If you’re an NRI, congratulations you’ve successfully complicated your finances across borders. Unfortunately, India’s Foreign Exchange Management Act (FEMA) is not impressed by your global lifestyle. FEMA violations often happen quietly, invisibly, and then explode later when you least expect them usually when you return to India or file your taxes.
Below are five common FEMA traps that even smart NRIs fall into, and how to avoid them before they become expensive regrets.
Trap 1: Continuing a Resident Savings Account After Moving Abroad
Once you become an NRI, your regular Indian savings account must be converted to an NRO account. Continuing to use a resident savings account after moving abroad is a direct FEMA violation.
Why this matters:
- Interest earned may be considered illegal
- Banks can freeze accounts retroactively
- Penalties may apply years later
What to do:
Convert resident accounts to NRO accounts immediately after gaining NRI status.
Trap 2: Transferring Between NRE and NRO Accounts Without Purpose Codes
NRE and NRO accounts are governed by different rules. Transferring funds between them without proper purpose codes and documentation is another common mistake.
Why this matters:
- Banks report these transactions
- Incorrect classification can trigger FEMA scrutiny
What to do:
Always ensure transfers are properly documented and routed through compliant banking channels.
Trap 3: Not Converting NRE Fixed Deposits After Returning to India
When you return to India permanently (RNOR or resident status), your NRE fixed deposits must be redesignated.
Why this matters:
- Tax-free status no longer applies
- Interest may become taxable
- Continuing as-is can violate FEMA rules
What to do:
Inform your bank immediately upon return and redesignate accounts correctly.
Trap 4: Buying Property in the Wrong Name
NRIs are allowed to buy property in India, but buying it in the wrong name (such as a friend instead of an eligible relative) can cause serious legal trouble.
Why this matters:
- FEMA restricts who can hold property on behalf of NRIs
- Improper ownership structures can invalidate transactions
What to do:
Ensure property purchases strictly follow FEMA and RBI guidelines regarding ownership.
Trap 5: Ignoring Annual FATCA or KYC Updates
Skipping FATCA declarations or KYC updates may feel harmless, but banks don’t forget.
Why this matters:
- Accounts can be frozen
- Transactions may be blocked
- Compliance issues surface during repatriation
What to do:
Complete KYC and FATCA updates every year, even if nothing has changed.
Final Tip: FEMA Violations Are Silent — Until They Aren’t
FEMA violations rarely cause immediate problems. They show up later when you repatriate funds, sell assets, or file returns. By then, fixing them is harder, slower, and significantly more expensive.
Prevention is wealth.
If you’re an NRI, proactive compliance isn’t optional it’s survival.
