12 Jun 2026FEMA — the Foreign Exchange Management Act, 1999 — governs every cross-border financial transaction an NRI makes with India. It decides what bank accounts you can hold, how you can invest, what property you can buy or sell, and how you can repatriate money abroad. Getting it wrong is not just a paperwork problem: contraventions can attract penalties of up to three times the amount involved.
Updated: 23 October 2026 | Regi Tom Antony & Associates, Chartered Accountants, Kochi
This guide sets out the FEMA rules NRIs need to know in 2026 — the account types (NRE, NRO, FCNR), what investments are permitted, repatriation limits, the most common violations, and how compounding works if you have already slipped up.
NRI Status Under FEMA Is Different From Income Tax
Under FEMA, you become a "Person Resident Outside India" the moment you leave for employment, business, or with the intention to stay abroad indefinitely. The test is based on intent and purpose — not a day count. This is a crucial difference from the Income Tax Act, where residency is decided purely by the number of days physically present in India.
Why it matters: a person who is a resident under FEMA cannot hold NRE or FCNR(B) accounts. Failing to re-designate your accounts when your status changes is itself a FEMA contravention — one of the most common and most overlooked.
NRE vs NRO Account: What Is the Difference?
An NRE account holds your foreign earnings remitted to India and is fully repatriable and tax-free; an NRO account holds your India-sourced income (rent, dividends, sale proceeds), is taxable, and is repatriable only up to USD 1 million per financial year. An FCNR(B) account holds foreign-currency deposits, is fully repatriable and tax-free, and protects you against rupee depreciation.
| Feature | NRE Account | NRO Account | FCNR(B) Account |
|---|---|---|---|
| Currency | Indian Rupees | Indian Rupees | Foreign currency (USD, GBP, EUR, etc.) |
| Source of funds | Foreign income remitted to India | India-sourced income (rent, dividends, sale proceeds) | Foreign income, as a term deposit |
| Taxation of interest | Tax-free in India | Taxable (TDS ~30% + surcharge & cess) | Tax-free in India |
| Repatriation | Freely repatriable (principal + interest) | Up to USD 1 million per financial year, after taxes | Fully repatriable |
| Best used for | Parking foreign earnings in India | Managing Indian income & expenses | Hedging currency risk on foreign earnings |
On becoming an NRI, your existing resident savings accounts must be re-designated as NRO accounts. Continuing to operate a regular resident savings account as an NRI is a FEMA violation.
Can I Transfer Money From an NRO to an NRE Account?
Yes. You can transfer funds from your NRO account to your NRE account up to USD 1 million per financial year, provided all applicable taxes have been paid. The transfer requires Form 145 (formerly Form 15CA, filed by you) and Form 146 (formerly Form 15CB, a CA's certificate confirming the tax position). Without both forms, the bank will not process the transfer.
What Is an FCNR Account, and Who Can Open One?
An FCNR(B) — Foreign Currency Non-Resident (Bank) — account is a term deposit held in a permitted foreign currency such as USD, GBP, EUR, JPY, AUD or CAD. Any NRI or Person of Indian Origin (PIO) can open one. Because the deposit stays in foreign currency, you carry no rupee-depreciation risk, the interest is tax-free in India, and both principal and interest are fully repatriable.
Investments in India: What Is Permitted for NRIs
Immovable property: NRIs can buy residential and commercial property in India. Agricultural land, plantation property and farmhouses are prohibited — they cannot be purchased even with rupee funds.
Equity and mutual funds: NRIs can invest in Indian equities under the Portfolio Investment Scheme (PIS) through a designated bank. NRIs resident in the US and Canada face significant restrictions — many Indian AMCs do not accept US/Canada-resident investors because of FATCA reporting obligations.
Small savings schemes: NRIs cannot open new PPF or NSC accounts. An existing PPF account opened before you became an NRI can continue until maturity, but cannot be extended.
NPS: NRIs can contribute to the National Pension System, subject to FEMA. Contributions made from NRE or FCNR funds are repatriable on exit; contributions from NRO funds are not. The exit and withdrawal rules are otherwise the same as for residents.
Property Transactions and Repatriation Rules
For property acquired out of foreign exchange (via NRE/FCNR funds), sale proceeds can be repatriated freely — subject to the original purchase amount and a cap of two residential properties.
For property acquired out of rupee funds (NRO account, gifts, or inheritance), repatriation is capped at USD 1 million per financial year and requires Form 145 and, where required, Form 146 (formerly Forms 15CA and 15CB).
Common FEMA Violations by NRIs
- Operating a resident savings account after becoming an NRI
- Holding a PPF account without informing the bank of NRI status
- Buying agricultural land or a farmhouse in India — prohibited for NRIs
- Lending money from an NRE account to a resident Indian
- Failing to repatriate within the stipulated time after a property sale
- Joint accounts with an improper combination — an NRE account can be held jointly with another NRI, or with a resident close relative only on a "former or survivor" basis, where the resident can operate it only after the NRI's death
Penalties and Compounding Under FEMA
FEMA violations are civil offences, not criminal. The penalty under Section 13 is up to three times the amount involved, or ₹2 lakh where the sum is not quantifiable, plus a daily fine for continuing contraventions.
The RBI offers a compounding mechanism: you can settle a contravention voluntarily by paying a compounding fee, effectively regularising it. If you have been an NRI and have not been fully compliant, it is almost always better to regularise proactively through compounding than to wait for enforcement action.
Returning to India: FEMA Implications
When an NRI returns to India permanently, FEMA status changes on the date of return. You must re-designate NRE accounts to resident accounts (or convert them to RFC accounts), inform your bank and investment houses, and stop transacting under NRI/PIS rules. There is no fixed grace period in the FEMA rules: banks expect NRE and FCNR accounts to be re-designated as soon as you return, although FCNR deposits may run to maturity.
How a CA Can Help With FEMA Compliance
FEMA compliance needs ongoing attention as your life changes — a new country of residence, a property transaction, or a return that extends unexpectedly. At Regi Tom Antony & Associates, we advise NRIs across the GCC, US, UK, Singapore and beyond on account structuring, repatriation (Forms 145/146, formerly 15CA/CB), property transactions and compounding applications. Talk to our NRI advisory team to review your position.
Related reading: NRI Capital Gains Tax on Property in India and DTAA for NRIs: How to Claim Tax Relief.
Frequently Asked Questions
What are the FEMA rules for NRIs?
FEMA rules require NRIs to hold the correct bank accounts (NRE, NRO or FCNR), invest only in permitted assets, avoid prohibited assets such as agricultural land, and observe repatriation limits — generally up to USD 1 million per financial year from NRO funds, with Forms 145/146 (formerly 15CA/CB).
What is the difference between an NRE and an NRO account?
An NRE account holds foreign earnings remitted to India, is tax-free and fully repatriable. An NRO account holds India-sourced income, is taxable, and is repatriable only up to USD 1 million per financial year after taxes.
Can I transfer money from an NRO to an NRE account?
Yes, up to USD 1 million per financial year after paying applicable taxes, supported by Form 145 (formerly 15CA, filed by you) and Form 146 (formerly 15CB, a CA's certificate). The bank will not process the transfer without both.
What is an FCNR account?
An FCNR(B) account is a foreign-currency term deposit for NRIs and PIOs. The interest is tax-free in India, the deposit is fully repatriable, and holding it in foreign currency protects you from rupee depreciation.
Can an NRI buy agricultural land in India?
No. NRIs are prohibited from purchasing agricultural land, plantation property or farmhouses in India. They can buy residential and commercial property freely.
What is the penalty for a FEMA violation?
FEMA contraventions are civil offences carrying a penalty of up to three times the amount involved, or ₹2 lakh where the sum is not quantifiable, plus a daily fine for continuing violations. Many violations can be settled through RBI compounding.
Do I need to change my bank accounts when I become an NRI?
Yes. Resident savings accounts must be re-designated as NRO accounts. You cannot continue operating a resident savings account as an NRI — doing so is a FEMA violation.
How much money can an NRI repatriate from India per year?
From NRO funds and rupee-sourced assets, up to USD 1 million per financial year after taxes, with Forms 145/146 (formerly 15CA/CB). Funds in NRE and FCNR accounts, and property bought with foreign exchange, are freely repatriable subject to conditions.
For NRIs navigating gifts and FEMA: see Gifting money or property to an NRI: tax, FEMA & LRS rules on NRI Blueprint.
Dedicated NRI guidance
For an in-depth, up-to-date guide on repatriating funds and sale proceeds from India, visit NRIBlueprint.com — our dedicated NRI tax & advisory site — or contact Regi Tom Antony & Associates for personalised help.
Full guide: for FEMA filings, DTAA relief, FDI, ODI, GST on cross-border services and the 2026 FEMA changes in one place, see our cross-border tax and FEMA advisory guide. For service exporters, see EDF for service exporters from 1 October 2026.