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FEMA governs almost every cross-border financial move you make as an NRI — which accounts you can hold, what you can invest in, what property you can buy. Get it wrong and penalties can run up to three times the transaction amount.
The Foreign Exchange Management Act, 1999, regulated by the RBI, governs the inflow and outflow of foreign currency across Indian borders. For NRIs, it touches almost everything: which bank accounts you're allowed to hold, what property you can buy, what investments are off-limits, and how much you can move in or out of the country.
| Property type | Allowed? |
|---|---|
| Residential property | Yes — no limit on number, no RBI approval needed |
| Commercial property | Yes — same as residential |
| Agricultural land | No — cannot be purchased under any circumstance |
| Plantation property | No |
| Farmhouses | No |
The prohibited categories can only be acquired through inheritance or as a gift — never through direct purchase, regardless of citizenship or how the land might be zoned for future development. All property payments must go through normal banking channels in Indian rupees; cash payments and foreign currency notes aren't permitted for property transactions.
Permitted: Mutual funds, listed equity (via PIS/Non-PIS), NPS, Sovereign Gold Bonds held from before becoming NRI, and most standard market instruments.
Prohibited: Opening new PPF (Public Provident Fund) accounts or most small savings schemes — though a PPF account opened while you were a resident can continue until maturity.
The logic here is straightforward: these small savings schemes are designed as sovereign-backed instruments for resident savers, and FEMA restricts NRIs from opening fresh ones, even though other market-linked investments remain open.
You can't operate a regular resident savings account once your status changes — it must be converted to NRO, or a fresh NRE/NRO account opened.
NRE accounts can only be held jointly with another NRI, not with a resident Indian — pairing an NRE account with a resident joint holder is a common violation.
Lending money from an NRE account to a resident Indian is not permitted under standard FEMA rules.
If you sell property purchased using NRE funds, sale proceeds on up to two residential properties can be fully repatriated — but the repatriated amount cannot exceed the original foreign currency investment in that property. Property bought with NRO funds, or beyond the two-property limit, falls under the standard USD 1 million annual NRO repatriation cap covered in the previous lesson.
FEMA violations are civil offences, not criminal — but the penalties are still serious. Under Section 13, the penalty can run up to three times the amount involved, or ₹2 lakh where the sum can't be precisely quantified, plus a daily fine for contraventions that continue over time.
The RBI offers a compounding mechanism — if you've been non-compliant (knowingly or not), you can voluntarily disclose and settle the violation by paying a compounding fee, effectively regularizing your position rather than facing escalating penalties. This is worth pursuing proactively rather than waiting to be caught in a scrutiny process.
1. Buying land assuming "unoccupied" or "undeveloped" means it's not agricultural. Land classification, not current use or development potential, determines whether it falls under the agricultural restriction — always verify land-use classification before purchase.
2. Holding an NRE account jointly with a resident family member. This is a straightforward FEMA violation; NRE joint holders must both be NRIs.
3. Continuing to operate a resident savings account after becoming NRI. This needs to be converted or closed — using it as-is, even unintentionally, is non-compliant.
Key Takeaway: FEMA sets the boundaries for everything from account types to property purchases to repatriation, and the restrictions (agricultural land, joint account rules, small savings schemes) are narrow but strictly enforced — penalties can reach three times the transaction value. When in doubt, the RBI's compounding mechanism exists precisely so non-compliance can be corrected voluntarily rather than compounding into a bigger problem. With repatriation and FEMA covered, the final piece is getting your Indian tax return filed correctly. See Filing Taxes as an NRI.
Only through inheritance or as a gift from a resident — direct purchase of agricultural land, plantation property, or farmhouses is prohibited under FEMA regardless of intent or citizenship status.
No — NRIs can purchase an unlimited number of residential and commercial properties without RBI approval, though repatriation of sale proceeds is capped separately.
You can use the RBI's compounding mechanism to voluntarily disclose the violation and settle it by paying a compounding fee, which regularizes your position instead of facing the full penalty of up to three times the transaction amount.
Yes — a PPF account opened while you were a resident can continue until maturity, but you cannot open a new PPF account once classified as an NRI.
Disclaimer: This article is for general educational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Figures, rates, and rules mentioned may change over time — verify current details with an official source or a qualified professional before making financial decisions.