FEMA Act 1999 / Section 4

Section 4 of FEMA Act 1999: Holding Foreign Exchange and Overseas Assets

Section 4 of the Foreign Exchange Management Act, 1999 regulates the acquisition, holding, ownership, possession and transfer by a person resident in India of foreign exchange, foreign securities and immovable property situated outside India. The section must be read with the permissions, rules, regulations and directions issued under FEMA.

Text of Section 4 - Holding of foreign exchange, etc.

Section 4. Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

What Section 4 means

The opening words, "Save as otherwise provided in this Act", are central to Section 4. The provision lays down the general restriction, but FEMA itself and the rules, regulations and permissions made under it provide the legal routes through which specified foreign exchange transactions, overseas investments and overseas assets may be acquired, held or transferred.

Accordingly, Section 4 should not be read in isolation as an absolute prohibition on every overseas asset held by an Indian resident. The legality of a transaction depends on the applicable FEMA provision and the current subordinate framework, including the rules and regulations governing overseas investment and other permitted remittances.

Important expressions used in Section 4

Person resident in IndiaFEMA Section 2(v) contains the statutory residence test. FEMA residence is a legal concept and should not be assumed to be identical to residence under the Income-tax Act.
Foreign exchangeSection 2(n) defines foreign exchange broadly and includes deposits, credits and balances payable in foreign currency as well as specified instruments expressed or drawn in Indian currency but payable in foreign currency.
Foreign securitySection 2(o) covers securities such as shares, stocks, bonds and debentures expressed in foreign currency, and includes securities expressed in foreign currency where redemption or return is payable in Indian currency.
TransferSection 2(ze) gives "transfer" a broad meaning, including sale, purchase, exchange, mortgage, pledge, gift, loan and other forms of transfer of right, title, possession or lien.

Current overseas investment framework

The present overseas investment regime is principally governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Foreign Exchange Management (Overseas Investment) Regulations, 2022 and the RBI directions issued under that framework. These instruments distinguish, among other matters, Overseas Direct Investment and Overseas Portfolio Investment and prescribe conditions, reporting requirements and restrictions for overseas investment by persons resident in India.

For resident individuals, permitted outward remittances may also fall within the Liberalised Remittance Scheme, subject to the current scheme limits, permitted purposes and other FEMA conditions. A remittance facility does not by itself make a transaction permissible if the underlying transaction is prohibited or restricted under FEMA or another applicable law.

Immovable property outside India

Section 4 expressly refers to immovable property situated outside India. The 2022 overseas investment rules now form an important part of the legal framework for acquisition or transfer of such property by persons resident in India. The applicable route can depend on facts such as the status of the person, source of funds, manner of acquisition, inheritance, gift and other conditions specified under FEMA.

Practical point: Before acquiring, transferring or restructuring an overseas asset, check the latest FEMA rules, RBI regulations and directions applicable to the particular transaction. Reporting through an Authorised Dealer bank may also be required in cases covered by the overseas investment framework.

Related FEMA provisions

Section 3 - Dealing in foreign exchange, etc. regulates specified dealings, payments and receipts involving foreign exchange. Section 5 - Current account transactions addresses sale or drawal of foreign exchange for current account transactions, subject to prescribed restrictions. Section 6 - Capital account transactions provides the statutory framework for permissible capital account transactions and applicable limits or conditions.

Official references

For authoritative and updated material, refer to the Foreign Exchange Management Act, 1999 on India Code, the Foreign Exchange Management (Overseas Investment) Rules, 2022, and the RBI overseas investment regulations and directions.

This page is an explanatory legal reference. For a transaction-specific position, the latest statutory text, notifications, regulations, directions and facts should be checked.