Quick answer: Under FEMA, NRIs must use NRE/NRO/FCNR(B) accounts, convert resident accounts on status change, follow repatriation caps (USD 1 million a year from NRO for capital; current income is freely repatriable post-tax), avoid buying agricultural land, and comply with 15CA/15CB and RBI limits when remitting. These rules are distinct from income-tax residency tests. (Reserve Bank of India, Income Tax Department)
Last updated: 15 August 2025
Why FEMA matters for NRIs
The Foreign Exchange Management Act (FEMA) governs how NRIs move money in and out of India, what they can invest in, and which bank accounts they can hold. Getting FEMA right protects you from blocked remittances, penalties, and delays—and keeps your India wealth strategy clean and compliant. (Reserve Bank of India)
FEMA vs Income-tax law: two different yardsticks
- Who is an NRI under FEMA? A “Non-Resident Indian” is simply a person resident outside India who is an Indian citizen. FEMA’s residency hinges on the preceding year’s stay and intention/purpose of stay—different from income-tax tests. (Reserve Bank of India)
- Practical takeaway: You can be a tax resident under the Income-tax Act and still be a non-resident under FEMA (or vice-versa). Always test both independently before moving money or changing accounts. (BCAJ)
The three NRI bank accounts (and when to use which)
| Account | Typical use | Repatriation | Tax treatment (indicative) |
|---|---|---|---|
| NRE (₹) | Park foreign income in India | Fully repatriable (principal + interest) | Interest exempt if you are NRI/RNOR as per law |
| NRO (₹) | Collect India-source income (rent, dividends, sale proceeds) | Current income freely repatriable after tax; capital up to USD 1 million per FY | Interest taxable in India |
| FCNR(B) (FX) | Hold term deposits in foreign currency | Fully repatriable | Interest generally exempt while NRI/RNOR |
Sources: RBI FAQs and circulars. (Reserve Bank of India)
Must-do on status change (Resident ⇄ NRI)
- Leaving India (becoming NRI): Redesignate existing resident accounts to NRO; open NRE/FCNR(B) as needed.
- Returning to India (becoming resident):
- Convert NRE to resident account or transfer to RFC;
- Let FCNR(B) deposits run till maturity at the contracted rate, then convert;
- Convert NRO to resident account when your intent to stay is indefinite. (Reserve Bank of India)
Tip: Many banks ask you to update status within ~30 days and will trigger re-KYC—do this proactively to avoid freezes. (Bank implementation based on RBI mandates.) (ICICI Bank)
Repatriation rules in plain English
- From NRO (₹):
- Current income (rent, dividends, interest, pension) can be sent abroad without a monetary cap after paying due taxes. (Reserve Bank of India)
- Capital funds (sale of property, maturity proceeds, NRO balances) can be repatriated up to USD 1 million per financial year (April–March) per individual, net of taxes. (Reserve Bank of India)
- Helpful formula:
- Repatriable INR limit = USD 1,000,000 × (your bank’s applicable USD/INR rate)
- From NRE / FCNR(B): Freely repatriable (principal and interest). FCNR(B) is in foreign currency, so there’s no INR-FX conversion risk on principal. (Reserve Bank of India)
- Documentation: Banks typically require Form 15CA/15CB for outward remittances—Part A/B/C/D depends on amount and taxability; 15CB (CA certificate) kicks in beyond ₹5 lakh for taxable remittances. (Income Tax Department)
Buying property in India
- What you can buy: Residential and commercial property.
- What you generally can’t buy: Agricultural land, plantation property, and farmhouses (except by inheritance/gift under specific conditions).
- Payment rules: Pay via banking channels from NRE/NRO/FCNR(B); cash/forex notes/travellers’ cheques are not permitted. (Reserve Bank of India)
Repatriating sale proceeds: If the asset was bought with NRE/FCNR funds, repatriation is permitted up to the original inward remittance (subject to conditions). If bought from Indian income/NRO, use the USD 1 million capital route per FY. (Bank processes apply.) (Reserve Bank of India)
Investments: listed securities & mutual funds
- Equities/Debentures/ETFs/Mutual Funds: NRIs/OCIs can invest on repatriation (via NRE/FCNR) or non-repatriation (via NRO) basis, subject to RBI/SEBI sectoral caps and procedures such as the NRI portfolio route. (Reserve Bank of India, Income Tax India)
- Current income (dividends) is freely repatriable from NRO after tax; capital gains follow the repatriation rules above. (Reserve Bank of India)
Gifts, loans & POA basics under FEMA
- Resident-to-NRI gifts/loans (₹): Permitted from resident relatives; amounts must be credited to the recipient’s NRO account; gifts count toward the resident’s LRS compliance. (Reserve Bank of India)
- Power of Attorney (PoA): A PoA holder can operate accounts for routine transactions but cannot repatriate funds externally (except to the account holder), make gifts on your behalf, or transfer to another NRO. Check your bank’s PoA limits. (SBI)
PPF, small-savings and other common pitfalls
- PPF: NRIs cannot open new PPF accounts. If opened before becoming NRI, you may continue till original maturity, but no extension beyond 15 years is permitted. (The Economic Times)
- Resident accounts & FDs: Don’t keep using resident savings/FDs after moving abroad—redesignate to NRO. (Reserve Bank of India)
Penalties & compounding (if you slip up)
Contraventions of FEMA (e.g., wrong account usage, prohibited transactions) can attract penalties up to thrice the amount involved (or up to ₹2 lakh if not quantifiable), with further per-day penalties for continuing defaults. RBI’s updated Compounding Directions (2024 onward) lay out what is/ isn’t compounding-eligible and the process to close matters. (Reserve Bank of India, Reserve Bank of India)
FEMA compliance checklist (save this)
- ✅ Open/maintain only NRE/NRO/FCNR(B) accounts as applicable. (Reserve Bank of India)
- ✅ Convert resident accounts to NRO when you become NRI; convert NRE/NRO on return. (Reserve Bank of India)
- ✅ Use 15CA/15CB correctly for outward remittances. (Income Tax Department)
- ✅ For NRO remittances: separate current income (no cap) vs capital (USD 1 million/FY). (Reserve Bank of India)
- ✅ Avoid buying agricultural/plantation/farmhouse property. (Reserve Bank of India)
FAQs
1) Can NRIs repatriate rent/dividends without limit?
Yes—“current income” is freely repatriable from NRO after paying tax/documentation. (Reserve Bank of India)
2) What is the yearly cap from NRO?
USD 1 million per financial year for capital remittances (sale proceeds, balances), net of taxes. (Reserve Bank of India)
3) Can I buy a farmhouse in India?
No. NRIs/OCIs cannot purchase agricultural land, plantation property, or farmhouses (exceptions: inheritance/gifts under rules). (Reserve Bank of India)
4) Do FCNR(B) deposits have any repatriation limits?
No—principal and interest are fully repatriable; interest rate ceilings may change via RBI measures. (Reserve Bank of India, Reuters)
5) I became NRI—what happens to my resident savings account?
Redesignate to NRO and open NRE/FCNR(B) as needed. Continue FCNR(B) to maturity if you later return to India. (Reserve Bank of India)
How to choose the right account for each inflow
- Foreign salary/bonus: NRE or FCNR(B)
- India rent/dividends: NRO (then remit current income)
- Property sale proceeds: NRO → remit up to USD 1 million/FY (capital)
Bottom line for Indian investors abroad
Think of FEMA as the operating manual for your India money. Set up the right accounts, tag transactions correctly, and plan repatriation early—especially around property sales and large redemptions. Doing this saves taxes, time, and avoidable penalties.