NRI Repatriation: Strategies and Techniques

Repatriation of funds can happen between NRO to NRE account or foreign account. While transferring funds to your NRE account, the major risk you need to deal with is taxation risk.

However, while repatriating funds to your foreign account, apart from the taxation risk you may have to deal with currency risk and such other risks that can impact your funds’ value.

Before we proceed, it is essential that you understand what NRI repatriation is and the transferable limit in a financial year.

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What Is Repatriation? 

Repatriation is a process of transferring your inheritance, earnings or deposits present in your NRO account  to your NRE or overseas bank account.

The government of India keeps track of your NRO account to ensure that you don’t indulge in any financial malpractices and to see through that the taxes are duly paid on your end.

The Reserve Bank of India (RBI) through its master circular No.02/2011-12 states that you can repatriate up to USD 1 million per financial year provided the funds remain utilized for valid reasons.

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How Can NRIs Repatriate Money From India?

As an NRI, you can freely repatriate up to INR 5 lakhs in a financial year and repatriation of money above INR 5 lakhs requires you to file Form 15 CA .

Also, you must furnish 15 CB if the remittance or aggregate of remittance exceeds INR 5 Lakhs per financial year.

The 15 CB certificate is issued by a Chartered Accountant  in India.

The banks have clear instructions from the RBI to repatriate funds only after confirming that the taxes are duly paid.

However, as per the Income Tax Rule 37BB(3), there are certain ‘nature of payments’ which remain exempt from filing of Form 15 CA. 

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Risks Of Fund Repatriation

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There are certain risks involved while repatriating your funds to NRE or foreign accounts. You need to be aware of the following risks before the transfer happens,

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Taxation Risk

Repatriation of funds involves deduction of TDS before repatriating funds to your NRE or foreign account. Failing to pay the due taxes can result in halting the transfer.

Moreover, citing incorrect Sections at the time of repatriation can result in tax compliance issues.

Thus, seeking the advice of a tax-expert can help you repatriate funds without any compliance issues.

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Regulatory Risk

Each country has its own set of regulations and when you consider repatriating your funds to a foreign account, you need to abide by its rules and regulations. 

Example you will not be able to repatriate more than USD 1 million per financial year.

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Currency Risk

Transfer of funds from an NRO account to a foreign account involves the conversion of Indian currency to foreign currency. 

There may be a possibility of loss in the fund's value due to currency exchange rates. 

In future, if Indian currency strengthens against your foreign currency then you might suffer loss indirectly.

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Geo-political Tensions

Geo-political tensions can arise for varied reasons and disrupt trade between any two economies.

During such instances, transferring funds from your NRO account to a foreign account might result in going through stringent scrutiny to make the transfer happen.

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Risk Mitigating Strategies And Techniques

By acting cautiously and taking necessary precautions you can mitigate or eliminate the risks associated with repatriation of your funds.

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Currency Hedging

You can use currency hedging instruments to reduce, control, and eliminate currency risks. These are financial instruments that give assurance of an exchange rate or buffer the effect of currency fluctuations. The common hedging instruments are as follows:

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• Forward Contracts: These are agreements to buy or sell a currency on a future date at a fixed rate, thereby providing certainty about the exchange rate.
• Futures: In essence, they are identical to forwards, but they trade on the stock exchange and have standardized contract sizes and settlement procedures.
• Options: This gives the holder the right, but not the obligation, to purchase or sell the currency at an agreed rate before a fixed date.
• Swaps: Agreements having two counterparties in return for currency flows at periodic intervals, mostly used for the management of long-term exposure.

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Each of the instruments contributes different advantages and adds different complexity. Therefore, any hedging strategy should be chosen and implemented individually in view of special needs and the financial situation.

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Note: 
The above information is for educational purposes only and cannot be considered as advice or recommendation.
Hedging is highly volatile in nature. Hence, it is essential that you seek assistance from a professional before taking a position in it.

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Diversification

Note: This section is exclusively for mitigating your taxation risk.

By pre-planning and diversifying your investments, you can invest in different asset classes so that repatriating your funds is easier.

As an NRI, you have the option to invest in Indian mutual funds, stocks, real estate, treasury bills, PSUs, capital bonds, NPS etc., 

Each of these asset classes has its own pros and cons. 

For instance, market risk arising due to decrease in share value can be offset by investing in treasury bills, PSUs etc.,

If you decide to reinvest the capital gains proceeds (from the sale of house property), in government-specified capital bonds can help you qualify for tax exemption. This tax exemption is under Section 54 of the Income Tax Act. 

Under Section 54F, you can claim tax exemption on capital gains from selling other long-term capital assets such as shares, bonds, gold, mutual funds, etc. (except residential property). However, the proceeds must be reinvested in purchasing or constructing a residential house in India. 

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Conclusion

You cannot mitigate or totally eliminate the risks that come while repatriating your funds abroad. The regulatory risk is country-specific, and the currency risk is due to the rift between the economies of both countries.

The geo-political tensions can jeopardize relations between India and the foreign country where you wish to repatriate your funds. 

Also, you need to examine the ‘nature of payments’ to understand whether a transaction is exempt from filing Form 15CA/CB.

If you are in a dilemma and find yourself stuck while filing these tax forms, you can consult a tax-expert to ensure that your tax filings are free from errors.

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NRI Repatriation: Strategies And Techniques: Frequently Asked Questions (FAQs)

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What are repatriable and non-repatriable investments? 

Repatriable investments include transactions performed using your NRE account and non-repatriable investments include transactions performed using your NRO account.

The funds present in the NRE account are repatriable. 

On the other hand, to repatriate funds present in your NRO account, it requires filing of Form 15 CA and CB unless it is exempt under IT Rule 37BB (3). Also has a repatriation limit of USD 1 million per financial year.

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What is the NRO repatriation limit?

As an NRI, you can repatriate up to USD 1 million per financial year.

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What are the risks of profit repatriation?

While repatriating your profits the major risks include errors in filing of taxes, regulatory risks, currency fluctuations, exchange rate volatility and geo-political tensions.

These risks can impede your funds from seamlessly repatriating your profits, leading to delays in receipt of funds and financial losses.

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What is the NRI repatriation limit?

You can repatriate funds up to USD 1 million per financial year subject to filling out necessary tax forms unless the ‘nature of payment’ is exempt from filing taxes.

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What is the risk of repatriation?

Repatriation of funds can involve cross border transfer of funds, and the government scrutinizes all such transactions to ensure that taxes are duly paid and there are no financial malpractices.

Of all the risks involved, currency risk remains a daunting issue as the fluctuations can happen 24*7 and no country is completely free from exchange rate volatility.

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