You’ve just sold a flat in Pune. The buyer has paid, the registry has been completed, and now you want to wire the proceeds to your account in the UK or the US. Simple enough, you think. Then your bank hands you a list of documents, mentions something about Form 15CA, Form 15CB, and an RBI limit, and suddenly the transaction that felt straightforward is anything but.
This guide explains the FEMA rules in India that every NRI must understand when repatriating sale proceeds, managing NRE, NRO, and FCNR(B) accounts, and navigating RBI permissions. The Foreign Exchange Management Act, 1999 governs every cross-border movement of money involving India: property sales, NRI bank accounts, foreign investments, business borrowings, and more. It replaced the old Foreign Exchange Regulation Act, which treated violations as criminal offences. Under FEMA, contraventions are civil in nature, but the penalties are substantial, and the documentation requirements catch even financially savvy NRIs off guard.
At CAK & Associates LLP, a Pune-based chartered accountancy firm specialising in cross-border tax and FEMA advisory, these questions arrive regularly from NRIs in countries across the globe. This guide covers the answers most of them need first.
What FEMA actually governs, and who falls under it
FEMA draws a fundamental distinction between two categories of transactions: current account transactions and capital account transactions. Current account transactions cover trade payments, travel expenses, and income remittances; these are broadly permitted. Capital account transactions cover investments, property purchases, loans, and the movement of capital assets; these are far more regulated, and this is where most NRI compliance complexity lives.
Residency under FEMA is determined differently from income tax residency, and confusing the two is a common mistake. Under FEMA, a “person resident outside India” is someone who has been outside India for more than 182 days in the preceding financial year, with limited exceptions. This means an individual can be a tax resident of India under the Income Tax Act but still qualify as a non-resident under FEMA, with different obligations applying under each statute.
FEMA applies to Indian citizens abroad, Persons of Indian Origin (PIOs), foreign nationals with Indian income or assets, and Indian entities with foreign shareholding. For routine FEMA transactions, individuals do not deal directly with the Reserve Bank of India (RBI). Instead, authorised dealer banks act as the first checkpoint, processing transactions within prescribed limits and referring only exceptional cases to the RBI for prior approval.
FEMA rules in India: NRE, NRO, and FCNR(B) accounts explained
These three account types form the backbone of most NRIs’ financial relationship with India, and the rules governing each are distinct. Before exploring each account in detail, it helps to understand the broad distinction: NRE accounts hold foreign-sourced funds, NRO accounts receive India-sourced income, and FCNR(B) accounts are foreign-currency term deposits that shield you from rupee fluctuations. Getting the account structure right from the start saves significant compliance effort later.
An NRE (Non-Resident External) account is a rupee-denominated account funded by money remitted from abroad or transferred from another eligible NRI account. Both principal and interest are fully repatriable, meaning you can send funds back overseas without restriction. It is the right vehicle for funds you may eventually want to move out of India. It can be held jointly with a resident relative on a “former or survivor” basis.
An NRO (Non-Resident Ordinary) account is where India-sourced income lands: rent, dividends, pension, and similar receipts. Current income can generally be repatriated without a cap, but all other remittances from the NRO account are capped at USD 1 million per financial year (per the RBI Master Direction on Remittance of Assets), subject to tax compliance and the submission of Form 15CA and Form 15CB, the latter certified by a Chartered Accountant. Verify current bank-specific practice with your authorised dealer, as procedural requirements can be updated by RBI circulars. The USD 1 million limit resets every 1 April and requires proper documentation before your bank will process the transfer.
An FCNR(B) (Foreign Currency Non-Resident Bank) account is a term deposit maintained in a permitted foreign currency, not in rupees. It is fully repatriable at maturity and particularly useful for NRIs who want to park funds in India without exposure to rupee depreciation. When an NRI becomes resident in India, an existing FCNR(B) deposit may continue until maturity before being redesignated.
Buying and selling property in India: what FEMA permits and what it does not
Property is the FEMA topic that generates the most queries, and also the most confusion. The starting point is straightforward: NRIs can purchase residential and commercial property in India without prior RBI approval. What they cannot purchase directly are agricultural land, plantation property, and farm houses. Inherited property in any of these categories may be held even if direct purchase would have been restricted.
The source of funds matters as much as the type of property. Purchase consideration must come through inward foreign remittance via normal banking channels, or from NRE or FCNR(B) account funds. Cash, foreign currency notes, and traveller’s cheques are not accepted. If you fund a property purchase from your NRO account, the sale proceeds remain on the NRO repatriation route and are not freely repatriable; they count within the USD 1 million annual cap.
When you sell a property and want to repatriate the proceeds, the permissible amount is generally limited to the original foreign exchange amount brought in for the acquisition. For residential property, repatriation is typically restricted to proceeds from not more than two properties under standard RBI permission. Full repatriation requires proof of acquisition, applicable tax compliance, and relevant sale documents. Inherited property may qualify under the broader USD 1 million annual remittance facility in certain cases, but this requires careful structuring and thorough documentation.
Transactions that need RBI permission, and those that don’t
The Foreign Exchange Management (Current Account Transactions) Rules, 2000 organise current account transactions into three schedules. Understanding this structure removes a great deal of unnecessary compliance anxiety.
The three schedules operate as follows:
- Schedule I, Prohibited transactions: These cannot be undertaken regardless of approval. They include remittances from lottery winnings, gambling proceeds, income from racing or hobbies, and payments related to certain commission and dividend arrangements.
- Schedule II, Government of India approval required: This covers items such as cultural tours, advertisement payments in foreign print media by state entities, and a handful of public-sector remittances.
- Schedule III, RBI prior approval required: This includes remittances for private visits exceeding USD 10,000 per financial year, gifts and donations above USD 5,000, business travel beyond USD 25,000, and certain maintenance-related remittances above specified limits. (Verify current thresholds against the Rules as amended, since these figures are subject to periodic revision.)
If a transaction does not fall into any of these three schedules, it proceeds through an authorised dealer bank under general permission. The Liberalised Remittance Scheme (LRS) operates within this framework for resident Indians, not NRIs, permitting remittances of up to USD 250,000 per financial year for permitted purposes without RBI prior approval. Amounts beyond the LRS limit require RBI permission and are evaluated individually.
Small businesses dealing in cross-border contracts or foreign equity must verify which approval route applies before transacting. Certain overseas investments outside the automatic route, foreign borrowings above External Commercial Borrowing (ECB) guidelines, and transfers of capital instruments outside pricing norms all require prior RBI approval. Acting first and seeking permission later is significantly more complicated: retroactive regularisation typically involves filing a compounding application, paying a compounding fee, and demonstrating that the contravention has been remedied, a process that can take months. The compounding section below explains this in detail.
FEMA penalties and compounding: what happens when something goes wrong
The penalty structure under FEMA is tiered but meaningful. The maximum penalty is up to three times the sum involved in the contravention if the amount is quantifiable, or up to Rs. 2,00,000 if it is not. A continuing contravention attracts an additional penalty of up to Rs. 5,000 per day from the second day onwards. These amounts accumulate quickly on property-related matters where the underlying sums are large.
Compounding is FEMA’s settlement mechanism and the legitimate path to regularise a past violation before it escalates to adjudication. A person who has committed a contravention can apply to the competent authority to have it resolved by paying a compounding amount. For most FEMA contraventions, the competent authority is the RBI. Contraventions under Section 3(a) go to the Directorate of Enforcement (ED) instead. The compounding order must be issued within 180 days of a complete application, and the prescribed filing fee is Rs. 10,000 plus 18% GST.
The application process involves submitting the prescribed compounding form, supporting annexures, an undertaking that the applicant is not under Enforcement Directorate investigation, and other documents specific to the contravention type, FDI, ECB, property, or otherwise. Relevant supporting documents typically include proof of the original transaction, evidence of subsequent tax payments or rectification measures, and audited computations of the amounts involved; the RBI’s compounding directions specify required annexures for each contravention category. Applications can be filed physically or through the RBI’s PRAVAAH Portal. A thorough, well-documented application directly influences how the authority assesses the contravention and, consequently, the compounding amount payable. CAK & Associates LLP advises on FEMA compounding proceedings, from structuring the initial application to following up on the compounding order.
Key 2026 FEMA amendments every NRI and small business must track
FEMA is not a static framework, and readers who last reviewed their compliance posture a few years ago are likely working with an outdated picture. Several significant changes took effect in 2025, 26, with one major reform kicking in on 1 October 2026.
The Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 replace the 2015 regime, multiple master directions, and dozens of circulars with a consolidated framework covering goods, services, software, and merchanting trade. Under the new FEMA rules in India for exporters, effective 1 October 2026, key changes include:
- An export realisation period of 15 months (18 months for INR-invoiced exports)
- Event-based reporting through the Export Declaration Form (EDF) within 30 days of month-end
- Expanded set-off possibilities between export receivables and import payables
Exporters and importers who have not yet reviewed their invoicing, realisation, and declaration workflows against the new regulations are running out of time.
The ECB framework has also been updated through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. The RBI substituted the master direction annexures with a revised Form ECB 1 (for obtaining the Loan Registration Number before first drawdown) and a new event-based Form ECB 2, to be filed within 7 calendar days of month-end whenever a drawdown or debt-servicing event occurs. The old monthly ECB-2 certification requirement is gone; reporting is now event-triggered, which simplifies the cadence but demands careful event monitoring.
Separately, the Foreign Exchange Management (Guarantees) Regulations, 2026 replaced the older circular-based guarantee regime with a principle-based framework, making formal reporting of guarantees, modifications, and invocations a standard compliance item rather than an optional disclosure.
If your business borrows abroad, issues cross-border guarantees, or has significant export-import activity, your internal compliance processes likely need a structured review against these new frameworks. Waiting until October is not a strategy: the documentation changes and procedural adjustments require advance preparation, not last-minute catch-up.
Where to go from here
The FEMA rules in India are navigable. They are also layered, regularly amended, and unforgiving when documentation is incomplete. The consequences of getting property repatriation wrong, misclassifying an NRO remittance, or missing a compounding window can be costly and time-consuming to reverse, and the cost compounds literally when daily penalties apply.
The clearest path forward is to map your specific situation against the rules that apply to your residency status, the accounts you hold, the assets you own, and the transactions you are planning. That mapping looks different depending on whether you are an NRI selling inherited property in Pune, a software exporter adjusting to the October 2026 regime change, or a startup with a reporting obligation under the updated ECB framework.
CAK & Associates LLP offers FEMA compliance services across all of these scenarios: account structuring for NRIs, property transaction guidance, NRO repatriation support with Form 15CA/15CB preparation, compounding applications, and 2026 amendment reviews for exporters, importers, and ECB borrowers. The firm’s team brings both local presence across India and hands-on cross-border experience. Reach out for a FEMA compliance review before your next transaction.
