A 20-year-old foreign exchange regulation, initially introduced to assist young Indians studying abroad, has come under the scrutiny of the Reserve Bank of India (RBI), according to The Economic Times report.
In 2003, the RBI allowed Indian students studying overseas to be classified as Non-Resident Indians (NRIs). This regulation primarily supported students who took up jobs in foreign countries to supplement their income.
Before this change, students were considered "residents" and were legally required to repatriate their foreign earnings back to India. The rule was designed to protect working students from unintentionally violating the Foreign Exchange Management Act (FEMA), which had been enacted in 2000.
Wealthy families misusing it?
Over time, affluent Indian families discovered a loophole in this provision. The NRI status of their children provided a legal avenue to transfer substantial sums of money abroad — an option not available to resident Indian parents under the law.
Once classified as an NRI under FEMA, an individual is allowed to freely repatriate all current income earned in India, and transfer capital funds up to $1 million annually from their Non-Resident Ordinary (NRO) bank account. In contrast, a resident Indian can remit only $250,000 per financial year.
Commenting on the potential review of this regulation, Anup P Shah, partner at Chartered Accountant firm Pravin P Shah & Company, told The Economic Times that the RBI could consider distinguishing between students enrolling in long-term courses (exceeding four years) and others. He proposed that such students should continue to be classified as non-residents under FEMA.
As per the latest update, RBI could revise the circular to find ways to differentiate between genuine students pursuing part-time jobs abroad, and those acquiring NRI status to move funds out of the country.
