Avtar Singh Sekhon Vs Director (Appellate Tribunal Under SAFEMA/FEMA/FERA Delhi)
Case Reference: Avtar Singh Sekhon v. Directorate of Enforcement, FPA-FE-40/DLI/2019, Appellate Tribunal under SAFEMA/FEMA/FERA, New Delhi.
Introduction
For Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), transactions in India, particularly involving immovable property and banking channels must comply with the Foreign Exchange Management Act, 1999 (FEMA). While many NRIs focus on their income tax obligations, FEMA rules are equally binding, and a failure to comply can invite penalties from the Enforcement Directorate (ED).
The case of Avtar Singh Sekhon v. Directorate of Enforcement decided by the Appellate Tribunal serves as a timely reminder. The Tribunal addressed the issue of an NRI receiving property sale proceeds into a resident savings account, a practice strictly prohibited under FEMA. The judgment illustrates how even technical or inadvertent lapses can lead to FEMA violations and monetary penalties.
FEMA Framework on Bank Accounts for NRIs
The FEMA framework requires NRIs to use specific categories of accounts for their Indian transactions. These include NRE (Non-Resident External) accounts for foreign remittances, NRO (Non-Resident Ordinary) accounts for income earned in India such as rent, dividends, or property sale proceeds, and FCNR accounts for deposits in foreign currency. Once a person acquires NRI status, all resident savings accounts must be either closed or redesignated into NRO accounts.
