What are the FEMA compliance obligations for NRIs and what are the common violations to avoid?

The moment you qualify as an NRI under FEMA (182+ days outside India in the financial year with intent to stay), several obligations kick in:

(1) Inform your bank — convert resident account to NRO:
(a) Write to your bank to re-designate your savings/current account as NRO;
(b) Continuing to operate a resident account as an NRI is a FEMA violation;
(c) The conversion is simple — account number typically stays the same;
(d) Do this within the same financial year of becoming NRI;

(2) Stop PPF contributions:
(a) NRIs cannot open a new PPF account;
(b) Existing PPF accounts opened as residents can continue until maturity — but no fresh contributions after becoming NRI;
(c) Continuing to contribute is a FEMA violation; the PPF account must be closed at maturity;

(3) Stop NSC, Post Office MIS and similar small savings schemes:
(a) NRIs cannot invest in most Post Office small savings schemes;
(b) Existing investments can be held to maturity but not renewed;

(4) Inform your demat account/broker:
(a) Resident demat accounts become invalid for further equity purchases;
(b) Open an NRI demat account and link it to a PIS account (see below);

(5) Open NRE account if needed:
(a) To remit foreign earnings to India and keep them fully repatriable and tax-free, open an NRE account.

(1) What PIS is: a Reserve Bank of India scheme that permits NRIs to purchase and sell shares of Indian listed companies on a recognised stock exchange on a repatriation or non-repatriation basis;

(2) Why mandatory: NRIs cannot buy shares of Indian listed companies through a resident demat or through a normal broker account; all secondary market equity purchases must route through a designated PIS bank (which reports to RBI);

(3) How to set it up:
(a) Approach a PIS-designated bank (most major banks offer this — HDFC, ICICI, Axis, HDFC Securities etc.);
(b) Open a PIS account linked to your NRE (repatriation basis) or NRO (non-repatriation basis);
(c) Open an NRI demat account with a SEBI-registered depository participant;
(d) Link your demat and PIS accounts;
(e) All buy/sell transactions reported by the bank to RBI in real time;

(4) PIS is NOT required for:
(a) Mutual fund investments (these can be made directly through NRE/NRO without PIS);
(b) IPO investments (primary market; separate process);
(c) Unlisted company shares (private equity; FEMA inward investment regulations apply instead);

(5) Investment limits under PIS:
(a) Individual NRI: up to 5% of paid-up capital of any company;
(b) All NRIs combined: up to 10% of paid-up capital (extendable to 24% by company resolution).
(c) RBI monitors these limits in real time.

Common violations — most arise from oversight rather than intent:

(1) Continuing to operate a resident bank account — among the most common; convert to NRO immediately on becoming NRI;
(2) Continuing PPF contributions — contributions made after acquiring NRI status are irregular;
(3) Buying shares without PIS — purchasing listed equity through a resident demat or non-PIS broker;
(4) Buying agricultural land — prohibited; including through family arrangement or benami;
(5) Accepting loans in rupees from resident Indians for investment — broadly prohibited without RBI approval;
(6) Receiving rent in NRE account from Indian property — rent from Indian property must go to NRO (it is Indian-sourced income); putting it in NRE is a FEMA violation;
(7) Remitting above USD 1 million/year from NRO without documentation;

Penalties under FEMA:
(a) Up to 3 times the sum involved if the amount is quantifiable;
(b) Up to ₹2 lakh if not quantifiable, plus ₹5,000 per day continuation;
(c) Enforcement by the Enforcement Directorate (ED);
(d) Appeal: Special Director → Appellate Tribunal for Foreign Exchange (ATFE) → High Court;

Compounding (regularisation):
(a) Most FEMA violations can be compounded (settled) by paying a penalty to RBI without going through prosecution;
(b) Apply to the RBI's Compounding Authority;
(c) Compounding amount is typically a fraction of the maximum penalty;
(d) Strongly recommended for historic violations discovered after the fact — regularise proactively rather than wait for notice;
(e) Engage a FEMA/CA specialist — compounding applications require precise documentation.

Under FEMA's liberalised framework, NRIs can conduct most transactions freely:

Freely permitted (no RBI approval needed):
(1) Remitting foreign income to India — no limit on inward remittances;
(2) Maintaining NRE, NRO and FCNR accounts;
(3) Purchasing residential and commercial property;
(4) Investing in mutual funds through NRE/NRO;
(5) Investing in listed equity through PIS;
(6) Making gifts to resident close relatives (within limits);
(7) Investing in government securities, bonds;
(8) Investing in Indian startups / FDI under automatic route;
(9) Remitting up to USD 1 million per year from NRO with Form 15CA/CB;
(10) Repatriating NRE account balances — fully, no limit;

Requires RBI approval:
(1) Purchasing agricultural land;
(2) Remitting more than USD 1 million per year from NRO;
(3) Receiving rupee loans from resident Indians for investment (certain exceptions);
(4) Investing in chit funds, Nidhi companies;
(5) Acquiring shares in certain restricted sectors (defence, atomic energy);

Engage a FEMA-specialist CA or lawyer before any unusual transaction — the distinction between automatic and approval routes has nuances that can result in costly violations.