Under FEMA, you become a person resident outside India as soon as you leave India for employment, business or any other purpose showing an intention to stay abroad for an uncertain period. You must then tell your bank and have resident savings accounts redesignated as NRO accounts. As an NRI or OCI cardholder you may invest in Indian shares, mutual funds and property other than agricultural land, plantations and farmhouses, and give or receive gifts and loans with relatives within RBI limits. Past lapses can usually be regularised through compounding.
- Law
- FEMA 1999 and RBI rules
- Investment rules
- Non-Debt Instruments Rules 2019
- Barred property
- Agricultural land, plantations, farmhouses
- Regularising lapses
- Compounding with the RBI
When FEMA treats you as non-resident
FEMA residency is different from tax residency. Under section 2(v) of FEMA, a person who has stayed in India more than 182 days in the preceding financial year is resident, but that test is set aside for a person who has left India for employment outside India, for carrying on business or vocation outside India, or for any other purpose indicating an intention to stay outside India for an uncertain period. Such a person becomes a person resident outside India from the date of leaving. Students going abroad are also treated as non-resident under RBI directions.
Because the change is immediate, your Indian finances need attention as soon as you move. Tax residency for the same year may be different; see NRI income tax for the day-count tests.
Bank accounts: redesignate as NRO
Once you become non-resident, you may not keep a resident savings account. RBI directions require the account to be redesignated as an NRO account, and banks expect to be told promptly. Fixed deposits are converted too. Accounts you held jointly with resident relatives can continue as NRO accounts with the resident as a joint holder on a former-or-survivor basis, subject to the bank's rules.
| Account | What goes in | Tax on interest | Repatriation |
|---|---|---|---|
| NRO (rupee) | Indian income, pre-departure savings, sale proceeds | Taxable | Within USD 1 million per financial year |
| NRE (rupee) | Money sent from abroad, transfers from other NRE or FCNR | Exempt while non-resident | Fully repatriable |
| FCNR (B) (foreign currency deposit) | Foreign currency remitted from abroad | Exempt while non-resident | Fully repatriable |
Indian income such as rent or dividends cannot be credited to an NRE account. When you return to India for good, the opposite applies: NRO accounts become resident accounts and NRE balances can be moved to a resident foreign currency (RFC) account. Money in NRO accounts can be sent abroad within the limits described on our repatriation page.
What you may and may not invest in
The Foreign Exchange Management (Non-Debt Instruments) Rules 2019 set out what NRIs and OCI cardholders may acquire. In summary:
- Listed shares through the portfolio investment scheme, with an individual NRI or OCI holding capped at 5% of a company and an aggregate limit for all NRIs and OCIs, using a designated bank account.
- Unlisted shares and partnership interests on a repatriation basis under the FDI rules, or on a non-repatriation basis, which is treated like domestic investment.
- Mutual funds and government securities, subject to the fund's own rules for investors abroad.
- Residential and commercial property in India, paid through banking channels from inward remittance or NRE, FCNR or NRO accounts.
NRIs and OCI cardholders may not buy agricultural land, plantation property or farmhouses. They may hold such property if inherited, and sell it only to a person resident in India who is an Indian citizen. Payment for any investment must come through normal banking channels; cash or traveller's cheques are not permitted.
Gifts and loans between NRIs and relatives in India
Family transactions are where most unintended contraventions arise. The key rules, for relatives as defined in the Companies Act 2013, are:
- Gifts of property to you. An NRI or OCI cardholder may receive residential or commercial property as a gift from a relative, but not agricultural land, plantation property or a farmhouse.
- Rupee gifts to you. A resident individual may gift money to an NRI or OCI relative by crediting their NRO account, counted within the resident's USD 250,000 Liberalised Remittance Scheme limit for the year.
- Rupee loans to you. A resident individual may lend rupees to an NRI or OCI relative by crossed cheque or electronic transfer, credited to the NRO account, within the LRS limit, generally interest-free and for at least one year.
- Loans from you. A resident individual may borrow from an NRI or OCI relative abroad within prescribed limits, generally interest-free with a minimum maturity of one year. Rupee loans by NRIs to residents are tightly restricted.
- Gifts of shares. Transfers of shares by way of gift between residents and non-residents have their own conditions and reporting, and some need RBI approval.
Gifts also have tax consequences. Gifts from relatives are generally not taxed in India, but your country of residence may require reporting.
What happens if you have not complied
Contraventions of FEMA are civil, not criminal, except in specific cases. Under section 13, the adjudicating authority may impose a penalty of up to three times the sum involved where that can be quantified, or up to ₹2 lakh where it cannot, with a further penalty for continuing contraventions. In practice, most NRI lapses come to light when a bank refuses a remittance, an investment is challenged or an income tax enquiry asks where money came from.
The usual examples are a resident account not converted to NRO for years, NRE credits of Indian income, investments made in the wrong account, loans received from or given to relatives outside the permitted conditions, and late reporting of investments. The earlier these are regularised, the lower the exposure.
Regularising lapses through compounding
Compounding lets a person voluntarily admit a contravention and settle it by paying an amount fixed by the RBI, which closes the matter without adjudication. Applications are made to the RBI under the Foreign Exchange (Compounding Proceedings) Rules 2024, with the facts, the documents and evidence that the underlying position has been regularised, for example the account redesignated or the late filing completed. The RBI computes the compounding amount under its published guidance, taking into account the amount and duration of the contravention.
Compounding is not available for every contravention, including serious cases involving hawala, and matters already under investigation by the Enforcement Directorate may have to go through that authority. For company investments and business reporting, see our page on FDI and FEMA compliance.
How we handle it while you are abroad
We start with a review call in your time zone and a list of your Indian accounts, investments, property and family transactions. We then write to the banks to redesignate accounts, correct mis-credited funds, prepare any compounding application and liaise with the RBI regional office. Documents are signed where you live and sent by courier; apostille or attestation is needed only when a document will be filed with an authority that requires it.
Documents you need
Bank statements and investment records are the starting point. We will ask for more only where a contravention needs evidence.
- Passport, visa or residence permit and OCI card
- Date of leaving India and proof of employment or business abroad
- Statements of all Indian bank accounts and deposits
- Demat, mutual fund and share certificates
- Property purchase deeds and proof of payment
- Records of gifts or loans with relatives in India
- Any bank, RBI or tax correspondence about the issue
How we handle it for you
Review your position
We map your accounts, investments and family transactions against FEMA rules.
Correct the accounts
Redesignation to NRO, correction of credits and closure of non-permitted holdings.
Paper the family transactions
Gift and loan documents that meet the RBI conditions going forward.
Compound past lapses
Application to the RBI with facts, documents and proof of regularisation.
Keep you compliant
A short annual check before you invest, sell or remit.
Why clients choose ProudLegal
Built for clients abroadVideo calls in your time zone and documents signed where you live.
Advocates who appear in Indian courtsYour case is drafted and argued by enrolled advocates in India.
Written fee quote firstScope and fees confirmed in writing before any work starts.
Updates after every stepScans of every filing and order on WhatsApp and email.
Frequently asked questions
Do I have to convert my savings account to NRO after moving abroad?
Yes. Once you become a person resident outside India under FEMA, a resident savings account must be redesignated as an NRO account. Tell your bank promptly.
Can an NRI buy agricultural land in India?
No. NRIs and OCI cardholders cannot buy agricultural land, plantation property or farmhouses. They can inherit such property and sell it to a resident Indian citizen.
Can my parents gift me money in India?
Yes. A resident individual may gift money to an NRI or OCI relative by crediting their NRO account, within the USD 250,000 per year LRS limit.
Can I lend money to my parents in India?
A resident individual may borrow from an NRI or OCI relative within prescribed limits, generally interest-free and for at least one year. We check the conditions before the money moves.
What happens if I kept a resident account for years?
It is a contravention, usually regularised by redesignating the account and, where advised, compounding with the RBI. Interest earned may also need tax correction.
What is compounding under FEMA?
A voluntary process where you admit a contravention and pay an amount fixed by the RBI to close it, avoiding adjudication and higher penalties.
Are FEMA violations criminal?
Generally no. FEMA contraventions are civil and attract monetary penalties. Separate criminal laws apply to money laundering and other offences.
What do your FEMA services cost?
We quote a fixed fee for the review and a separate fee for any compounding application, in writing before we start.