FEMA Guidelines for NRIs in 2025: Investments, Transfers & Limits

If you are an NRI, chances are you’ve heard of FEMA, but you may not be entirely aware of how it affects your money in India. 

The FEMA (Foreign Exchange Management Act), 1999, was designed to manage how NRIs can hold funds and assets in India and transfer their funds internationally. Staying informed about and compliant with FEMA guidelines can help NRIs manage their money and investments properly.

In this blog, we’ll discuss FEMA guidelines for NRI in India: how they work, and how they can help in your banking and investment activities.

FEMA (Foreign Exchange Management Act) was enacted by the Indian government in 1999 for the management and regulation of currency flow internationally. Knowledge of FEMA provisions is important for NRI (Non-Resident Indian) citizens who conduct financial activities in the country.

The government of India launched FEMA to introduce order into the foreign exchange market in India. Under FEMA, all foreign exchange transactions are governed by a set of rules and regulations. They outline how money can be transferred to or invested in India, including how to buy real estate and which accounts can be used for this purpose.

FEMA guidelines are applicable to NRIs. They are defined as individuals who have not resided in India for at least 182 days during the course of the preceding financial year.

FEMA guidelines apply to both banking and investment activities of NRIs. Broadly, they summarize what types of accounts NRIs can hold and what investment vehicles they can retain. We’ll look at both aspects here.

1. 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.

2. Investment opportunities

NRIs are allowed to invest in a few different vehicles. These are Indian financial markets, stocks, government securities, bonds, and real estate. The official way to invest is through a Portfolio Investment Scheme (PIS), which links NRE or NRO accounts to a stockbroker. 

FEMA guidelines set some limits on investments, however. NRIs cannot hold more than 5% of a listed company’s capital. They are also not permitted to make investments in small savings or Public Provident Fund (PPF) schemes. They cannot purchase agricultural or plantation property in India, and cannot intra–trade in the real estate market.

Staying informed about and compliant with FEMA guidelines can help NRIs manage their financial transactions properly. They can avoid penalties, invest securely, and keep track of all finances.

Fund movement

With knowledge of FEMA guidelines, NRIs can transfer their funds within India and abroad in a straightforward way, without heavy financial penalties.

Regulatory compliance

Staying compliant with FEMA can help avoid penalties or blocks on investments and banking operations. Getting clarity on taxation and reporting rules can be equally helpful in planning investments. 

With platforms like Xflow, you can route all your forex dealings through authorized channels, and track them in real-time, helping you with your FEMA compliance.

Confident investments

FEMA compliance lets you invest securely, with the knowledge that all your transactions are recognized and safeguarded by Indian law. Businesses that stay compliant can build stronger relationships with foreign investors, opening doors to global markets.

FEMA guidelines for NRIs govern industries like real estate, the stock market and business investments. In all such industries, FEMA ensures that foreign currency exchange is regulated. Let’s see how.

1. Real estate

Under FEMA guidelines, NRIs can buy residential and commercial properties, and rent them out as well. Buying agricultural land, plantation properties, and farmhouses is prohibited. FEMA restricts the repatriation to two properties if the NRI chooses to sell them.

2. Stock market

Through the PIS, NRIs can invest in India’s financial markets through stocks. These are taxable. NRIs will often find that mutual fund and stock investments in India can earn high returns.

3. Business investments

FEMA permits NRIs to invest directly in Indian businesses, often in partnership with domestic companies.

Are FEMA guidelines the same as RBI regulations? FEMA (Foreign Exchange Management Act) is the legal framework for foreign exchange. The Reserve Bank of India (RBI) acts as the implementing authority. The RBI issues circulars and guidelines to ensure FEMA is followed in practice.

Let’s summarize their differences in a table:

Non-residents need to comply with both FEMA (Foreign Exchange Management Act) guidelines for foreign exchange, and income tax rules under the Income Tax Act of 1961. Let’s see how:

For NRIs, FEMA guidelines come with a few key features and components. These include account options and restrictions, repatriation limits, property investment rules, documentation requirements, and regulatory compliance.

Account options

Since NRIs cannot hold traditional Residential Savings accounts, they must opt for NRE, NRO, and FCNR accounts. Each of these comes with its own currency rules, taxability, repatriation guidelines, features and limitations. 

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

NRIs can buy residential and commercial property. Agricultural, plantation, and farmhouse properties are off-limits.

Documentation

FEMA declaration documents are necessary for NRIs and businesses seeking to send money out of the country. Individuals need to have an identity, an address, and NRI status proof documents.

For specific transactions, forms like Form A2 (for forex remittances) need to be filled with information on the purpose and amount of remittance. The LRS declaration is for individuals (not businesses) sending out money, while the FC-TRS declaration is for the sale of shares internationally.

Taxation

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

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.

NRIs can face a few common challenges when complying with FEMA guidelines. Most of these stem from misconceptions about FEMA.

Firstly, they might not be aware of specific investment restrictions, such as the ones governing agricultural property or PPFs. Secondly, they may continue to use their Indian savings accounts, which is a FEMA violation, instead of NRE/NRO/FCNRs. Thirdly, filling out relevant forms and submitting them to the right authorities can be tricky.

Although it comes with challenges, FEMA guidelines can be helpful for managing wealth across borders. Following some best practices, like staying informed about FEMA guidelines, opening the right accounts, maintaining documentation, and consulting professionals when needed, can go a long way in staying compliant. Open and maintain the right accounts (NRE, NRO, FCNR) based on the income source.

Here are some best practices to keep in mind:

• Use an Authorized Dealer Bank for all foreign exchange transactions.

• Open and maintain the right bank accounts, including NRE accounts, NRO accounts, and FCNR accounts. Make the decision after consulting professionals and considering the source and use of funds in that account.

• Check repatriation limits. NRO accounts have repatriation (USD 1M limit), while NRE and FCNR do not.

• Maintain the correct documentation. For example, Form A2 is to be used for forex purchases, and Form 15CA / 15CB is to be used to certify tax compliance.

• Finally, consider seeking professional advice, especially for high-value investments. These consultants can offer an informed perspective on FEMA guidelines and the steps you can take to safeguard your international transactions.

Navigating FEMA compliance involves strict regulatory requirements. Missing KYC, incorrect purpose codes, and failure to follow property and asset rules can result in fines and penalties. Here’s what to keep in mind:

KYC

NRIs need to furnish the right documents for customer identification to Authorized Dealer (AD) banks, as per RBI’s directions.

Purpose codes

All transactions need to be tagged with the correct purpose codes when filling out relevant documentation.

Property and asset rules

NRIs should be aware of the properties, assets, and investment instruments allowed (shares, bonds, PIS) under FEMA guidelines. Transfer or sale of these investments should follow FEMA restrictions, too.

With the help of digital banking and fintech solutions like Xflow, FEMA compliance is becoming simpler, ensuring NRIs can focus on building their financial future in India and abroad. Try Xflow today and experience frictionless international transactions.