The Indian economy is poised to touch $5 Tn mark by financial year 2024-25 and capitalise to double to $10 Tn by the end of this decade. This growth is grabbing the attention of non-residents who want to use their money to make big gains in a fast-developing country. However, before doing so, they must make themselves aware of the legal dos and don’ts. One of the main laws that set rules on the NRI investment in India is Foreign Exchange Management Act (FEMA). This makes it imperative for an NRI or Persons of Indian Origin (PIO) to have a general understanding of its key provisions.
What is FEMA?
The Foreign Exchange Management Act (FEMA) aims to control and monitor the flow of foreign currency in India. Started in 1999, the new law replaced the Foreign Exchange Regulation Act. FEMA also set the path for launch of the Prevention of Money Laundering Act 2002, in 2005. It also enabled the Reserve Bank of India (RBI) to pass rules related to foreign exchanges in line with the Foreign Trade Policy of India.
Types of bank accounts for NRI in India
NRIs can’t have a savings account in India. They have the following three types of accounts once the status of their residency changes:
- Non-Resident External (NRE) account
- Non-Resident Ordinary (NRO) account
- Foreign Currency Non-Resident (Bank) Accounts [FCNR (B)]
A resident Indian is not allowed to operate these accounts.
Number of bank account
An NRI is free to open as many bank accounts in India as he wants under the FEMA rules.
Residency status change information
NRIs must immediately inform their banks about any change in their residential status under the FEMA rules.
Number of accounts NRIs can maintain
There is no restriction on NRIs to open and maintain more than one type of accounts. They can also have more than one account within the similar category.
NRI investments in India
NRIs can purchase shares/convertible debentures issued by an Indian company on non-repatriation basis without any limit. Amount of consideration for such purchase is paid by inward remittance through normal banking channels from abroad or out of funds held in NRE/FCNR/NRO account maintained with the AD bank. An NRI can also without any limit purchase on non-repatriation basis dated government securities, treasury bills, units of domestic mutual funds, units of money market mutual funds. However, NRIs are not permitted to make investments in small savings schemes, including the PPF. In case of investment on non-repatriation basis, the sale proceeds must be credited to the NRO account. The amount invested under the scheme and the capital appreciation thereon will not be allowed to be repatriated abroad.
A Non-Resident Indian can purchase on repatriation basis, without limit, government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking in India and shares in PSEs being disinvested by the government, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
Property NRIs can buy in India
NRIs can buy immovable, residential, as well as commercial property, in India under the FEMA rules if it is not an agricultural land or farmhouse land.
“A person resident outside India, who is a citizen of India can acquire by way of purchase, any immovable property in India other than agricultural land/plantation property/farmhouse,” says the FEMA.
The payment for such transaction must be through normal banking channels by way of inward remittance from any place outside India or funds held in any non-resident account. Such payment cannot be made either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically mentioned.
NRIs can also receive property in the country as gifts and inheritance.
Money transfer limit for NRIs
There is no cap on money an NRI can send to India if it is earned legally. An NRI should pay taxes to the country where this income was generated.
FAQs
Who is an NRI?
A Non-Resident Indian (NRI) is a person who lives outside the country but a citizen of India or is a Person of Indian Origin.
Who is a Person of Indian Origin (PIO)?
A Person of Indian Origin is a citizen of any country other than Bangladesh or Pakistan, if he/she at any time held Indian passport or he/she or his/her parents or any of his/her grandparents were a citizen of India or he/she is the spouse of an Indian citizen.
What is an NRE account?
An NRE account means a non-resident external account.
What is an NRO account?
An NRO account means a non-resident ordinary account.
Where is the FEMA applicable?
FEMA is applicable to all agencies and offices owned by an Indian citizen in India or location outside India.
Which agency is responsible for enforcing the FEMA Act?
The Enforcement Directorate is an economic-intelligence wing responsible for enforcing the FEMA Act.
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