5 Fema Regulations Every NRI must know

As anyone who has business dealings abroad or has travelled overseas can testify, the government likes to keep a tight leash on currency taken out of the country. There are good reasons for this, like preventing foreign exchange outflow, money laundering and so on.

The Foreign Exchange Management Act (FEMA) is a law enacted by the Government of India in 1999 to control this flow of foreign currency across Indian borders.

FEMA replaced the earlier Foreign Exchange Regulation Act or FERA, which was more stringent, in the wake of economic reforms introduced in the Indian economy in the early nineties. FEMA aims to facilitate external trade and their payments in India, a systematic improvement and continuation of foreign exchange in the Indian market. It outlines the procedures, formalities, businesses of all foreign exchange transactions in India.

It’s important for Indians working abroad to understand FEMA rules for NRIs very carefully since it can affect the way they can send and receive funds from India.

Let’s look at five FEMA Regulations for NRIs:

  • Which Bank Account can you open?

    Once you change your status from resident status to Non-Resident Indian or NRI, that is, living outside India but still a citizen of this country, you have to go through some formalities concerning the Savings Accounts you hold.

    FEMA rules for NRIs do not allow holding a savings bank account. NRIs need to set up an NRO or NRE Account as stipulated by the Reserve Bank of India (RBI).

    -  An NRO is a Non-Resident Ordinary rupee account and can be held jointly by two or more NRIs.  All Legitimate dues in India of the account holder., Proceeds of remittances received in any permitted currency from outside India through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of nonresident banks can be credited to this account​​​​​​​. Funds remitted, therefore, are non-repatriable to another country.

    - An NRE is a Non-Resident (External) Rupee account. It permits for money transfer services from outside India, and the entire amount in the account is also repatriable back to the country where the NRI stays currently. Income earned in this account is exempt from taxation.

    - FCNR is a Foreign Currency (Non-Resident) Account, and NRIs can deposit any foreign currency in it. It’s a foreign currency fixed or term deposit available for one to five years. There is no tax implication on this type of account, and funds are completely repatriable on maturity.

    This is one of the most crucial FEMA rules for NRIs.
  • Where can you invest?

    NRIs are permitted an unlimited amount of investment options through repatriable and non- repatriable transactions. However, as per the FEMA rules for NRIs, they cannot make investments in small saving or Public Provident Fund (PPF) schemes of the government.
  • Can NRIs acquire immovable property? 

    NRIs can purchase residential or commercial property in India. However, purchasing agricultural property, plantations, farmhouse land, etc. isn’t allowed. NRIs can also receive immovable property as gifts from relatives or through inheritance.

    You can read more on NRI investment in Indian real estate here.
  • Can earnings from immovable assets be repatriated?

    NRIs are permitted to remit foreign currency back to India on the foreign repatriable assets such as rent earned from an immovable property owned overseas. According to FEMA guidelines for NRIs, sale proceeds of such assets are non-repatriable outside India without RBI approval. Repatriation of up to USD 1 million per financial year is allowed if you have inherited the property or retired from employment in India.
  • What’s the provision for students? 

    Students going overseas to study are treated as NRIs and are eligible for all facilities available to NRIs under FEMA. They are entitled to receive remittance up to USD 10 lakh a year from their NRE or NRO accounts or profits on property.

Click here to open a NRI Account online!

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.