 1882 or section 25 of
the Companies Act, 1956.
• If any of the ofce bearers/trustees,
including the chief functionary is a
foreign national, other than of Indian
origin.
• If the association has a single ofce
bearer/member.
• If the association is found to have been
formed for personal gain or for diversion
of the funds for undesirable purposes.
• If the association is found to be ctitious
or ‘benami’ in nature.
• If the credibility of any member of the
governing body is in doubt.
• If the association has close links with
another association which has been
refused registration under FCRA or
prohibited under FCRA or violated the
provisions of FCRA.
• If the association has links with any
banned organization.
• If the principal ofce bearers of the
association have been convicted by
any court of law under any act or if a
prosecution for any offence is pending
against them.
• If the principal ofce bearers of the
association have been found guilty of
diversion or misutilisation of funds
of the said association or any other
association in the past.
• If the activities of the association are
found to be aimed at conversion through
inducement or force, either directly or
indirectly, from one religious faith to
another.
• If the association is found to be
propagate sedition or to advocate violent
methods to achieve its ends.
63
• If the association is found to be creating
communal tensions or disharmony.
• If the ofce bearers of the association
are also ofce bearers of another
association and one of these association
has come to adverse notice.
• If the association’s printed work is not
certied by the Press registrar of India
not to be a newspaper in terms of
section 1(1) of the Press Registration of
Books Act, 1867.
• If the source of foreign contribution is
found to be adverse to the interests of
the country.
• If the acceptance of foreign contribution
by the association is likely to be prejudicial
to (a) the sovereignty and integrity of
India; (b) free and fair election to any
Legislature or House of Parliament; (c)
public interest; (d) friendly relations with
a foreign state; or (e) harmony between
any religious, social, linguistic, regional
groups, caste or community.
• If the association has not led its annual
FC-3 returns, of receipt and utilization
of foreign contribution received with
prior permission, within the stipulated
period.
• If the association has violated any
provisions of the Act or Rules in the
preceding three years and the said
violation has not been remedied or
rectied.
Additional Grounds for Rejection of
Applications for Registration
• If the association is not in existence for
three years at least.
• If the association has not carried on any
activity in chosen eld during the last
three years.
• If the association has not received foreign
contribution with prior permission,
during the preceding three years.
• If the association has not made any
substantial contribution, excluding
expenditure on administration,
(Rs.6,00,000 over a period of three years
or Rs.2,00,000 per year) in its eld of
interest.
Additional Grounds for Rejection of
Applications for Prior Permission
• If the application is not accompanied by
the ‘commitment letter’ of the donor.
• If the application is not accompanied
by the copy of project for which foreign
contribution was solicited/is being
offered.
Frequently Asked Questions ( FAQs )
Q.1. What is foreign contribution?
A.1. Foreign contribution means the donation,
delivery or transfer, made by any foreign
source of any,
a) Article, not given to a person as a gift
for personal use, if the market value,
in India, of such article exceeds one
thousand rupees;
b) Currency, whether Indian or foreign;
or
c) Foreign security
Q.2. What is foreign source?
A.2 Foreign source includes the Government
of any foreign country or territory or
its agency; an international agency;
a foreign company; and citizen of a
foreign country. Agencies of the United
Nations, World Bank and some other
International agencies/multilateral
organisations ate exempted from the
denition of ‘foreign source’. List of
such exempted agencies/ organisations
is available on the website http://mha.
nic.in/fore.htm
F C (R) A,
G B O I T O I M
64
Q.3. Whether donation given by Non-
Resident Indians (NRIs) is treated
as ‘foreign contribution’?
A.3. Contributions made by a citizen of
India living in another country (i.e.Non-
Resident Indian), from his personal
saving, through the normal banking
channels, is not treated as foreign
contribution. However, while accepting
any donations from such NRI, it is
advisable to obtain his passport details
to ascertain that he/ she is an Indian
passport holder.
Q.4. Whether donations by person of
Indian Origin (PIO) Card holder or
Persons of Indian Origin (PIO) who
hold other country’s passports or
registered Overseas Citizens of India
(OCI) would be considered ‘foreign
source’?
A.4. Yes, because persons under all these
three categories are foreign nationals
and hold passports of the country of
their nationality.
Q.5. Whether foreigners can be appointed
as Executive Committee members?
A.5. Foreign nationals are generally
discouraged from being appointed as
member of Executive Committee by an
association. However, foreign nationals,
fullling the following conditions, may
be appointed as Executive Committee
members, after obtaining prior
permission of the Central Government:
a) The foreigner is married to an Indian
citizen;
b) The foreigner has been living and
working in India for at least ve
years;
c) The foreigner has made available
his/her specialised knowledge,
especially in the medical and health
related elds on a voluntary basis in
India, in the past;
d) The foreigner is part of the Board
of Trustees/Executive Committee
in terms of the provisions in an inter
governmental agreement;
e) The foreigner is part of the Board
of Trustee/Executive Committee, in
an ex-ofcio capacity representing a
multilateral body which is exempted
from the denition of foreign
source.
The need for such an appointment should,
however, be adequately justied.
Q.6. Who can receive foreign
contribution?
A.6. An association having a denite cultural,
economic, educational, religious or
social programme can receive foreign
contribution after it obtains the prior
permission of the Central Government,
or gets itself registered with the Central
Government. An illustrative but not
exhaustive list of activities which are
permissible and may be carried out by
associations of different nature are
available on the website http:// mha.nic.
in/fore.him
Q.7. Who cannot receive foreign
contribution?
A.7. Foreign contribution cannot be accepted
by:
i. A candidate for election;
ii. Correspondent, columnist,
cartoonist, editor, owner, printer
or publisher of a registered
newspaper;
65
iii. Judge, Government servant or
employee of any Corporation;
iv Member of any legislature;
v Political party or ofce bearer
thereof; and
vi. Individuals or associations
specically notied under section
10 (a) of foreign contribution
(Regulation) Act, 1976 who have
been prohibited from receiving
foreign contribution.
Q.8. Can foreign contribution be received
in and utilised from multiple Bank
Accounts?
A.8. No, All foreign contribution should be
received in and utilised from same single
Bank Account mentioned in the order for
registration or prior permission granted
by MHA. This account number is same
as has been intimated by the organisation
in their application for registration/
prior permission. Use of multiple bank
accounts is legally prohibited.
Q.9. Can foreign contribution be mixed
with local receipts?
A.9. No, foreign contribution should not be
mixed with local funds being handled by
the organisation.
Q.10. Can foreign contribution be received
in rupees?
A.10 Yes. Any amount received from ‘foreign
source’ in rupees or foreign currency
is construed as ‘foreign contribution’
under law. Such transactions even in
rupees term are considered foreign
contribution.
Q.11. Will interest earned from foreign
contribution be considered foreign
contribution?
A.11. Yes.
Q.12. What is the Procedure for change of
designated Bank Account?
A.12. For the change of Bank account,
an application in prescribed form
mentioning the details if the old bank
account and the proposed new bank
account alongwith justication for
change may be submitted to MHA
alongwith copy of resolution of the
executive committee for such change.
This form is available on website http://
mha.nic.in/fore.htm. This new account
may be made operational only after
seeking MHA’s approval.
Q.13. What are the eligibility criteria for
registration?
A.13. An organisation in formative stage is not
eligible for registration. Such organisation
may apply for grant of prior permission
under the law. For grant of registration,
the association should:
a) be registered under the Societies
Registration Act, 1860 or the Indian
Trusts Act, 1882 or section 25 of
the Companies Act, 1956;
b) be in existence for at least three
years and have made signicant
contribution in chosen area of
activity. For this purpose, the
association should have spent at least
Rs. 6,00,000 over last three years on
its activities, excluding administrative
expenditure. Statement of Income
F C (R) A,
G B O I T O I M
66
& Expenditure duly audited by
Chartered Accountant for last three
years may be enclosed to substantiate
nancial parameter.
Q.14. Whether recommendation of District
Collector, etc. is mandatory?
A.14. No, Submission of verication certicate
from the District Collector, etc. is not
mandatory. However, in certain cases, if
the area of activity of an association is
in non-border/coastal/tribal region and
amount applied for prior permission is
less than Rs.50 lakhs, submission of such
a certicate assists in speedy clearance
of the application
Q.15. What are the eligibility criteria for
grant of prior permission?
A.15. Prior permission is granted for receipt
of specic amount from specic donor
for carrying out specic activities/
projects. For this purpose, the association
should:
A.15. a) be registered under the Societies
Registration Act, 1860 or the Indian
Trusts Act, 1882 or section 25 of the
Companies Act, 1956;
b) submit commitment letter from the
donor; and
c) submit copy of project for which
foreign contribution is solicited/is
being offered.
Q.16. What are the documents to be enclosed
with the application?
A.16. i. Following documents should be
enclosed with the application for grant
of registration:
a) certied copy of registration
certicate or Trust deed, as the case
may be;
b) details of activities during last three
years;
c) copies of audited statement of
accounts for the past three years
(Assets and Liabilities, Receipt and
Payment, Income and Expenditure);
d) if functioning as editor, owner,
printer or publisher of a publication
registered under the Press and
Registration of Books Act, 1867, a
certicate from the Press Registrar
that the publication is not a
newspaper in terms of section 1(1)
of the said Act.
ii. Following documents should be
enclosed with the application for
grant of prior permission:
a) certied copy of registration
certicate or Trust deed, as the case
may be;
b) commitment letter from foreign
donor specifying the amount of
foreign contribution;
c) copy of project for which foreign
contribution was solicited/is being
offered;
d) if functioning as editor, owner,
printer or publisher of a publication
registered under the Press and
Registration of Books Act, 1867, a
certicate from the Press Registrar
that the publication is not a
newspaper in terms of section 1(1)
of the said Act.
Q.17. Is there any restriction on transfer of
funds to other organizations?
A.17. Yes, No foreign contribution can be
transferred from an association granted
registration or prior permission under
FCRA to another association unless the
67
letter has also obtained either registration
or prior permission under FCRA.
Q.18. How to nd the status of pending
application for registration/prior
permission?
A.18. Status of pending application for grant
of registration or prior permission may
be checked on line from the Ministry
of Home Affairs website http://mha.
nic.in/fore.htm. One needs to ll in the
numbers on acknowledgement letter
or any correspondence from MHA
(Foreigners Division) in the blank format,
which pops on the screen after selection
of status enquiry icon (registration/prior
permission, as the case may be).
Q.19. What is the procedure to be followed
by a Liaison Ofce to receive foreign
contribution?
A.19. Prior permission under FCRA is
required by a Liaison Ofce of a foreign
company for receiving remittances from
its Head Ofce abroad for conducting
conferences or carrying out other
activities/ programmes, etc. in India.
Q.20. What is the procedure for ling of
FC -3 returns ?
A.20. An association permitted to accept
foreign contribution is required under
law to maintain separate set of accounts
and records exclusively for the foreign
contribution received and utilized and
submit an annual return, duly certied
by a Chartered Accountant, giving
details of the receipt and purpose-wise
utilization of the foreign contribution.
The return is to be led for every
nancial year (1st April to 31st March)
within a period of four months from
the closure of the year i.e. by 31st July
of the year. Submission of even a ‘Nil’
return if there is no receipt/utilization
of foreign contribution during the year,
is mandatory, under law.
The return is to be submitted,
in prescribed Form FC–3, duly
accompanied with the balance sheet and
statement of receipt and payment, which
is certied by a Chartered Accountant.
The form is available on MHA’s
website – http://mha.nic.in/ fore.htm
Q.21. What is foreign hospitality?
A.21. Foreign hospitality means any offer,
not being a purely casual one, made by
a foreign source for providing a person
with the cost of travel to any foreign
country or territory or with free board,
lodging, transport or medical treatment.
Q.22. Who cannot accept foreign hospitality
without prior approval of MHA ?
A.22. No member of a legislature, ofce bearer
of a political party, judge, Government
servant or employee of any corporation
shall, while visiting
Q.23. How one can seek permission of the
Government for receiving foreign
hospitality?
A.23. Application form (form FC-2) for his
purpose is available on MHA’s web-
site – http://mha.nic.in/fore.htm. One
must apply on this form through the
controlling ofcer at least three weeks
in advance to seek prior approval of
the Government for receiving foreign
hospitality.
Q.24. Where should the applications be
sent?
F C (R) A,
G B O I T O I M
68
A.24. All applications be sent to the Secretary,
Ministry of Home Affairs, Foreigners,
Division, Jaisalmer House, 26, Man
Singh Road, New Delhi – 110011. The
forms can be downloaded from the web-
site–http://mha.nic.in/fore.htm.
Q.25. What is the procedure for seeking
change in the name/address of the
association?
A.25. For seeking change in the name/ address
of the association, one should use the
prescribed from available on MHA’s
web-site – http:/ /mha.nic.in/fore.htm.
Q. 26. Who should be contacted for any
information on FCRA?
A.26. Names of the ofcers, their contact
details including telephone numbers are
available on MHA’s web-site – http://
mha.nic.in/fore.htm.
Q.27. Which other materials on FCRA are
available on the MHA’s website?
A.27. Following material on FCRA are available
on MHA’s web-site – http:/ /mha.nic.
in/fore.htm.
1. Foreign Contribution (Regulation)
Act, 1976
2. Foreign Contribution (Regulation)
Rules, 1976
3. Citizens charter, Charter for NGOs/
Associations applying for grant of
prior permission/ registration under
FCRA
4. Charter for NGOs/ Associations
granted prior permission/
registrations under FCRA
5. Charter for the Chartered
Accountants
6. Charter for the Banks
7. Illustrative programmes permitted to
be carried out by association having
different nature.
8. Check List for ensuring proper
submission of applications
9. Agencies not covered by the
denition of ‘foreign source’
10. Common grounds for rejection of
applications
11. Details of registered associations
12. On-Line status of pending
applications
13. Annual summary on FCRA, FC
forms
14. List of associations placed
in prohibited category/prior
permission category u/s 6(1), 10 (a)
and 10 (b) of the Act
15. Directory of ofcers dealing with
FCRA.
Q.28. Can an organization, whose violation
under FCRA has been condoned,
apply for registration/ prior
permission?
A.28. After the violation committed by an
association has been condoned, the
association can apply for prior permission
(PP) only by submitting an application
in form FC 1-A. Once the PP has
been granted and foreign contribution
received for specic purpose has been
fully/partially utilised and organisation
has submitted annual FC3 returns
and accounts in prescribed format
pertaining to the PP, it becomes eligible
for consideration of registration under
FCRA. Registration would be granted
under FCRA, if other parameters are
fullled by the association.
69
Q.29. Can NGOs use the foreign
contributions for investment in
Mutual Funds and other speculative
investments?
A.29. No. The foreign contributions received
after prior permission/grant of
registration under the Act are to utilise
for the purpose for which they have been
received and they are not to be invested
in any speculative investments. Further,
it is claried that foreign contributions
can be received through a single Bank
Account designated for the purpose
under the order for registration/prior
permission or changed thereafter with
prior approval of the Government.
Q.30. Whether Capital Assets purchased
with the help of foreign contributions
can be acquired in the name of the
ofce bearers of the association?
A.30. No. Every assets acquired out of foreign
contributions should be acquired and
possessed in the name of the association
since association has a separate legal
entity distinct from its members.
Q.31. Can the NGOs/Trusts invest in
protable ventures and proceeds can
be utilised for welfare activities?
A.31. No. The NGOs/Trusts should utilise
the funds for the welfare purpose or
related activities for which it is received.
The utilization should be in line with the
objectives of the association. However,
foreign contributions can be utilised for
self-sustaining activities, not meant for
commercial purposes.
Q.32. Whether interest earned out of foreign
contribution be shown as fresh
foreign contribution receipt during
that year or not?
A.32. Yes, the interest earned out of such
deposit should be shown as second/
subsequent foreign contribution receipt
in the FC-3 returns during the year in
which it is earned.
Q.33. Whether grant received from MNCs be
treated as FC or not?
A.33. If the funds are received from an Indian
Company incorporated under the
Company Act, 1956 the same will not
be treated as foreign contribution. But if
the ownership and control rights of the
company are vested in foreign source, it
will be treated as foreign contribution.
Q.34. If an application for registration is
submitted on-line by an NGO, does
it need to submit the application in
physical form also?
A.34. Yes. When an application is led on-line, a
printout of the same may be taken after
submission and thereafter, it should
be submitted alongwith the requisite
enclosure, duly signed, to Ministry of
Home Affairs.
Q.35. Can the fee paid by the Foreign
delegates/participants attending/
participating in a conference/
seminar etc. be termed as foreign
contribution and thus require
permision from FCRA?
A.35. Foreign delegates/participants paying
“delegate & participation fees” in
foreign currency for participation in a
conference, seminar which is utilized for
the purpose of meeting the expenditure
of hosting the conference/seminar is
not treated as foreign contribution and
as such no permission under FCRA is
required.
F C (R) A,
70
SPECIAL ECONOMIC ZONES
INTRODUCTION
India was one of the rst in Asia to recognize
the effectiveness of the Export Processing
Zone (EPZ) model in promoting exports,
with Asia’s rst EPZ set up in Kandla in 1965.
With a view to overcome the shortcomings
experienced on account of the multiplicity of
controls and clearances; absence of world-class
infrastructure, and an unstable scal regime and
with a view to attract larger foreign investment
in India, the Special Economic Zone (SEZs)
policy was announced in April 2000.
The policy intended to make SEZs an engine
for economic growth supported by quality
infrastructure complemented by an attractive
scal package, both at the Centre and State level,
with the minimum possible regulations. SEZs in
India functioned from 1.11.2000. to 09.02.2006
under the provisions of the Foreign Trade
Policy and scal incentives were made effective
through the provisions of relevant statutes.
To instill condence in investors and signal the
Government’s commitment to a stable SEZ
policy regime and with a view to impart stability
to the SEZ regime thereby generating greater
economic activity and employment through the
establishment of SEZs, a comprehensive draft
SEZ Bill prepared after extensive discussions
with the stakeholders. A number of meetings
were held in various parts of the country both
by the Minister for Commerce and Industry
as well as senior ofcials for this purpose. The
Special Economic Zones Act, 2005, was passed
by Parliament in May, 2005 which received
Presidential assent on the 23rd of June, 2005. The
draft SEZ Rules were widely discussed and put
on the website of the Department of Commerce
offering suggestions/comments. Around 800
suggestions were received on the draft rules.
After extensive consultations the SEZ Act,
2005, supported by SEZ Rules, came into
effect on 10th February 2006, providing for
drastic simplication of procedures and for
single window clearance on matters relating to
central as well as state governments. The main
objectives of the SEZ Act are:
a) Generation of additional economic
activity
b) Promotion of exports of goods and
services;
c) Promotion of investment from domestic
and foreign sources;
d) Creation of employment opportunities;
e) Development of infrastructure
facilities;
It is expected that this will trigger a large ow
of foreign and domestic investment in SEZs, in
infrastructure and productive capacity, leading
to generation of additional economic activity
and creation of employment opportunities.
The SEZ Act 2005 envisages key role for the
State Governments in export promotion and
creation of related infrastructure. A single
window SEZ approval mechanism has been
provided through a 19 member inter-ministerial
SEZ Board of approval (BOA). The application
duly recommended by the respective State
Government /UT Administration are considered
by this BOA periodically. All decisions of the
Board of approvals are with consensus.
The SEZ Rules provide for different minimum
land requirement for different class of SEZs.
12
71
S E Z
Every SEZ is divided into a processing area
where alone the SEZ units would come up and
the non-processing area where the supporting
infrastructure is to be created.
The SEZ Rules provide for:
• Simplied procedure for development,
operation, and maintenance of the
Special Economic Zones and for setting
up units and conducting business in
SEZs;
• Single window clearance for setting up
of an SEZ;
• Single window clearance for setting up
a unit in a Special Economic Zone
• Single window clearance on matters
relating to Central as well as State
Governments;
• Simplied compliance procedures and
documentation with an emphasis on
self certication.
Approval Mechanism and Administrative
set up of SEZs
(a) Approval Mechanism
The developer submits the proposal for
establishment of SEZ to the concerned State
Government. The State Government has to
forward the proposal with its recommendation
within 45 days from the date of receipt of
such proposal to the Board of Approval. The
applicant also has the option to submit the
proposal directly to the Board of Approval.
The Board of Approval has been constituted by
the Central Government in the exercise of the
powers conferred under the SEZ Act. All the
decisions are taken in the Board of Approval
by consensus. The Board of Approval has 19
members. Its constitution is as follows:
1. Secretary, Department of Commerce Chairman
2. Member, CBEC Member
3. Member, IT, CBDT Member
4. Joint Secretary (Banking Division) Department of Economic Affairs,
Ministry of Finance
Member
5. Joint Secretary (SEZ), Department of Commerce Member
6. Joint Secretary, DIPP Member
7. Joint Secretary, Ministry of Science and Technology Member
8. Joint Secretary, Ministry of Small Scale Industries and Agro and Rural
Industries
Member
9. Joint Secretary, Ministry of Home Affairs Member
10. Joint Secretary, Ministry of Defence Member
11. Joint Secretary, Ministry of Environment and Forests Member
12. Joint Secretary, Ministry of Law and Justice Member
13. Joint Secretary, Ministry of Overseas Indian Affairs Member
14. Joint Secretary, Ministry of Urban Developme Member
15. A nominee of the State Government concerned Member
G B O I T O I M
72
(b) Administrative Set Up
The functioning of the SEZs is governed by
a three tier administrative set up. The Board
of approval is the apex body and is headed
by the Secretary, Department of Commerce.
The Approval Committee at the Zone level
deals with approval of units in the SEZs and
other related issues. Each Zone is headed by a
Development Commissioner, who is ex-ofcio
chairperson of the Approval Committee.
Once an SEZ has been approved by the Board
of Approval and Central Government has
notied the area of the SEZ, units are allowed
to be set up in the SEZ. All the proposal for
setting up of units in the SEZ are approved
at the Zone level by the Approval Committee
consisting of Development Commissioner,
Customs Authorities and representatives of
State Government. All post approval clearances
including grant of importer-exporter code
number, change in the name of the company
or implementing agency, broad banding
diversication, etc. are given at the Zone level
by the Development Commissioner. The
performance of the SEZ units are periodically
monitored by the Approval Committee and units
are liable for penal action under the provision of
Foreign Trade (Development and Regulation)
Act, in case of violation of the conditions of
the approval.
Incentive And Facilities offered to the
SEZs
The incentives and facilities offered to the units
in SEZs for attracting investments into the
SEZs, including foreign investment include:-
• Duty free import/domestic procurement
of goods for development, operation
and maintenance of SEZ units.
• 100% Income Tax exemption on export
income for SEZ units under Section
10AA of the Income Tax Act for rst
5 years, 50% for next 5 years thereafter
and 50% of the ploughed back export
prot for next 5 years.
• Exemption from minimum alternative
tax under section 115JB of the Income
Tax Act.
• External commercial borrowing by SEZ
units upto US $500 million in a year
without any maturity restriction through
recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and
State level approvals.
• Exemption from State Sales Tax and
other levies as extended by the respective
State Governments.
The major incentives and facilities available to
SEZ developers include:
• Exemption from customs/excise duties
for development of SEZs for authorized
operations approved by the BOA.
16. Director General of Foreign Trade or his nominee Member
17. Development Commissioner concerned Member
18. A professor in the Indian Institute of Management or the
Indian Institute of Foreign
Member
19. Director or Deputy Secretary, Ministry of Commerce and
Industry, Department of Commerce
Member Secretary
73
• Income Tax exemption on export
income for a block of 10 years in 15
years under section 80-IAB of the
Income Tax Act.
• Exemption from minimum alternate tax
under section 115JB of the Income Tax
Act.
• Exemption from dividend distribution
tax under section 115O of the Income
Tax Act.
• Exemption from Central Sales Tax
(CST).
• Exemption from Service Tax
(Section 7, 26 and Second Schedule of
the SEZ Act).
SEZ Approval Status
Consequent upon the SEZ Rules coming into
effect w.e.f. 10th February 2006, twenty eight
meetings of the Board of Approvals have
since been held. During these meetings, formal
approval has been granted to 531 SEZ proposals.
There are 143 valid in principle approvals. Out
of the 531 formal approvals, 260 SEZs have
been notied.
Land requirements for approved Special
Economic Zones:
The total land requirement for the formal
approvals granted till date is approximately 67680
hectares out of which about 109 approvals are
for State Industrial Development Corporations/
State Government Ventures which account for
over 20853 hectares. In these cases, the land
already available with the State Governments
or SIDCs or with private companies has been
utilized for setting up SEZ. The land for the
270 notied SEZs where operations have since
commenced involved is approximately over
31405 hectares only.
Out of the total land area of 2973190 sq km
in India, total agricultural land is of the order
of 1620388 sq km (54.5%). It is interesting to
note that out of this total land area, the land in
possession of the 270 SEZs notied amounts
to approximately over 314 sq km only. The
formal approvals granted also works out to only
around 676 sq km.
SEZs- leading to the growth of labour
intensive manufacturing industry:
Out of the 531 formal approvals given till date,
174 approvals are for sector specic and multi
product SEZs for manufacture of Textiles
& Apparels, Leather Footwear, Automobile
components, Engineering etc.. which would
involve labour intensive manufacturing. SEZs
are going to lead to creation of employment
for large number of unemployed rural
youth. Nokia and Flextronics electronics
hardware SEZs in Sriperumbudur are already
providing employment to 14577 and 1058
persons. Hyderabad Gems SEZ for Jewellery
manufacturing in Hyderabad has already
employed 2145 persons. majority of whom are
from landless families, after providing training to
them. They have a projected direct employment
for about 2267 persons. Apache SEZ being set up
in Andhra Pradesh will employ 20, 000 persons
to manufacture 10,00,000 pairs of shoes every
month. Current employment in Apache SEZ is
5536 persons. Brandix Apparels, a Sri Lankan
FDI project would provide employment to
60,000 workers over a period of 3 years. Even
in the services sector, 12.5 million sq meters
space is expected in the IT/ITES SEZs which
as per the NASSCOM standards translates
into 12.5 lakh jobs. It is, therefore, expected
that establishment of SEZs would lead to fast
growth of labour intensive manufacturing and
services in the country.
S E Z
G B O I T O I M
74
Benets Derived from SEZs
Benets derived from SEZs are evident from
the investment, employment, exports and
infrastructural developments additionally
generated. The benets derived from multiplier
effect of the investments and additional
economic activity in the SEZs and the
employment generated thus will far outweigh
the tax exemptions and the losses on account
of land acquisition. Stability in scal concession
is absolutely essential to ensure credibility of
Government intensions.
(a) Exports from the Functioning SEZs
during the Last Five Years are as
under:
Year (Rs.
Crore)
Value Growth rate (over
the previous year)
2003-2004 13,854 39%
2004-2005 18,314 32%
2005-2006 22,840 25%
2006-2007 34,615 52%
2007-2008 66,638 92%
b) Investment and Employment in the
SEZs Set up Prior to the SEZ Act,
2005
At present, 1943 units are in operation in the SEZs.
In the SEZs established prior to the Act coming
into force, there are 1143 units providing direct
employment to over 1097 lakh persons; about
37% of whom are women. Private investment by
entrepreneurs in these SEZs established prior to the
SEZ Act is of the order of over Rs. 5626.24 crore.
(c) Investment and Employment in the
SEZs notied under the SEZ Act
2005:
Current investment and employment:
Investment Rs. 83450 Crores
Employment 1,13,426 Persons
Impact of the Scheme
The overwhelming response to the SEZ
scheme is evident from the ow of investment
and creation of additional employment in
the country. The SEZ scheme has generated
tremendous response amongst the investors,
both in India and abroad, which is evident from
the list of Developers who have set up SEZs:
• Nokia SEZ in Tamilnadu
• Quark city SEZ in Chandigarh
• Flextronics SEZ in Tamilnadu
• Mahindra world city in Tamilnadu
• Motorola DELL and Foxconn
• Apache SEZ (Adidas Group) in Andhra
Pradesh
• Divvy’s Laboratories, Andhra Pradesh
• Rajiv Gandhi Technology Park,
Chandigarh
• ETL Infrastructure IT SEZ, Chennai
• Hyderabad Gems limited, Hyderabad
75
LIST OF IMPORTANT WEBSITES
Website Addresses Of Important Ministries/Departments
OVERSEAS INDIAN FACILITATION CENTER
MINISTRY OF OVERSEAS INDIAN AFFAIRS
CONFEDERATION OF INDIAN INDUSTRY
http://www.oifc.in
http://www.moia.gov.in
http://www.ciionline.org
Ministry of Biotechnology http://dbtindia.nic.in
Bureau of Indian Standards http://www.bis.org.in
Ministry of Chemicals & Petrochemicals http://chemicals.nic.in
Ministry of Civil Aviation http://civilaviation.nic.in
Department of Commerce http://commerce.nic.in
Ministry of Coal http://coal.nic.in
Ministry of Company Affairs http://dca.nic.in
Department of Education http://education.nic.in
Ministry of Environment and Forests http://envfor.nic.in
Department of Explosives http://explosives.nic.in
Ministry of External Affairs http://www.meanindia.nic.in
Ministry of Finance http://nmin.nic.in
Directorate General of Foreign Trade http://dgft.delhi.nic.in
Department of Heavy Industries http://dhi.nic.in
Department of Industrial Policy & Promotion http://dipp.nic.in
Ministry of Information and Broadcasting http://mib.nic.in
Department of Information Technology http://www.mit.gov.in
Ministry of Labour http://labour.nic.in
Department of Mines http://mines.nic.in
Ministry of Non-Conventional Energy Sources http://mnes.nic.in
Ofce of The Controller General Of Patents http://patentofce.nic.in
Ministry of Petroleum And Natural Gas http://petroleum.nic.in
Ministry of Power http://powermin.nic.in
Ministry of Railways http://www.indianrailways.gov.in
Reserve Bank of India http://www.rbi.org.in
Ministry of Road Transport & Highways http://morth.nic.in
Department of Shipping http://shipping.nic.in
Ministry of Small Scale Industries & Agro and Rural Industries http://ssi.nic.in
Ministry of Statistics and Programme Implementation http://mospi.nic.in
Department of Telecommunication http://www.dotindia.com
Ministry of Textile http://texmin.nic.in
Ministry of Tourism http://tourismondia.com
Ministry of Urban Development http://urbanindia.nic.in
Ministry of Water Resources http://wrmin.nic.in
13
G B O I T O I M
76
Andaman & Nicobar (UT) http://andaman.nic.in
Andhra Pradesh http://www.andhrapradesh.com
Arunachal Pardesh http://arunachalpradesh.nic.in
Assam http://assamgovt.nic.in
Bihar http://bihar.nic.in
Chandigarh (UT) http://chandigarh.nic.in
Chhattisgarh http://chattisgarh.nic.in
Dadra & Nagar Haveli http://oidc.nic.in
Daman & Diu http://daman.nic.in
Delhi http://delhigovt.nic.in
Goa http://goagovt.nic.in
Gujarat http://www.gujaratindia.com
Haryana http://haryana.nic.in
Himachal Pradesh http://himachal.nic.in
Jammu & Kashmir http://jammukashmir.nic.in
Jharkhand http://jharkhand.nic.in
Karnataka http://www.karnataka.nic.in
Kerala http://www.kerala.gov.in
Lakshdweep(UT) http://lakshadweep.nic.in
Madhya Prdesh http://www.mp.nic.in
Maharashtra http://maharashtra.gov.in
Manipur http://manipur.nic.in
Meghalaya http://meghalaya.nic.in
Mizoram http://mizoram.nic.in
Nagaland http://nagaland.nic.in
Orissa http://orissagov.nic.in
Pondicherry(UT) http://pondicherry.nic.in
Punjab http://punjabgovt.nic.in
Rajasthan http://www.rajasthan.gov.in
Sikkim http://sikkimgov.nic.in
Tamil Nadu http://www.tn.gov.in
Tripura http://tripura.nic.in
Uttar Pradesh http://upgov.nic.in
Uttranchal http://gov.ua.nic.in
West Bengal http://www.wbgov.com
Website Address of States/Union Territories
77
CONTACT DETAILS
Contact Details of Overseas Indian Facilitation Center
1. Mr. G. Gurucharan
Joint Secretary (FS)
Ministry of Overseas Indian Affairs
9th oor, Akbar Bhawan
Chanakya Puri
New Delhi-110021
Tel: 24676210, 24197916
Email : [email protected].in
2. Col. Harmit Singh Sethi
Chief Executive Ofcer
OIFC
Overseas Indian Facilitation Center
C/o Confederation of Indian Industry
249-F, Sector 18, Udyog Vihar, Phase IV
Gurgaon – 122015, Haryana, India
Tel: +91-124-4014055
Fax: +91-124-4309446
web : www.oifc.in
Compiled By:
CA Anupma Aggarwal
Email: [email protected]
14
