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FEMA Act & Indian Students Studying Abroad — An Overview

FEMA Act & Indian Students Studying Abroad — An Overview

05.06.2021 | Education News | EduLegaL  | www.edulegal.org | mail@edulegal.in

Also Read: EduLegaL Webinar: Collaboration between Indian and Foreign Universities: Legal and Regulatory Framework

Over the years, Indian students pursuing degrees abroad has significantly risen; so much so that India is now recognized as the second-largest contributing country towards overseas education.

International education, like every sector, comes with its legal aspects. While there are a few Acts that regulate this area of education, there are specific provisions made under the Foreign Exchange Management Act (FEMA), 1999, concerning the residence of such students studying abroad, their education loans, remittance facilities, among others. It is pertinent to note here that citizenship is not a relevant criterion for determining the residential status under FEMA law. Therefore, there are certain restrictions and approvals covered under the regulation that a non-resident (student) has to comply with at the time of undertaking any monetary transactions.

On the subject of the residential status of such students and how it is determined, the bare provision for this is given under section 2(v) of the FEMA:

“person resident in India” means—

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—

(A) a person who has gone out of India or who stays outside India, in either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than—

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

The above is the statute in its original context which states the following:

  1. That a person shall be recognized as the resident of India if such person lives in India for 182 days in the preceding year but such stay in India should indicate that person has been staying permanently. It will not include any person who stays and leaves India having the following intention-
  2. Such a person has the intent to be employed outside India, i.e., in any other country.
  3. Such person is resident of that other country.
  4. Such person has been carrying out any business outside India and other purposes which would indicate that such person has no intention of staying in India.
  5. That a person shall be recognized as a resident under the law if he has any intention of staying here for any business or employment or any other purpose which shall indicate the same.

Reading the above provisions in light of students studying abroad and given that they are pursuing degrees lasting for a minimum of 2 years, rather, for a fixed period of time, automatically implies that they would be residing in India for less than 182 days in the preceding year but does not indicate their intention to stay outside India permanently. This aspect implies that Indian students studying abroad be treated as residents of India under the FEMA regulations causing immense distress to the students.

To counter this, the Reserve Bank of India vides the notice issued in a press conference in 2003 said:

“The Reserve Bank of India has been receiving representations from Indian students studying abroad requesting that they may be treated as non-residents under FEMA. The purport of their argument is that though they are students, they are, in reality, not dependent for a dominant part of their expenses on remittances from their households in India.

Often, they are permitted to work and have to undertake certain related financial transactions. They urge, therefore, that the definition needs to be revised. Having regard to the circumstances stated above, it is clear that on both counts viz. their stay abroad for more than 182 days in the preceding financial year and their intention to stay outside India for an uncertain period when they go abroad for their studies, they can be treated as Non-Resident.”

The above notice clarifies that Indian students studying abroad shall be treated as Non- Resident Indians from the time they move abroad for education and that they shall be eligible for remittance from India. The remittances shall be as follows:

  • Remittance from close relatives and family up to 100,000 dollars on declaration that it is towards their maintenance and studies.
  • Up to 1 million dollars out of sale proceeds or balances in their account maintained with an AD in India.
  • Eligible with all the facilities which are there for NRIs under FEMA.
  • The benefit of the educational loans as provided to the other students in India shall continue or can be availed by the students abroad.

It is clarified that these instructions do not dilute in any way the utilization of the existing foreign exchange remittance facilities to students in regard to their academic pursuits.

Additionally, Liberalized Remittance Scheme (LRS) was introduced by the Reserve Bank of India (RBI) in 2004 as a liberalization measure to facilitate resident individuals to remit funds outside India. Remittance shall only be allowed under the scheme if such funds are not borrowed funds. This raises the concerns of educational loans that fall under the category of ‘borrowed funds’. However, the rules are not stringently made applicable which makes the process of availing of educational loans easier for students.

Concluding, the observation and study tell us that the area of international education, concerning Indian students studying abroad, needs attention and thought.

Rasmita Behera | Research Intern | EduLegaL


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