India’s 180-day overseas funds rule: How it can affect UAE-based NRIs

Dubai: Offshore banks are reportedly refusing to issue or renew international credit cards for some wealthy resident Indians because of concerns over India’s rules on money held abroad. The development has raised a key question for UAE-based Non-Resident Indians: could their salaries and savings in the Emirates face the same restriction?

Banks in Zurich, Singapore and London, as well as parts of West Asia, are reassessing cards linked to offshore accounts, the Economic Times reported. The issue is not customers’ credit scores. It centres on a requirement for Indian residents to use eligible money remitted overseas or bring unused funds back within 180 days.

For most UAE-based NRIs, the rule does not apply. The restriction covers a “person resident in India” under the Foreign Exchange Management Act, or FEMA. It does not generally extend to foreign income earned by an NRI and retained outside India.

A UAE-based NRI can keep salary, business income and savings in UAE bank accounts without having to spend, invest or remit the money to India within 180 days. Funds in Indian Non-Resident External, or NRE, and Foreign Currency Non-Resident, or FCNR, accounts follow separate rules.

What is the 180-day rule?

India’s Liberalised Remittance Scheme, or LRS, allows resident individuals, including minors, to remit up to $250,000 in each April-to-March financial year, according to the Reserve Bank of India.

The money can fund permitted expenses such as travel, education and medical treatment, as well as overseas investments and property purchases.

Under RBI rules, foreign exchange acquired by a resident individual but left unused must generally be surrendered or repatriated within 180 days. Funds obtained for one eligible purpose may be used for another transaction permitted under FEMA.

For example, an Indian resident may remit money to buy overseas securities. If the purchase does not proceed, the person cannot leave the amount as idle cash abroad indefinitely. The unused sum must generally return to India within the prescribed period.

Keeping the money in a foreign current or savings account, or placing it in a fixed deposit, may not meet the intended investment purpose, the Economic Times reported. Buying securities or property and paying permitted overseas expenses such as hotel, airline and restaurant bills would count as using the funds.

Why credit cards affected?

Foreign-issued cards allow customers to pay expenses in the same currency as their offshore account, potentially avoiding currency-conversion costs.

Yet banks may reconsider these relationships if resident Indian customers cannot retain sufficient balances in linked accounts while complying with Indian foreign-exchange regulations.

“An unintended consequence of the 180-day deployment requirement under LRS is beginning to show up in overseas banking relationships of Indian families,” Moin Ladha, partner at law firm Khaitan & Co, told the Economic Times.

“Residents have limited flexibility to retain meaningful balances overseas, making some international banks reluctant to offer credit cards linked to these accounts, even though regulations recognise use of such cards.”

The reported restrictions concern resident Indians and cards supported by their offshore balances. They do not mean UAE banks must stop issuing cards to Indian citizens who live and work in the Emirates.

Does rule cover UAE salary?

No. If you qualify as a person resident outside India under FEMA, income earned in the UAE does not become an LRS remittance simply because you hold an Indian passport.

You can retain those earnings in a UAE current, savings or fixed-deposit account. The 180-day requirement does not force you to invest the money or transfer it elsewhere.

FEMA also allows people who later become Indian residents to continue holding foreign currency, overseas securities and property acquired while they were non-residents.

Returning to India therefore does not automatically require an NRI to sell every UAE asset or immediately repatriate all foreign savings. Fresh outward remittances made after the person becomes resident would face the rules applicable to Indian residents.

Transfers from NRO account?

NRIs must distinguish LRS from the separate rules governing Non-Resident Ordinary, or NRO, accounts.

An NRO account generally holds Indian income such as rent, dividends, pensions and certain property-sale proceeds. The RBI allows NRIs to remit up to $1 million per Indian financial year from NRO balances and eligible asset-sale proceeds, subject to taxes, documents and banking requirements.

This facility falls under the RBI’s asset-remittance rules for NRIs. It is not the $250,000 LRS facility for resident individuals.

The RBI’s NRO repatriation rules do not say that every amount transferred by an NRI must then be spent or invested overseas within 180 days. The LRS restriction should not automatically be extended to all NRO remittances.

Banks can still request proof of the money’s source, payment of applicable Indian taxes and the prescribed declarations or certificates.

When NRI returns to India

A returning NRI should establish when their status changes under FEMA. The test considers the purpose of entering or leaving India and the person’s intention to stay, rather than relying only on a day count.

Once the person becomes resident, applicable Indian bank accounts must be redesignated. NRE and NRO accounts cannot continue unchanged.

UAE accounts and investments will be treated according to when and how they were acquired. Assets legally accumulated while the person was non-resident can generally remain abroad.

If the returning NRI later sends fresh money from India to buy overseas shares, property or another asset, resident rules apply. Unused foreign exchange may then face the 180-day deadline.

Why are minors affected?

Resident minors have been allowed to remit under LRS since its introduction in 2004, although a parent or guardian completes the required documentation.

They have fewer ways to deploy the money because some investments require risk assessments, contracts or consent that a child cannot independently provide. Overseas banks are therefore questioning whether to continue some minor accounts, according to the Economic Times.

“Minors are permitted to remit under LRS but have relatively limited avenues to appropriately deploy those funds, and overseas banks are increasingly questioning the continuation of such accounts,” Ladha told the newspaper.

This issue mainly concerns families resident in India using LRS. A child living with NRI parents in the UAE does not fall under the scheme solely because the child is an Indian citizen.

For UAE-based NRIs, residency — not nationality — is the key distinction. UAE earnings and legitimately held foreign savings do not face an automatic six-month deployment deadline. The requirement becomes relevant when a person is resident in India and sends or acquires foreign exchange under the resident remittance framework.