There was considerable confusion about a trust in which NRIs are trustees or beneficiaries. Recently, the Reserve Bank of India (RBI) has issued internal guidelines and cleared several applications on the following grounds:

1. Appointment of an NRI as a trustee in a trust in India does not require any approval under Foreign Exchange Management Act.

2. Revenue income of the trust, which belongs to NRI beneficiaries, can be remitted outside India after payment of necessary tax.

3. Any trust in which an NRI is a beneficiary or a trustee cannot enter into prohibited activities. In other words, such a trust cannot carry on agricultural activities and cannot trade in real estate.

4. RBI has not taken any decision in the matter of residential status of a trust.

Note:

The above observations have been made based on the permissions granted by RBI. We do not have the RBI guidelines in writing.

Rashmin Sanghvi.

December, 2002