What FEMA rules govern NRI bank accounts such as NRE and NRO accounts?

Question

I have recently moved abroad for work and want to know what kind of bank account I should maintain in India and what rules apply to repatriating the funds. I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "What FEMA rules govern NRI bank accounts such as NRE and NRO accounts?" turns on Foreign Exchange Management Act 1999, Section 6, FEMA (Deposit) Regulations 2016 and Income Tax Act 1961, Section 10(4). The points below set out the position and then what to do about it, in the order it should be done.

Section 6 of the Foreign Exchange Management Act 1999 empowers the RBI to regulate and prescribe the manner in which persons resident outside India can hold accounts in India, and this power is exercised through the FEMA (Deposit) Regulations 2016.

A Non-Resident External (NRE) account holds foreign earnings converted to rupees and is fully repatriable, including both principal and interest, while a Non-Resident Ordinary (NRO) account is meant for income earned in India, such as rent or dividends, and repatriation from it is subject to specified limits and tax clearance.

Interest earned on an NRE account is exempt from Indian income tax under Section 10(4) of the Income Tax Act 1961 as long as the account holder retains non-resident status, whereas NRO account interest is fully taxable in India.

On becoming a non-resident, a person is required under FEMA to re-designate their existing resident savings account as an NRO account, and continuing to operate a regular resident account after becoming an NRI is a violation of FEMA regulations.

Repatriation of funds from an NRO account is capped at USD 1 million per financial year, subject to submission of Form 15CA and 15CB confirming tax compliance, whereas NRE account funds can be freely repatriated without such a cap.

What to do next: 1) Inform your bank of your change in residential status immediately upon becoming an NRI; 2) Convert your existing resident account into an NRO account and open an NRE account for foreign remittances if needed; 3) Maintain records of income earned in India for tax clearance before repatriating funds from the NRO account; 4) File Form 15CA and 15CB where required before repatriating NRO funds above the prescribed threshold.

If you are unsure whether your facts fall inside Foreign Exchange Management Act 1999, Section 6, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in banking law.