What is the Penalty for Not Declaring the NRI Status?

The FEMA (Foreign Exchange Management Act) governs foreign exchange transactions in India and outlines regulations for individuals with non-resident Indian (NRI) status. According to FEMA, NRI status must be declared correctly to ensure compliance with the regulations for holding and managing foreign assets, investments, and bank accounts. If an individual fails to declare their NRI status, it constitutes a violation of FEMA provisions, potentially leading to penalty for not declaring NRI status. 

What is the Penalty for NRI Having Resident Account?

• The FEMA prescribes a penalty of up to three times the sum involved in the contravention if it can be determined. If the amount is not quantifiable, a penalty of Rs. 2 lakh (INR) may be levied.

• Additionally, if the contravention continues, further penalties of Rs. 5,000 per day may be imposed after the first day of the violation.

• The Reserve Bank of India (RBI) is the primary regulatory authority overseeing FEMA compliance. The individual may be required to rectify the violation within a specified period.

• If compliance is not achieved, further legal action may be taken, which could result in criminal prosecution under more severe conditions.

• In extreme cases of non-compliance, authorities may seize the assets or accounts held by the violator within India.

If NRI status is not declared properly, repatriation of income earned abroad or investments made as an NRI can be affected. Incorrect filings may also attract further scrutiny from the tax authorities, leading to tax penalties and interest.

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Indian citizens relocate abroad for a variety of reasons, including work, commerce, education, or other objectives. Some residents' status switches to NRI after spending a specific amount of time abroad. If you break any of the FEMA (Foreign Exchange Management Act) norms and regulations when your residential status switches to NRI, you could face both financial and legal repercussions. For instance, NRIs must register an NRI account because they are unable to use a conventional savings account. Also, NRIs are subject to slightly different tax laws. However, there is no penalty for not declaring NRI status.

The Foreign Currency Management Act (FEMA) states that failing to declare one's status as an NRI carries NO penalties. You must, however, cancel your present savings account or arrange for its conversion to an NRO account. The FEMA guidelines deem it illegal for an NRI to maintain his or her resident savings account after obtaining NRI status and doing so might result in severe penalties.

Let's start by determining how someone becomes an NRI. If a person satisfies any of the following criteria for a financial year, they will be classified as a resident of India:

• If he or she spends at least 182 days in India within the applicable fiscal year, or

• If he/she is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year.

Anyone who doesn't meet both of the aforementioned requirements will be considered a non-resident for the previous year. Nonetheless, the government updates its taxation and NRI status regulations every year.

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