FEMA FAQs

Overview

Q: What is the role of RBI in relation to FEMA?

A: FEMA mandates main functions of RBI as:

  • Control over dealings in foreign exchange by giving general or special permission for dealing in foreign exchange.
  • Prior approval of RBI is required for certain current account transactions as provided in Foreign Exchange Management (Current Account Transactions) Rules, 2000. Restrictions on current account transactions be imposed by Central Government in consultation with RBI by making Rules;
  • Prescribing conditions for capital account transactions;
  • Make regulations for
  • Transfer or issue of foreign security to resident, and Indian security to non-resident,
  • Borrowing and lending in foreign exchange or to a foreign person,
  • Export/import of currency or currency notes,
  • Transfer of immovable property outside India, and
  • Giving guarantee or surety where foreign exchange transaction is involved;
  • Make regulations for realisation of foreign exchange due from export of goods and services;
  • Make regulations for realisation, possession and repatriation of foreign currency or foreign coins, foreign currency accounts, foreign exchange acquired from employment, business, trade, services etc.;
  • Granting authorisation to ‘Authorised Person’ to deal in foreign exchange, and give directions; and
  • To make any other Regulations.

Q: Who is Person Resident In India and Person Resident Outside India?

A: As per section 2(v) of FEMA, Person resident in India meansa person residing in India for more than 182 days during the course of the preceding financial year but does not include

(A) a person who has gone out of India or who stays outside India, in either case

  • for or on taking up employment outside India, or
  • for carrying on outside India a business or vocation outside India, or
  • for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than

  • for or on taking up employment in India, or
  • for carrying on in India a business or vocation in India, or
  • for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

To be treated as a person resident in India under FEMA, a person has not only to satisfy the
condition of the period of stay (being more than 182 days during the preceding financial year)
but has to also comply with the condition of the purpose/intention of stay.

As per section 2(w) of FEMA, Person resident outside India means a person who is not resident
in India.

Q: What is Current Account Transaction and Capital Account Transaction?

A: As per Section 2(j) of FEMA, Current account transaction meansa transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes

  • Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
  • Payments due as interest on loans and as net income from investments,
  • Remittances for living expenses of parents, spouse and children residing abroad, and
  • Expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Further, as per Section 2(e) of FEMA, Capital Account Transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India i.e.

  • Transfer or issue of any foreign security by a person resident in India;
  • Transfer or issue of any security by a person resident outside India;
  • Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;
  • Any borrowing or lending in foreign exchange in whatever form or by whatever name called;
  • Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;
  • Deposits between persons resident in India and persons resident outside India;
  • Export, import or holding of currency or currency notes;
  • Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India;
  • Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India;
  • Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred
  • by a person resident in India and owed to a person resident outside India; or
  • by a person resident outside India

NRI/PIO

Q: Who is Non-Resident Indian (NRI)? Who is Person of Indian Origin (PIO)?

A: ‘Non-resident Indian (NRI)’ meansa person resident outside India who is a citizen of India or is a person of Indian origin.
‘Person of Indian Origin’ means a citizen of any country other than Bangladesh or Pakistan, if

  • he at any time held Indian passport; or
  • he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
  • the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

However, the definition of NRI/PIO changes under the different regulation of FEMA. The same can be clarified with the help of below

Regulation Related To NRI PIO
FEM (Deposit) Regulations Bank Accounts Non-resident Indian (NRI)’ means a person resident outside India who is a citizen of India. ‘PIO’ means a citizen of any country other than Bangladesh or Pakistan, if he satisfies below conditions*
FEM (Borrowing and Lending In Rupees) Regulations Loans
FEM (Investment in Firm or Proprietary Concern in India) Regulations Setting up Proprietorship or Being Partner in Partnership Firm PIO’ means a citizen of any country other than Bangladesh or Pakistan or Sri Lanka, if he satisfies below conditions*
FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations Foreign Investment in India
FEM (Remittance of Assets) Regulations: Non-resident Indian (NRI)’ means a person resident outside India who is a citizen of India. ‘PIO’ means a citizen of any country other than Bangladesh or Pakistan, if he satisfies below conditions*
FEM (Acquisition and Transfer of Immovable Property In India) Regulations Buy/Sell Immovable Property In India ‘PIO’ means an individual (not being a citizen of 8 countries**) and who also satisfies the below conditions***

BANK ACCOUNTS

Q: What are the types of bank account that NRI/PIOs can open in India? What are the transactions permitted? NRIs/PIOs can open FCNR, NRE and NRO Account in India?

A: The transaction that can take place in each account can be explained with the help of below table:

Description FCNR Account NRE Account NRO Account
Who can Open NRI/PIO NRI/PIO Any person resident outside India
Restriction on opening Account Individuals/entities of Bangladesh/Pakistan nationality requires approval of RBI Individuals/entities of Bangladesh/Pakistan nationality requires approval of RBI Individuals/entities of Bangladesh/Pakistan nationality requires approval of RBI
Joint account of two or more NRIs Yes Yes May be held jointly with residents
Joint account with another person resident in India Not Permitted Not Permitted Permitted
Currency US Dollar, UK Pounds, Yen, Euro, Canadian dollars and Australian dollars Indian Rupees Indian Rupees
Repatriability of Principal Amount Freely Repatriable Freely Repatriable Current income fully repatriable. Upto USD 1 million per year for bona fide purpose permitted.
Repatriability of Interest Freely Repatriable Freely Repatriable Freely Repatriable
Permissible Credits Remittances in foreign exchanges, transfer from other NRE/FCNR account, refund when permissible payment was made from same account. Remittances in foreign exchanges, transfer from other NRE/FCNR account, refund when permissible payment was made from same account, current income like rent, dividend, pension, interest etc. subject to TDS and CS certificate. Remittance from abroad and legitimate dues in India of account holder.
Permissible Debits All local/foreign payments for permissible transactions on current/capital account All local/foreign payments for permissible transactions on current/capital account
  • All local payments including permissible investments
  • Remittance anroad of current income in India, net of taxes
  • Remittance of medical expenses and proceed of sale of property up to USD 1 million
Foreign Currency Risks No risk as the account is denominated in foreign currency Amount will be repatriated at the exchange rate prevalent on date of repatriation. Hence, if Rupee depreciates, amount repatriable expressed in terms of foreign exchange will be lower. Permissible amount will be repatriable at the exchange rate prevalent on date of repatriation. Hence, if Rupee depreciates, amount repatriable expressed in terms of foreign exchange will be lower.

Q: What are the restrictions to repatriation of sale proceeds of residential property purchased by NRIs / PIO out of foreign exchange?

A: Repatriation of sale proceeds of residential property purchased by NRI / PIO is permitted to the extent of the amount paid for acquisition of immovable property in foreign exchange received through banking channels. The facility is restricted to not more than two such properties. The balance amount can be credited to the NRO account and can be remitted under USD one million facility.

Q: Can NRIs/PIOs credit the current income to their Non-Resident (External) Rupee account?

A: NRIs/PIO have the option to credit the current income to their Non-Resident (External) Rupee account, provided the Authorized Dealer bank is satisfied that the credit represents current income of the non-resident account holder and income tax thereon has been deducted / provided for.

Q: Are Authorised Dealer banks permitted to issue International Credit Cards to NRIs/PIO? 

A: Authorised Dealer banks have been permitted to issue International Credit Cards to NRIs/PIO, without prior approval of the Reserve Bank. Such transactions may be settled by inward remittance or out of balances held in the cardholder’s FCNR(B)/NRE / NRO accounts.

Q: What is the impact of change of resident status of the NRE account, FCNR(B) account and NRO account holder?

A: NRE accounts: NRE accounts should be redesignated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts (if the account holder is eligible for maintaining RFC account) at the option of the account holder immediately upon the return of the account holder to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India.

FCNR(B) deposits: When an account holder becomes a person resident in India, deposits may be
allowed to continue till maturity at the contracted rate of interest, if so desired by him. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR(B) deposits, for all other purposes such deposits shall be treated as resident deposits from the date of return of the account holder to India. Authorised dealers should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the account holder and interest on the new deposit (rupee account or RFC account) shall be payable at the relevant rates applicable for such deposits.

NRO accounts: NRO accounts may be re-designated as resident rupee accounts on the return to the
account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.

LOANS/BORROWINGS

Q: Can an individual resident Indian borrow money from his close relatives NRI/PIO?

A: Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

  • the minimum maturity period of the loan is one year;
  • the loan is free of interest; and
  • the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Q: Can an individual resident lend money to his close relative NRI / PIO?

A: Yes, an individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 200,000 per financial year under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India, subject to conditions. The loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

Q: Can an individual resident repay loans of close relative NRIs to banks in India?

A: Yes, where an authorised dealer in India has granted loan to a non-resident Indian such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower's loan account through the bank account of such relative.

Investments

Q: What does an ‘FDI’ mean? 

A: ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of the Indian company under Schedule 1 of FEMA 20.

Others

Q: What are the other benefits under FEMA/RBI Regulations for NRI or PIO?

A: Benefits provided to NRIs/PIOs can be further explained in below table:

Particulars
Investment Facilities for NRIs NRIs may, without limit, purchase on repatriation basis:

  • Government dated securities / Treasury bills
  • Units of domestic mutual funds;
  • Bonds issued by a public sector undertaking (PSU) in India.
  • Non-convertible debentures of a company incorporated in India.
  • Perpetual debt instruments and debt capital instruments issued by banks in India.
  • Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
  • Shares and convertible debentures of Indian companies under the FDI scheme
  • Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme.
 NRI may, without limit, purchase on non-repatriation basis :

  • Government dated securities / Treasury bills
  • Units of domestic mutual funds
  • Units of Money Market Mutual
  • National Plan/Savings Certificates
  • Non-convertible debentures of a company incorporated in India
  • Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme.
  • Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-¬repatriable basis, subject to the limits prescribed by the SEBI.

Note: NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).
Investment in Immovable Property NRIs/PIOs may acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds.
Facilities to returning NRIs/PIOs
  • Returning NRIs/PIOs may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India.
  • The income and sale proceeds of assets held abroad need not be repatriated.
Resident Foreign Currency (RFC) Account
  • Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts.
  • Proceeds of assets held outside India at the time of return can be credited to RFC account.
  • The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.
  • RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.RFC accounts are permitted to be held jointly with the resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.