Under the Foreign Exchange Management Act (FEMA), 1999, special provisions apply to assets held abroad by persons resident in India. These rules regulate ownership, transfer, and investment in foreign assets, ensuring legal compliance and preventing unauthorized holdings.
Key Provisions
1. Section 4 of FEMA
* Prohibits residents from acquiring, holding, owning, possessing, or transferring any **foreign exchange, foreign security, or immovable property situated outside India** unless permitted by FEMA or RBI regulations.
* In simple terms, Indian residents **cannot hold foreign assets** unless:
* Specifically allowed under FEMA, or
* Acquired when they were non-residents, or
* Inherited from a person resident outside India.
2. Section 6(4) – Exemption
* Residents may continue to hold, own, or transfer foreign assets acquired:
* While they were non-residents, or
* Inherited from a person resident outside India.
* Example: A person who bought property in London while working abroad or inherited foreign securities from relatives overseas can continue to legally hold them after becoming a resident.
3. Section 37A – Seizure of Equivalent Assets
* If foreign assets are suspected to be in contravention of FEMA, the Enforcement Directorate (ED) can seize equivalent value assets available within India, since the actual overseas assets lie outside Indian jurisdiction.
* Applicable when the value exceeds ₹1 crore and requires written reasons to believe a contravention has occurred.
4. Overseas Investment Rules, 2022
* These rules govern acquisition and transfer of immovable property, foreign securities, or investments abroad by residents.
* Investments are permitted either:
* With RBI approval, or
* Within the limits of the Liberalised Remittance Scheme (LRS) for permitted purposes.
* The rules also specify repatriation and reporting requirements for such investments.
5. Reporting and Compliance
* Companies with foreign investments must submit Foreign Liabilities and Assets (FLA) Returns.
* Individuals making overseas investments must file disclosures and obtain permissions wherever required.
Summary Table: Special FEMA Provisions for Assets Held Abroad
Summary Table: Special FEMA Provisions for Assets Held Abroad
| Provision | Key Point |
| Section 4 | Resident Indians cannot hold/transfer foreign assets except under FEMA or with RBI permission |
| Section 6(4) | Allows residents to hold assets acquired while non-resident or inherited from abroad |
| Section 37A | ED can seize equivalent assets in India if foreign assets suspected of FEMA contravention |
| Overseas Investment Rules | Regulate acquisition and transfer of foreign assets; RBI approval or LRS limits apply |
| Reporting | Mandatory FLA returns for companies; disclosures/permissions for individual investments |
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These provisions balance facilitating legitimate overseas investments and protecting Indian foreign exchange and economic integrity by restricting unauthorized asset holdings abroad under FEMA
Conclusion
These provisions strike a balance between facilitating legitimate overseas investments and safeguarding India’s economic interests. By regulating ownership and transfer of foreign assets, FEMA prevents unauthorized holdings abroad while supporting compliance and transparency in international financial dealings.
⚖️ Disclaimer: This blog is for educational purposes only and does not constitute legal advice. Readers are advised to refer to the official FEMA Act, regulations, and RBI notifications before making business or investment decisions.
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