FEMA Rules for NRIs: What the Law Requires, Allows, and Forbids

Every financial rule you live under as an NRI — which bank accounts you may hold, what property you may buy, how much you can move out of India — traces back to one statute. The Foreign Exchange Management Act, 1999 is the law that decides what your money may do across India's border, and it's worth understanding whole rather than one bank FAQ at a time.

Its predecessor explains its temperament. The Foreign Exchange Regulation Act of 1973 — FERA — was written for an India desperately short of dollars, and it treated foreign exchange violations as crimes, complete with arrest powers and an enforcement culture that made the Directorate of Enforcement a feared name. FEMA, passed in December 1999 and in force since mid-2000, deliberately inverted that: contraventions are civil, not criminal, penalties are monetary, and the framing shifted from regulating foreign exchange to managing it. That's the good news. The less good: the rules are still detailed, still enforced, and still routinely violated by NRIs who have no idea they're doing anything wrong.

You have two residencies, and they don't have to match

India decides who you are twice, under two different laws, using two different tests — and a surprising number of NRI mistakes come from assuming the answers must agree.

The Income-tax Act counts days in the current financial year: broadly, you're a tax resident if you spent 182 days or more in India during that year, or 60 days plus 365 days across the preceding four years — with the 60 stretched to 182 for citizens leaving India for employment abroad, and to 120 for visiting citizens and persons of Indian origin whose India-linked income tops ₹15 lakh (a separate deemed-residency rule catches high earners not taxed anywhere — the full ladder is in our residency guide). It's arithmetic, settled only once the year ends.

FEMA works differently. Under Section 2(v) of the Act, a person resident in India is someone who resided here for more than 182 days in the preceding financial year — but the definition then carves out anyone who leaves India to take up employment abroad, to run a business or vocation abroad, or for any purpose indicating an intention to stay outside India for an uncertain period. The carve-out does the real work: board a flight to Dubai with a job offer, and you become a person resident outside India under FEMA that day, no day-counting required. The mirror rule applies coming home — return to India for employment or with intent to stay indefinitely, and you're a FEMA resident on arrival.

	FEMA	Income-tax Act
Which year counts	Preceding financial year	Current financial year
Core test	More than 182 days, overridden by purpose and intention	182 days, or 60/120 days plus 365 in prior 4 years
Status changes	The day circumstances change	Only for a full financial year
Governs	Accounts, property, remittances	What income India taxes

So the person who moves abroad in January is a FEMA non-resident immediately — obliged to convert bank accounts, entitled to open NRE deposits — while remaining an Indian tax resident for that entire financial year, taxable in India on global income. The reverse happens on return: FEMA resident from day one, tax non-resident until the day counts say otherwise. Banks care about your FEMA status. The tax department cares about the other one.

The day-one obligation: your bank accounts

Become a FEMA non-resident, and your ordinary resident savings account becomes an account you're no longer permitted to hold. The RBI's FAQ on non-resident accounts is plain: when a resident becomes an NRI, the existing account should be re-designated as an NRO account. From there your Indian banking splits into the familiar trio — NRE for foreign earnings, NRO for Indian income, FCNR(B) for foreign-currency deposits — and choosing among them is a decision with real tax and repatriation consequences, which we've covered in full in our NRE vs NRO vs FCNR guide.

Re-designation is not an administrative courtesy: it's a FEMA obligation, and quietly operating a resident account from abroad is one of the most common contraventions there is.

What FEMA lets you do freely

FEMA's architecture divides all cross-border transactions into two families. Current account transactions — the everyday flows like remittances for living expenses, education, medical treatment, gifts — are free under Section 5 unless specifically restricted. Capital account transactions — anything that changes your assets or liabilities across the border, like buying property or making investments — are the regulated family under Section 6, permitted only to the extent the RBI allows.

Within that structure, the permissions NRIs actually use are generous. You may remit your foreign earnings into India without limit. Everything in your NRE and FCNR(B) accounts — principal and interest — is freely repatriable, and even the restricted NRO account allows up to USD 1 million per financial year to leave India, on top of current income like rent once taxes are paid. And FEMA explicitly lets you keep what you built abroad: under Section 6(4) of the Act, assets acquired while you were resident outside India — the US brokerage account, the London flat — may be held, transferred, and reinvested even after you return to India for good. Returning NRIs are not required to liquidate their foreign lives.

What's off the table

Two restrictions catch people who assume everything is symmetric. The first is land. NRIs and OCIs may buy residential and commercial property in India without any approval, but the RBI's property FAQ excludes agricultural land, plantation property, and farmhouses from that general permission entirely. You can inherit agricultural land, and you can sell or gift inherited farmland — but only to a resident of India. Buying it outright as an NRI requires specific RBI approval, which is rarely given. The dream of retiring to a farmhouse outside Bengaluru, purchased while still on an H-1B, is a FEMA contravention with a title problem attached.

The second is the Liberalised Remittance Scheme. The LRS, with its USD 250,000 annual window, is available only to resident individuals — it is how your parents in Pune can send you money, not how you move your own. NRIs don't need it — the NRE and NRO routes above are your channels — but plenty mistakenly cite the LRS limit as if it applied to them. It doesn't.

What you may invest in — and what's closed to you

Property gets the attention, but FEMA draws the map for every other investment too, and the pattern is consistent: market instruments are open, government-sponsored small savings are not.

Listed Indian equities are yours to buy — through the Portfolio Investment Scheme, a reporting channel run through one designated bank branch that tracks your purchases against the ceilings FEMA sets: an individual NRI may hold up to 5% of a company's paid-up capital, and all NRIs together up to 10%, extendable to 24% if the company passes a special resolution. Mutual funds are simpler still — no PIS, no ceilings, just a folio tagged to the account that funded it, which decides whether redemptions can leave India freely or only through NRO's metered gate. The National Pension System is open as well: NRIs (and, since 2019, OCIs) between 18 and 70 can open and contribute to NPS from NRE or NRO funds.

The closed list is the one that surprises people, because it's the list their parents invested in. NRIs may not open any small-savings account: no new PPF, no National Savings Certificates, no Senior Citizens' Savings Scheme, no post-office deposits, no new Sukanya Samriddhi account for a daughter. A PPF account you opened as a resident survives your status change — you may keep contributing until its fifteen-year maturity on a non-repatriation basis — but you cannot take the five-year extensions residents roll into almost by default. At maturity, the money comes out, lands in NRO, and the account closes. Plan the reinvestment before the maturity date, not after.

Gifts and loans across the border

Family money moves across the border constantly, and FEMA treats each direction and each asset differently — this is where well-meaning families create contraventions out of affection.

Money is the easy case. You gifting your resident parents is just an inward remittance — no ceiling, no approval, send it to their ordinary account. Your parents gifting you runs through their rules: a foreign-currency gift travels under their LRS window of USD 250,000 per financial year, and a rupee gift goes into your NRO account — never NRE, which cannot accept a resident's rupees.

Shares are the hard case. A resident gifting Indian company shares to an NRI is a capital account transaction requiring prior RBI approval, subject to conditions including sectoral caps and a value ceiling — a genuine application, not a formality. The reverse direction is easier: an NRI gifting securities to a resident is generally permitted. Property sits in between: you may receive residential or commercial property as a gift, but only from a relative — resident or NRI — and agricultural land cannot be gifted to an NRI at all.

Loans between relatives are permitted, with guardrails on each direction. A resident may lend to you, their NRI close relative — but interest-free, with a minimum maturity of one year, within their LRS limit, credited to your NRO account. You may lend rupees to a resident relative on a non-repatriation basis, funded by inward remittance or from your NRE/NRO accounts, provided the money doesn't finance the prohibited list — chit funds, agricultural or plantation activity, real estate business, or re-lending — and repayment comes back only to your NRO account. The repatriation asymmetry is deliberate: money lent into India on these terms is expected to stay in rupees.

Inheritance: FEMA's quietest channel

For all its ceilings and approvals, FEMA leaves one channel almost entirely alone. Inheritance passes through untouched. You may inherit any Indian asset — bank balances, shares, mutual funds, and any immovable property including the agricultural land you're barred from buying — from a person resident in India, or from a non-resident who held it in accordance with the law of their time. No RBI approval, no ceiling, no reporting to seek permission for. Section 6(5) of the Act is the statutory anchor: property acquired by inheritance from a person resident in India may simply be held.

The friction arrives at the exit, not the entrance. Sale proceeds of inherited property are India-sourced money — they land in NRO and leave through the USD 1 million annual window with the usual tax-settled paperwork, a process we walk through in our guide to repatriating money from India. And inherited farmland carries its own asterisk forward: you may hold it and earn from it, but when you sell or gift it, the buyer must be a resident of India.

How enforcement actually finds you

The Directorate of Enforcement administers FEMA's penalty machinery, but almost no NRI contravention is discovered by an investigator. Discovery is mundane and procedural. A bank's periodic KYC refresh surfaces the foreign address on a resident savings account. A property registrar's records show an agricultural purchase by someone whose PAN is tagged non-resident. Most often of all, the moment of truth is repatriation: the Form 15CA/15CB paperwork and the bank compliance desk's questions force the account's history into the open, and the bank simply refuses to process the remittance until the irregularity is fixed. Years of quiet contravention become urgent on the day you need the money out.

Two features of the law sharpen this. FEMA prescribes no limitation period for contraventions, so an account left un-redesignated in 2015 is as actionable in 2026 as it was then — and a continuing violation accrues exposure daily. And because enforcement is complaint-and-paper-trail driven rather than proactive, the NRIs who get formal show-cause notices are disproportionately those with large, visible transactions. The practical posture follows directly: regularise before you need to transact, not after a bank has frozen the request — and where the past contravention is material, take professional advice on whether compounding is the cleaner exit.

When it goes wrong: Section 13 and the confession booth

FEMA's teeth are in Section 13: a contravention attracts a penalty of up to three times the sum involved where the amount is quantifiable, up to ₹2 lakh where it isn't, and up to ₹5,000 per day for a continuing violation — which is exactly what an un-redesignated bank account is, every day it stays open. Unpaid penalties can escalate to civil imprisonment under Section 14. Three times the amount involved is the ceiling, not the norm, but it concentrates the mind.

The system's safety valve is compounding — FEMA's version of settling voluntarily. You admit the contravention to the RBI, pay an application fee of ₹10,000 plus GST, and the compounding authority must dispose of the application within 180 days, issuing an order whose amount you pay within 15 days. That closes the matter permanently — no prosecution, no reopening — though there is no appeal against the amount either. One carve-out matters: contraventions of Section 3(a), the hawala provision, are compounded by the Directorate of Enforcement, not the RBI. The framework was refreshed in 2024, and for garden-variety NRI violations the compounding amounts are typically a small fraction of the statutory maximum. Whether compounding or simply regularising quietly is the right move depends on your facts, and this is a genuine consult-a-professional fork in the road.

The violations people commit by accident

Three patterns account for most NRI contraventions. The first is the resident savings account left running for years after moving abroad — usually with a debit card still in a parent's drawer. The fix is unglamorous: tell your bank, convert to NRO. The second is rent credited to the wrong account: a tenant depositing rent directly into your NRE account creates a contravention with every payment, because direct rupee credits from residents are impermissible — Indian income goes to NRO, and reaches NRE only through the bank with a CA's certificate that tax on it is settled. The third is hawala — the informal "my cousin gives you rupees in Delhi, you give me dirhams in Dubai" swap. However convenient, it's a transfer of foreign exchange through an unauthorised person, squarely prohibited by Section 3 — the one category FEMA still treats with real severity.

None of this requires living in fear of a 1999 statute. FEMA, unlike its predecessor, assumes you're managing money, not smuggling it — and nearly every obligation it places on you can be met with one honest conversation with your bank. Have that conversation the year you leave, keep Indian income and foreign income in their proper lanes, and the law that governs your entire financial life across two countries will mostly leave you alone.

Frequently asked questions

Can I keep my PPF account after becoming an NRI?

Yes — an account opened while you were resident survives the status change, and you may continue contributing until its original fifteen-year maturity on a non-repatriation basis. What you cannot do is open a new PPF account or take the five-year extensions residents use to keep the account compounding indefinitely. At maturity the proceeds are withdrawn to your NRO account and the account closes. The same closed door applies across the small-savings family: no new NSC, Senior Citizens' Savings Scheme, post-office deposits, or Sukanya Samriddhi accounts once you're an NRI.

Can I invest in NPS as an NRI?

Yes. NRIs between 18 and 70 can open and contribute to the National Pension System, funded from NRE or NRO accounts, and OCI cardholders have been eligible since 2019. It's one of the few government-sponsored retirement vehicles that stays open to you — a notable contrast with the small-savings schemes that don't. Whether NPS suits you is a separate question that depends on your home country's tax treatment of the account and where you expect to retire, so weigh the cross-border tax picture before committing.

Does the USD 250,000 LRS limit apply to me?

No. The Liberalised Remittance Scheme belongs to resident individuals — it's the window your parents in India use to send money abroad, not a constraint on you. Your channels are different and mostly wider: NRE and FCNR(B) balances leave India without any limit, and NRO balances travel through the separate USD 1 million per financial year window. Citing the LRS cap as if it applied to NRIs is one of the most persistent confusions in this space, including among bank staff.

Can I lend money to my parents or siblings in India?

Yes — FEMA permits rupee loans from an NRI to resident relatives on a non-repatriation basis, funded by inward remittance or from your NRE/NRO accounts. The conditions attach to the money's use and its return journey: the loan cannot finance chit funds, agricultural or plantation activity, a real estate business, or re-lending, and repayment must come back to your NRO account, not NRE. In the other direction, a resident may lend to you interest-free, within their LRS limit, with a minimum one-year maturity, credited to your NRO account.

Can my father gift me his Indian shares or his flat?

The flat, yes — residential and commercial property may be gifted to an NRI by a relative, though agricultural land may not be gifted to an NRI at all. The shares are harder: a resident gifting Indian securities to a non-resident is a capital account transaction requiring prior RBI approval, with conditions attached. If the goal is simply transferring value, a money gift is far cleaner — rupees into your NRO account, or a foreign-currency remittance under his LRS window.

Can I inherit agricultural land in India?

Yes — inheritance is FEMA's open channel, and it covers the very asset you're barred from buying. You may inherit farmland, plantation property, or a farmhouse from a resident, hold it, and earn income from it. The restriction follows the land: when you eventually sell or gift it, the recipient must be a person resident in India. Sale proceeds are India-sourced money, so they land in NRO and exit through the USD 1 million annual repatriation window once taxes are settled.

Is violating FEMA a criminal offence?

Generally no — that's the defining break from the FERA era. Contraventions are civil, penalized under Section 13 at up to three times the amount involved, and most are settled through the RBI's compounding process for a fraction of that ceiling. Two hard edges remain: hawala-type dealings under Section 3(a) sit with the Directorate of Enforcement and are treated with real severity, and an adjudicated penalty left unpaid can escalate to civil imprisonment under Section 14. Ordinary account-and-property violations, honestly regularised, end with a payment — not a prosecution.

What happens to my FEMA status when I return to India for good?

It flips on arrival — return for employment or with intent to stay indefinitely, and you're a person resident in India that day, no day-counting involved, even though your income-tax residency may take another year to catch up (the gap that creates RNOR status). Your NRE and NRO accounts must then be re-designated, FCNR(B) deposits may run to maturity, and Section 6(4) lets you keep your foreign assets untouched. We cover the sequencing in our guide to converting NRI accounts on return.