The Foreign Exchange Management Act, 1999 regulates what a person resident outside India may own, receive and remit in India. A contravention is a civil wrong punishable with a penalty of up to three times the sum involved. Most contraventions can be compounded: you apply to the Reserve Bank admitting the breach, pay the amount it fixes and the matter is closed. Where the Enforcement Directorate has issued a notice, you respond in adjudication proceedings and may still seek compounding in eligible cases.
- Nature
- Civil, not criminal
- Maximum penalty
- 3 times the sum involved
- Compounding authority
- Reserve Bank of India
- Investigating agency
- Enforcement Directorate
When you become a "person resident outside India"
FEMA has its own residence test, separate from income tax. You become a person resident outside India when you leave India for employment, business or any purpose indicating an intention to stay abroad for an uncertain period, from the day you leave, not at the end of the year. From then on your dealings with Indian assets are governed by the rules for non-residents.
That shift carries obligations: inform your banks and redesignate resident accounts as NRO; convert the demat account; stop fresh contributions to schemes closed to non-residents; and route investments through the correct NRE or NRO channel. Resident-era assets such as existing property, deposits and a running Public Provident Fund account may generally be continued.
Contraventions we see most
- Operating a resident savings account, or holding resident fixed deposits, after moving abroad.
- Buying agricultural land, a farmhouse or plantation property, which non-residents may not acquire.
- Paying for property in cash or from a third party's account, or receiving sale proceeds abroad directly.
- Lending to or borrowing from residents outside the permitted terms, for example interest-free foreign currency loans to friends.
- Investing in an Indian company without the required reporting, or on a repatriable basis through the wrong account.
- Continuing as partner or proprietor in sectors where non-resident investment is restricted.
- Exceeding repatriation limits or remitting without documentation.
For what is and is not allowed on land see agricultural land rules; for remittances see repatriation.
Compounding: how it works
Section 15 of FEMA permits compounding of any contravention other than those involving unauthorised foreign exchange dealing of the hawala type. The procedure is governed by the Foreign Exchange (Compounding Proceedings) Rules, 2024 and the Reserve Bank's directions. You file an application with the facts, the provision contravened, the amount and period, supporting documents and the prescribed fee. Any step needed to undo or regularise the transaction, such as transferring agricultural land to an eligible person or filing overdue forms, must usually be completed first.
The Reserve Bank grants a hearing, in person or by video, and passes an order within a target of one hundred and eighty days fixing the amount, calculated on published guidance by reference to the sum, the duration and whether the gain was real. On payment within fifteen days the contravention stands closed and no further proceedings can be taken on it. Cases under investigation for money laundering or with serious allegations may be referred instead to the Enforcement Directorate.
Enforcement Directorate notices and adjudication
The Directorate may call for information or documents, summon a person under section 37, and on forming a view issue a show-cause notice. An Adjudicating Authority then decides whether a contravention occurred and what penalty to impose, after hearing you. Appeals lie to the Special Director (Appeals) or the Appellate Tribunal, and then to the High Court on questions of law. Property equivalent in value to assets held abroad in contravention can be seized.
A summons should never be ignored; non-compliance is itself penalised. An NRI can respond through an authorised representative and request examination by video link. We prepare the reply, appear in the adjudication, and where the contravention is technical, move for compounding, which the law allows even after a notice in many cases. If the allegation overlaps with tax, see income tax notices; if with criminal law, see fraud matters.
A compliance review before it becomes a problem
Before a property sale, a large remittance or a return to India, it is worth an hour to check the position: how each account is designated, how each property was acquired and paid for, what loans and gifts have passed between you and residents, and what reporting any business holding required. Gaps found now can be regularised quietly; the same gaps found by a bank's compliance team mid-transaction can freeze funds for months.
Mistakes that cost NRIs time and money
- Waiting for a notice instead of regularising voluntarily.
- Assuming income tax compliance covers exchange control.
- Informal loans to or from residents in foreign currency.
- Investing in an Indian business without the required reporting.
A typical situation
A savings account left untouched for ten years
An engineer who moved abroad in 2014 never converted his resident savings account and fixed deposits. Before selling property he asks for a review. The bank redesignates the accounts as NRO, a compounding application is filed disclosing the facts, and the Reserve Bank fixes a modest amount. With the order on file, the later repatriation of sale proceeds passes the bank's compliance check without query.
Illustration only, based on patterns we commonly see. It is not a real client's case and outcomes depend on the facts.
If you live in...
The Indian law is the same wherever you live. These are the points that differ by where you are.
USA and Canada
Green card holders and citizens are often non-resident under exchange control long before they think of themselves as NRIs; status changes on leaving.
UK and Europe
Gifts and loans within families across borders should follow the permitted routes and be documented.
UAE and the Gulf
The most common lapse among Gulf workers is continuing resident accounts; it is easily cured.
Country pages: UAE, Saudi Arabia, Qatar, Kuwait, Oman, Bahrain
Australia, New Zealand and Asia
Founders in Singapore investing in Indian start-ups should check that each round was reported on time.
Country pages: Australia, New Zealand, Singapore, Malaysia
Detailed country pages for this service: FEMA Compliance for NRIs in UAE, FEMA Compliance for NRIs in Bahrain
Documents you will need
For a review or a compounding application we need:
- Passport showing date of leaving India
- List of Indian bank and demat accounts with status
- Property documents and how each was paid for
- Loan or gift records with residents
- Share certificates and FDI reporting, if any
- Notice or summons received
- Bank statements for the relevant period
- Earlier correspondence with bank or RBI
How we handle it for you
Fact-finding
We establish your FEMA status date and review each asset and transaction against the rules.
Regularisation
Accounts are redesignated, filings completed and prohibited holdings unwound.
Application or reply
The compounding application or reply to the notice is drafted with documents.
Hearing
We represent you before the Reserve Bank or the Adjudicating Authority.
Closure
The composition amount or penalty is paid and the order placed on record with your banks.
Frequently asked questions
Is a FEMA violation a criminal offence?
No. Contraventions of FEMA are civil and attract monetary penalties. Imprisonment arises only on failure to pay an adjudicated penalty, or under separate laws such as the money laundering statute where applicable.
I still have a resident savings account in India. Is that a violation?
Yes, once you are a person resident outside India the account should be redesignated as NRO. It can be regularised by informing the bank, and the contravention compounded if required.
What is the penalty for a FEMA contravention?
Up to three times the amount involved where it is quantifiable, or up to two lakh rupees where it is not, with a further daily penalty for continuing contraventions. Compounding amounts are usually far lower.
Can a FEMA contravention be compounded after an ED notice?
In many cases yes, provided the contravention is of a compoundable kind and there is no money laundering or national security angle. The Enforcement Directorate's view is taken into account.
I bought agricultural land in India as an NRI. What should I do?
The purchase contravenes FEMA. The usual course is to transfer the land to a resident Indian citizen and apply for compounding. Inherited agricultural land is not a contravention.
How long does compounding take?
The rules contemplate an order within one hundred and eighty days of a complete application. Simple cases are often decided sooner.
Can I keep my PPF account after becoming an NRI?
An existing account can be continued until maturity on a non-repatriation basis; it cannot be extended and a new account cannot be opened.
Can an NRI lend money to a relative in India?
Yes, in rupees or foreign exchange on the terms the rules allow, including limits on use of the money. Interest-free foreign currency loans to non-relatives are not permitted.
