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Who is an NRI?
Under FEMA, an NRI is a person:
Who is an Indian Citizen, has gone out of India or stays outside India, in either case for or on taking up employment outside India for carrying on a business or vocation outside India, or for any other purpose, in such circumstances as would indicate an intention to stay outside India for an uncertain period.
In other words, an NRI is a person who is not a person resident in India, but who is a citizen of India.
FEMA Definition of Resident and Non-Resident
Reserve Bank of India (RBI) Master Direction on Definition of Resident and Non-Resident under FEMA, 1999.
A ‘person resident in India’ as defined under Section 2(v) of the Foreign Exchange Management Act, 1999 (FEMA) means a person residing in India for more than 182 days during the course of the preceding financial year.
But does not include:
A person who has gone out of India or who stays outside India, in either case—
(A) for or on taking up employment outside India, or
(B) for carrying on outside India a business or vocation outside India, or
(C) for any other purpose, indicating his intention to stay outside India for an uncertain period.
Key Clarification
Clarification on Residential Status
The residential status of a person leaving India will be determined as under:
If a person leaves India for the purpose of employment, business or for any other purpose that indicates his intention to stay outside India for an uncertain period; then he becomes a person resident outside India from the day he leaves India for such purpose.
The residential status of a person returning to India will be determined as under:
If a person comes to India for the purpose of employment, business or for any other purpose that indicates his intention to stay in India for an uncertain period; then he becomes a person resident in India from the day he comes to India for such purpose.
Under FEMA, stay for a period of 182 days is also stated. However, it shall be noted that the residential status of a person in our opinion is primarily determined basis the intention of the person to stay in India.
The exclusion applies specifically to individuals who have departed from or remain outside India with the intent to stay abroad for an uncertain duration, linked to employment, business, vocation, or other purposes. This intent-based carve-out ensures that temporary or certain period absences do not alter resident status.
Change in Bank Accounts After Becoming NRI
Upon change in residential status to ‘person resident outside India’ (NRI), all resident bank accounts held must be redesignated as Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts, as applicable under FEMA Regulations.
Note: FEMA residency determination differs from Income Tax Act provisions, which apply multiple tests including basic and deemed residency criteria.class=”wpex-mt-0″
Need clarity on FEMA rules for NRIs, bank accounts, or repatriation? Contact us for expert FEMA advisory and RBI-compliant guidance.
Bank accounts under FEMA
According to FEMA guidelines, NRIs cannot hold traditional savings accounts in India. Instead, one of the following options has to be considered.
- NRE account (Non-Resident External): This account is for any income that is earned abroad. Both the money deposited and the interest earned are fully “repatriable”, which means that they can be sent abroad freely. The earned interest is also tax-free in India.
- NRO account (Non-Resident Ordinary): This account is meant for income earned within India, such as rental income, dividends, or a pension. Unlike NRE accounts, repatriation from NRO accounts is restricted. The income from an NRO account is taxable and eligible for a loan.
- FCNR account (Foreign Currency Non-Resident): Unlike the NRE and NRO, which are maintained in INR, FCNR accounts are kept in a foreign currency such as USD, GBP, or EUR. FCNR accounts are term deposits that remain stable even in cases of currency fluctuations and are exempt from taxation.
Importance of FEMA for NRIs
For Non-Resident Indians (NRIs), FEMA rules are not optional. They govern how you can maintain accounts, invest in India, buy property, or send money abroad. Misunderstanding these rules can lead to penalties, but following them can help NRIs manage their wealth seamlessly. FEMA is not a hassle, it acts as both a guide and a safeguard for cross-border transactions.
Repatriation limits
Repatriation, or money transfer, comes with its own set of rules. As per RBI guidelines, NRIs can repatriate up to $1 million per year from NRO accounts, subject to proper documentation. NRE and FCNR accounts allow full repatriation, without limits. NRIs can also repatriate the sale amount of up to two residential properties. If this were an inherited property, then it would be subject to a $1 million per year limit.
Property Rules for NRIs
NRIs can buy residential and commercial property. Agricultural, plantation, and farmhouse properties are off-limits.
Taxation for NRIs
Income earned in India is taxable under the Income Tax Act. NRIs have to pay taxes on rental incomes, capital gains, and interest earned on their bank accounts. DTAA applies to several countries and helps prevent double taxation on the same income.
Regulatory Compliance Under FEMA
Compliance starts with staying informed on FEMA guidelines for NRIs and the ever-changing RBI regulations. Staying compliant can prevent penalties, account freezes, and operational blockages.
Frequently Asked Questions
Under FEMA, an NRI is an Indian citizen who resides outside India for employment, business, or any purpose indicating an intention to stay abroad for an uncertain period.
Residential status under FEMA is determined primarily by the intention to stay in or outside India, not just the 182-day rule.
No. NRIs must redesignate resident savings accounts into NRE or NRO accounts after becoming a person resident outside India.
NRIs can maintain NRE, NRO, and FCNR accounts depending on the source of income and repatriation needs.
NRIs can repatriate up to USD 1 million per financial year from NRO accounts, while NRE and FCNR accounts allow full repatriation.
Conclusion
NRIs, FEMA is not just a legal framework; it is the foundation for managing cross-border finances. Whether it is choosing the right account, understanding investment restrictions, buying property, or sending money abroad, compliance with FEMA ensures that your wealth remains secure and legally protected.
In today’s interconnected world, where financial flows are faster and more complex than ever before, FEMA continues to provide the clarity and confidence needed for NRIs to manage their Indian assets. Staying informed, keeping proper documentation, and seeking professional guidance are essential to avoid penalties and make the most of India’s financial opportunities.
Sriya Enterprise strongly recommends consulting with certified FEMA advisors for personalized guidance tailored to your specific circumstances, ensuring seamless compliance and optimal management of your cross-border finances in line with the latest RBI regulations.
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