How to deal with emigration-related foreign exchange rules

#Emigration, #employment, #FEMA, #foreign exchange rules, #India, #regulations, #world

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While migrating from India, one must not lose sight of the Foreign Exchange Management Act, 1999 (FEMA) implications.

FEMA regulates cross-border transactions and investments proposed to be undertaken in India or outside India, including by individuals. Let’s understand some of the key foreign exchange regulations for an individual wishing to migrate.

Residential status 

All transactions, whether they be investments or remittances, are regulated under FEMA, based on the residential status of an individual at the time of the transaction.

An individual is considered Person Resident in India (PRI), if they have been present in India for more than 182 days in the preceding financial year (April 1 to the following March 31). There are certain exclusions – like, if someone is leaving India for employment or for business/vocation or with an intention to stay for an unspecified certain period.

If that’s not the case, an individual is considered a Person Resident outside India (PROI).

The merits of each case will depend on the FEMA definition of residential status.

Bank accounts in India 

FEMA regulations do not permit a PROI to hold resident savings bank accounts in India. They need to either convert their existing resident bank accounts to any of the designated non-resident accounts or open new accounts with an authorised dealer as stipulated by the Reserve Bank of India (RBI).

The key permissible non-resident accounts are Non-Resident (External) Rupee Account (NRE), Non-Resident (Ordinary) Rupee Account (NRO) and Foreign Currency Non-Resident Account (FCNR). Permissible debit and credit transactions have been prescribed for all these accounts under FEMA regulations.

Once an individual becomes a PROI, a careful evaluation is required to ascertain whether he can continue to hold existing accounts or whether a re-designation is required to another type of account or whether new accounts can be opened, as it may eventually impact the deposit or maintenance of funds, or the remittance into and outside India.  

Outward remittances 

Before emigration, a resident individual, as may be required, can avail the Liberalised Remittance Scheme (LRS) route for outward investments up to $250,000 per financial year (FY) in permissible securities and properties or for other specified purposes, such as for close relatives etc. Sending money outside India beyond the prescribed threshold would require RBI approval through an authorised dealer.

On the other hand, there is no upper limit for remittances outside India as far as repatriation from NRE and FCNR accounts are concerned. However, the NRO account is a non-repatriable account, except for current income and up to $1 million per financial year as per prescribed rules.

Investments in India

A close evaluation of FEMA provisions on the investment avenue that a PROI can invest or hold or sell in India and the like is needed. As per FEMA provisions, the regulations and restrictions for investment, holding and sale of these assets or securities are based on citizenship, FEMA residency, type of asset, mode of remittance or purchase, etc.

A few examples of permissible investments, especially for Indian citizens who may be PROIs, are property, shares, mutual funds, fixed deposits with banks etc.

However, for each asset class, there are regulations and conditions on investment, holding and sale or repatriation. For example, there are specific conditions for immoveable property that an NRI or OCI (Overseas Citizen of India) card holder may acquire either by purchase or as a gift (from specified donors) and for any immovable property in India (other than agricultural land or plantation property or farmhouse). There are also conditions on immovable property that an NRI or OCI card holder may acquire by way of inheritance in India.

Emigrants should be aware of these rules as it will assist them in avoiding any contravention of FEMA provisions that could lead to penalties and prosecution.

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