NRI Banking
FEMA Guidelines Every NRI Should Know Before Sending Money to India
As a Non-Resident Indian (NRI), increasing your corpus with steady foreign income lets you do more in your homeland. You are in a better position to support your family, tap into the thriving investment potential, and build a financially sound future.
When you are ready to get started, you will find various means for sending money to India. While you contemplate what works for you, you can’t afford to ignore the FEMA guidelines.
The Foreign Exchange Management Act, introduced in 1999, governs all cross-border transactions. This facilitates external trade, while managing foreign exchange efficiently. Hence, the transfers you make come under the purview of this act. Learn all about it in this guide.
FEMA Compliance for NRIs Making Inward Remittance – An overview
When you send money from your country of residence to India, it is termed as an inward remittance. The FEMA compliance provides you with a clear path for you to make inward remittances. Here, the compliance requirements are not meant to restrict but to facilitate your transfers made to India. They provide you with a legal framework to let you contribute to the Indian economy in a healthy way.
FEMA Regulations and Guidelines for NRIs
The Foreign Exchange Management Act, under the authority of the Reserve Bank of India, lays out various guidelines for the money you send to India and what you do with it. Find them outlined as follows:
- Types of remittance permitted
You can remit money to India for various purposes. They include supporting your family, making investments, funding travel expenses, tackling medical emergencies back home, or financing education.
The transactions forbidden under FEMA guidelines include remittances made with earnings from lottery winnings or sweepstakes, bets on races or riding, or any other transaction deemed illegal. - International credit cards
Under FEMA, authorised dealer banks can issue international credit cards to NRIs. They do not require prior approval from the RBI to do so. You are issued the credit card on your NRE or NRO bank account that you maintain in India. You go through the due process of application, where your income and financial history are assessed to determine the credit limit.
You can settle the international credit card bills through inward remittance to India or directly through the balances in your NRE/NRO account. You may also use funds in your Foreign Currency Non-Resident fixed deposit account. - Eligible investment avenues
You can put your foreign income to good use as India presents various favourable investment choices for NRIs. You can invest in shares, debentures, Mutual funds, and real estate. These are governed by the RBI under the Portfolio Investment Scheme (PIS).
Non-permissible investments include new investments in Public Provident Fund (PPF) and Sovereign Gold Bonds (SGBs). As for the Stock Market, intraday trading, currency and commodity derivatives trading, and bearer securities or non-convertible debentures are prohibited for NRIs. - Limits on remittance
As such, FEMA does not impose any limit on the transaction amount you plan to send to India. However, as discussed earlier, you are subject to limits on repatriation. While the funds in your NRE account and FCNR deposit account are freely repatriable, the NRO account comes with restrictions. The repatriatable amount is capped at USD 1 million in a financial year. - Property purchase
You can buy a residential or commercial immovable property in India. When you acquire such property under section 6(5) of FEMA, you can repatriate up to USD 1 million per financial year. This is subject to fulfilling the appropriate documentation requirements. On the flip side, buying agricultural land, farmhouses, or plantation plots is not permissible under FEMA guidelines.
You may rent out the property to earn rental income regularly, or you can repatriate its sale proceeds. However, the income from the sale of property comes with restrictions. The repatriation of sale proceeds is permissible for not more than two residential properties for NRIs/PIOS.. - NRI accounts
Maintaining NRI accounts in India helps you manage your remittances better. It simplifies the process of sending money to India and using it for various purposes. Such NRI accounts include Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Foreign Currency Non-Resident (FCNR) accounts.
An NRE account is a fully repatriable account where you store your foreign income in Indian currency. This account is also tax-exempt, which means the balance and the interest earned on them is not taxable.
An NRO account helps you manage your Indian income from rent, pension, or dividends. You can repatriate such current income without any limit from your NRO account. However, a limit of USD 1 million per financial year is applicable for repatriation of sale proceeds of assets. Also, these funds are subject to taxation. A TDS of 30% is applicable to your total Indian income.
Unlike NRE and NRO, FCNR is a fixed deposit account. You can deposit your foreign income in this account, which is held in the original currency. The principal and interest of this account are repatriable.
Conclusion
FEMA guidelines for NRIs are fairly liberal to encourage inward remittance and uplift the Indian economy. The rules in place are mainly to conserve transparency and legally facilitate transactions. Now that you know the FEMA regulations applicable to various transaction segments, you can proceed with caution.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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