Repatriation of Funds under FEMA: A Guide for NRIs

Dear Readers,

I hope you are doing well!

This article provides an overview of the rules and regulations governing the repatriation of funds from India. It explains in detail the procedures and legal compliances under the Foreign Exchange Management Act (FEMA) that apply in relation to the process for seamlessly transferring funds abroad.

Hope you will find this useful.

Warm regards,
Samir Mahajan

Repatriation of Funds under FEMA: A Guide for NRIs

BACKGROUND:

Repatriation refers to the process of transferring money earned in a foreign country back to the home country. For Non-Resident Indians (NRIs), this typically means sending income, investments, or sale proceeds from abroad to India or vice versa. Under the Foreign Exchange Management Act (FEMA), specific rules and procedures govern how funds can be repatriated, ensuring transparency, compliance, and smooth transactions.

Rules for Sale of Property by NRIs:

• NRIs are allowed to sell immovable property in India to a resident Indian
• If property is purchased using foreign funds, the sale proceeds can be repatriated, subject to certain conditions
• NRIs/PIOs arenot permittedto purchase agricultural land, plantation property, or farmhouses in India.
• If they inherit such property (for example, through parents or relatives), they can hold it.
• They can also sell inherited agricultural land/farmhouse/plantation property, but only to a resident Indian citizen.
•  They cannot sell such property to another NRI or PIO.

Repatriation of Sale Proceeds:

 Selling Property Purchased as a Resident Indian (RI)

If the property was purchased before becoming an NRI, the sale proceeds can be repatriated up to USD 1 million per financial year. If the amount to be transferred exceeds USD 1 million in a financial year, prior approval must be obtained from the Reserve Bank of India by applying through an authorized dealer (bank).

Selling Property Purchased as an NRI

If the property was acquired after becoming an NRI, the repatriation rules depend on the source of funds used for the purchase of the property:

a) Property purchased using funds remitted from abroad through NRE or FCNR accounts:

– In this case, the sale proceeds are freely repatriable to the extent of investment made, subject to a maximum of two residential properties.

– No such limit on number of commercial properties

b)Property purchased using funds from an NRO account (income earned in India such as rent, salary, or savings):

– In this case, the sale proceeds will be subject to the general repatriation limit of USD 1 million per financial year

Step-by-Step Process of Repatriation:

1. Sale of property or earning of income (rent, dividends, etc.).
2. Deposit proceeds into NRO account.
3. Payment of applicable taxes in India.
4. Obtain necessary certificates (Form 15CA, 15CB, and tax clearance).
5. Submit request to the authorized dealer bank.
6. Transfer funds abroad within prescribed limits.

Special Case: Inherited Property:

Repatriation of proceeds of sale of inherited property is allowed, provided the NRI produces proof of inheritance, succession certificate, and pays applicable taxes. The limit of USD 1 million per financial year applies.

Tax Implications:

1. Long-term capital gains taxed at 12.5% without indexation.
2. Short-term capital gains taxed at applicable income tax slab rates.
3. TDS is deducted at source before repatriation.
4. Double Taxation Avoidance Agreement (DTAA) may provide relief if NRI is taxed abroad.

Required Documents:

• Copy of registered sale deed.
• Income tax clearance certificate (Form 15CA, 15CB).
• Proof of original purchase (bank statement, remittance details).
• PAN card and passport copy.
• FEMA declaration forms.
• Bank’s repatriation request form.

Key Rules & Limits:

• Maximum repatriation limit: USD 1 million per financial year (including all eligible assets).
• Funds must be repatriated through an authorized dealer bank only.
• Proceeds must come from legitimate transactions with proper documentation.
  
  

Investment Options with Repatriation Benefits:

• NRE Accounts (fully repatriable).
• FCNR(B) Deposits (fully repatriable in foreign currency).
• Investment in shares, mutual funds, and bonds (subject to FEMA/RBI limits).

Conclusion:

Repatriation is an essential financial right for NRIs, ensuring they can move money across borders legally and efficiently. By following FEMA guidelines, obtaining necessary certifications, and complying with tax laws, NRIs can repatriate funds with minimal hurdles. It is advisable to consult a tax or financial expert for smooth execution.