FEMA (Foreign Exchange Management Act) regulation is a complex one and obviously not everyone’s cup of tea. However, non-resident Indians continue to have a base in their home country and various financial dealings here. This makes it imperative for such NRIs to understand the FEMA regulations that are applicable to them. The regulations listed below are not exhaustive/all-inclusive but cover some major issues/questions often received from NRIs.
So who is an NRI? In this particular instance, we are referring to a person resident outside India who is a citizen of India. Are NRIs allowed to continue banking activities the same as residents by virtue of the fact that they are Indian citizens? The answer to this is a big “No”. First of all, NRIs are allowed to have only specific kinds of bank accounts viz. NRO (Non-Resident Ordinary), NRE (Non-Resident External), and FCNR (Foreign Currency Non-resident). An NRO is a rupee-denominated account and can be held jointly by two or more NRIs. Only inward remittances from outside India are possible in this account. Funds remitted may not be repatriated to another country. An NRE is a Non-Resident (External) Rupee account. This account allows for transfers of funds from outside India; the entire amount in the account is repatriable back to the country where the NRI stays and the Income earned in this account is tax-exempt. FCNR is a Foreign Currency (Non-Resident) Account. NRIs may deposit foreign currency-denominated funds in it and it is a fixed or term deposit available for one to five years. This too does not have a tax implication and funds may be repatriated on maturity.
Apart from bank accounts, some of the other rules worth knowing include FEMA regulations on real estate and provisions for students. India does have a sizable student population abroad.
FEMA allows NRIs to purchase residential or commercial property in India. However, NRIs may not purchase farmhouses, plantations, or agricultural land or undertake agricultural activities. Sale of property purchased or inherited is also allowed and NRIs may repatriate up to a maximum of USD 1 million outside India in any given financial year. Students overseas are treated on par with NRIs and are therefore eligible for all facilities open to NRIs. This makes students also eligible for the USD 1 million remittance regulation.