The Foreign Exchange Management Act 1999 (FEMA) replaced FERA 1973, shifting from a criminal to a civil regulatory approach for foreign exchange violations. For individual Indians and NRIs, key FEMA provisions cover how much can be remitted abroad, what can be invested by NRIs in India, and what is prohibited.
Liberalised Remittance Scheme (LRS)
LRS allows resident individuals (including minors through parents) to remit up to USD 2,50,000 per financial year for any permissible current or capital account transaction:
- Education abroad
- Medical treatment
- Overseas travel
- Investments in foreign equities, debt, real estate
- Gifts to close relatives abroad
- Donations to foreign institutions
TCS on LRS: From 1 October 2023, TCS at 20% applies on remittances exceeding Rs. 7 lakh per year (for non-education/medical purposes). Education through loan: 0.5% TCS; self-funded education: 5% TCS above Rs. 7 lakh.
NRI Investments in India
| Investment Type | Route | Notes |
|---|---|---|
| Indian equities | NRI Portfolio Investment Scheme (NRI-PIS) via designated bank | No repatriation limit from NRE account |
| FDs in India | NRE FD (repatriable) or NRO FD (limited repatriation) | NRE interest exempt from Indian tax |
| Real estate | Direct purchase allowed (not agricultural land/plantation) | Purchase via inward remittance or NRE/NRO funds |
| Mutual funds | Permitted except some US/Canada residents (FATCA) | PAN mandatory |
Current Account Transactions
Current account transactions (trade, remittances, services) are generally freely permitted subject to RBI schedule. No prior RBI approval needed for most current account transactions.
Capital Account Transactions
Capital account transactions (investment in foreign assets) require RBI permission or are scheduled. LRS is a general permission for residents. NRIs investing in India follow Schedule 1/2 of FEMA (Transfer or Issue of Security to NRI).
Prohibited Transactions
- Dealing in foreign exchange with unauthorised persons
- NRIs cannot buy agricultural land/plantation property in India
- Cannot operate foreign exchange in India without authorisation
- Cannot exceed LRS limit without RBI special permission
Penalties Under FEMA
- Up to 3 times the amount involved for contraventions
- Daily penalty of Rs. 5,000 for continuing violations
- Compounding available for most FEMA violations (RBI/Enforcement Directorate)
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