Until recently, NRIs were maintaining multiple bank accounts with multiple residential statuses. They would maintain one account as a non-resident to earn tax free income (NRE account) and another account as a resident to avoid any TDS and related FEMA and Income Tax compliance on local funds.
Further, NRIs would also invest in equity and maintain a demat account as a resident from the resident bank account. This was mainly due to ignorance or sometimes complete disregard of the FEMA rules as there are very few cases where NRIs have been fined or punished. Sometimes, even the bank personnel would advise the same to the NRIs due to the fear of losing business.
As per FEMA, a person is required to inform his bank, financial institutions (where he owns mutual funds or holds demat or trading accounts, etc.) and companies (where he owns shares or have deposits) of his change in residential status (from resident to non-resident or from non-resident to a resident) within a reasonable period. However, the question is how many are actually complying with the above mentioned requirement? With UCIC (Unique Customer Identification Code), RBI is making certain that the NRIs comply with the FEMA laws.
Unique Customer Identification Code (UCIC)
RBI issued a circular on June 8, 2012 advising banks to allot a Unique Customer Identification Code (UCIC) to all its customers. As per UCIC, every customer would have a unique code. While the new customers who open an account after June 2012 would have one unique code, for old customers, banks were given time to implement a system of one code-one customer.
Banks have been working internally to implement the circular. Let us understand this better with an example of Mr. X, an NRI, who has three bank accounts with the bank in India: (i) NRO account with customer code 11111 in Ahmedabad branch, (ii) NRE account with customer code 22222 in Mumbai branch and (iii) Resident account with customer code 33333 in the Delhi branch.
As a first step, the bank would start combining the customer IDs within the same residential status i.e. account with customer code 11111 and 22222. Either the bank would keep one customer code or issue a new unique customer code to Mr. X.
In the second step, using Mr. X’s details, such as the name, address, and PAN card, the bank would identify any other account that Mr. X owns and notice a resident account with customer code 33333.
As the customer master data needs to be the same, and because of the conflicting residential statuses, the bank would flag the accounts of Mr. X and inquire to update the correct the residential status in the bank. While Mr. X may ignore the bank’s inquiry, when he contacts the bank for any request, such as opening, closing, merging, transfer, etc., the request would not be processed until Mr. X makes a declaration and updates his correct residential status with the bank.
THE PROCESS HAS ALREADY STARTED:
One of my esteemed client’s request to open an NRO PIS account was put on hold because of conflicting residential status. While he owned both NRO and NRE account with one branch of the bank, he also was a joint holder (he did not know) with his mother’s very old resident account with another branch in another city of the same bank.
In the next step, accounts with all banks in India will be merged to have a single residential status.
Expert NRI analysis:
RBI is slowly and steadily making steps to increase awareness and compliance with the FEMA laws. With UCIC, RBI attempts to streamline the banking system, simplify procedures for customers and at the same time increase monitoring and compliance of financial transactions and investments made by customers, including NRIs.
If you do not voluntarily inform the change of your residential status now because of a fear of sharing of financial information to your home country or of restrictions on investments or higher TDS as an NRI, once UCIC is fully operational, this fear will become true or even worse. After implementation of UCIC, the RBI/income tax department would have all your data and the next step would be to send notices for non-compliance to NRIs. Further, they may start sharing your financial information to your home country. It is just a matter of time.
Expert NRI suggestion:
Understand and follow the FEMA rules relating to NRI investments in India NOW. Also, accept that your investments and income will be shared to your country of residence and plan accordingly before it is too late.