FEMA Rules for NRIs and OCI Holders in 2026: A Practical Guide

A cardiologist in Leicester inherits her parents' flat in Pune, sells it, and asks her bank to send the money to London. The bank asks four questions she was not expecting: which account the money is in, where the flat money came from, whether tax has been paid, and whether she has already sent other money out this year. Each question comes from the Foreign Exchange Management Act, 1999, and the regulations under it. FEMA is not a tax law, but it decides what an NRI or OCI holder may own in India, which account money must sit in, and how it can leave.

This guide sets out how FEMA applies in 2026 to non-resident Indians and overseas citizens of India, where people most often go wrong, and what changed this year. It explains rules for general information and is not legal advice; check specific transactions with a qualified adviser or your bank.

Who FEMA treats as non-resident

FEMA and the income tax law both talk about residence, but they mean different things. Income tax counts days. The tests carried into the Income-tax Act, 2025, confirmed in Income Tax Department FAQs reported in July 2026, are 182 days in India in a tax year, or 60 days plus 365 days over the previous four years, with a 120-day variant for visiting citizens whose Indian income exceeds Rs 15 lakh.

FEMA looks at purpose. Leaving India for employment, business or any purpose that shows an intention to stay abroad for an uncertain period makes you a person resident outside India from the day you leave. Coming back for those reasons makes you resident again from arrival. That is why a professional who moves to Singapore in October can be non-resident for FEMA immediately, while still being a tax resident for that year on day count.

The RBI's deposit regulations define an NRI as a person resident outside India who is an Indian citizen, and a person of Indian origin as a non-resident foreign citizen of specified origin, a definition that expressly includes OCI cardholders. For most banking and investment purposes, the two groups are treated alike.

Bank accounts: the first compliance line

The most common FEMA breach is the quietest one: keeping an ordinary resident savings account after moving abroad. Once you become a person resident outside India, resident accounts must be redesignated as NRO. From then on, money earned abroad goes to NRE or FCNR(B), and Indian income goes to NRO. Our comparison of NRE, NRO and FCNR accounts covers the mechanics in detail.

Several smaller rules catch people out. Power of attorney holders on an NRO account can pay local bills and remit current income, but cannot repatriate capital except to the account holder, cannot make gifts to residents, and cannot move money to another NRO account. Credit card bills settled from NRO balances count toward the same repatriation limit, according to the ICAI western region's compilation of the rules. Resident relatives can send gifts to an NRO account under the Liberalised Remittance Scheme, which is itself capped at $250,000 per person per financial year.

The USD 1 million rule and how repatriation works

Money in NRE and FCNR(B) accounts can be repatriated freely. NRO money is different. Current income, meaning rent, interest, dividends and pension, can be sent abroad once tax is paid. Capital in NRO, such as sale proceeds or inheritance, can be repatriated up to USD 1 million per financial year, with transfers to NRE counting inside that figure. Above it, RBI approval is required. Many banks also expect all NRO remittances in a year to go through a single authorised dealer bank, so splitting a large sum across banks to get around the cap does not work.

The documents changed on 1 April 2026. Forms 15CA and 15CB were replaced by Forms 145 and 146 under the Income-tax Rules, 2026. Form 145 is your declaration; Form 146 is a chartered accountant's certificate needed for taxable remittances above Rs 5 lakh a year, now with a UDIN for verification and a requirement to quote your tax residency certificate if you claim treaty benefits. Banks also ask for Form A2 and proof of the source of funds, such as a sale deed or rental agreement, as bank guidance lists.

FEMA rarely says no. It says which account, which form, and how much per year.

Property: what NRIs and OCI holders can own

NRIs and OCI holders can buy residential and commercial property in India, and can receive property by inheritance. Agricultural land, plantation property and farmhouses are the main exclusions for purchase, although they can be inherited. Payment for a purchase has to come through normal banking channels, from money remitted to India or held in NRE, FCNR(B) or NRO accounts. Cash and foreign currency notes are not acceptable routes.

Sale is where the source of funds matters. Proceeds from up to two residential properties bought with NRE or FCNR(B) money can be repatriated in your lifetime outside the NRO cap, as repatriation guidance explains. Property bought with rupee funds, or inherited, goes through NRO and the USD 1 million limit. The buyer must deduct tax at source on the sale. For an NRI seller, long-term gains on property attract 12.5 percent plus surcharge and cess, with no indexation, and the buyer generally deducts on the full sale price unless a lower deduction certificate is obtained.

Worked example: the Pune flat

Back to the cardiologist in Leicester. The figures below are illustrative but use the published rates.

• Inherited Pune flat, sold for Rs 3 crore. Assume the taxable long-term gain, after the inherited cost basis, is Rs 1.2 crore. Tax at 12.5 percent before surcharge and cess is Rs 15 lakh.
• The withholding problem. Without a lower deduction certificate, the buyer deducts 12.5 percent plus surcharge and cess on the full Rs 3 crore, which is at least Rs 37.5 lakh. The excess comes back only after she files and the refund is processed. A certificate, now Form 128 under the new rules, limits withholding to tax on the actual gain.
• Repatriation. The proceeds land in her NRO account. At an illustrative Rs 95 to the dollar, the full Rs 3 crore is roughly $316,000, well within one year's USD 1 million cap. She files Form 145, gets a Form 146 from a chartered accountant, and submits Form A2 with the sale deed and proof of tax paid.
• Her own Bengaluru flat, bought in 2015 from NRE funds. If she sells it too, the proceeds can be repatriated outside the NRO cap as one of her two eligible residential properties.

The lesson is timing. The certificate application, the tax computation and the bank's paperwork should be under way before the sale agreement is signed, not after the money arrives.

Investing: the 2026 change to listed equity limits

NRIs and OCI holders can invest in listed Indian shares on a repatriable or non-repatriable basis, in mutual funds and in government securities, subject to limits. The 2026 Budget raised those limits for persons resident outside India from tax year 2026-27, according to Budget commentary: the personal ceiling in any one listed company goes from 5 percent to 10 percent, and the combined ceiling for all such investors in a company from 10 percent to 24 percent. Few individuals approach those caps, but the higher aggregate ceiling removes a constraint that occasionally froze NRI buying in popular mid-sized companies. Our guide to NRI investment routes covers the options in more depth.

Common mistakes and how they are handled

• Not converting resident accounts after moving abroad, or NRE accounts after returning.
• Depositing Indian income into NRE to get the tax-free interest.
• Using a power of attorney holder to send NRO capital to third parties or to gift to residents.
• Exceeding the USD 1 million limit through several banks, or forgetting that card settlements and NRO-to-NRE transfers count.
• Buying agricultural land through a relative's name.
• Ignoring Section 6(4) on return. Returning residents can keep foreign assets acquired while abroad, but must report them; see our moving back to India checklist.

FEMA contraventions are civil, not criminal, in most cases. The Enforcement Directorate can impose penalties linked to the amount involved, and many technical breaches can be settled through compounding with the RBI, which means paying a sum to close the matter. Correcting a mistake voluntarily, before it is found, is almost always cheaper. For the tax side of the same transactions, read our explainer on tax on money sent to India.

What to watch next

• 31 July 2026: last returns filed under the Income-tax Act, 1961, for 2025-26 income.
• 16 August to 31 December 2026: the FAST-DS 2026 window, which lets residents, including returned NRIs, disclose foreign assets with immunity from penalty and prosecution.
• 1 October 2026: resident buyers of NRI property can deduct TDS using their PAN instead of a TAN, simplifying sales like the one in our example.
• Tax year 2026-27: the higher 10 percent and 24 percent listed-company limits for non-resident investors take effect.

This guide summarises FEMA rules and related tax requirements for general information. It is not legal or tax advice. Property, inheritance and repatriation cases turn on specific facts, so confirm your position with a qualified adviser or your authorised dealer bank. For sending money the other way, see our UK to India transfer guide.

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