Setting Up of Business, Industrial and Labour Laws · Setting up of Business outside India and Issues Relating thereto

Section 4 FEMA: Holding Assets Outside India

Updated 11 October 2026 · Fact-checked

Section 4 of FEMA, 1999 says that, save as otherwise provided in the Act, no person resident in India can acquire, hold, own, possess or transfer foreign exchange, a foreign security or immovable property outside India. To solve a question, check residence, asset type, and whether an exception such as section 6(4) applies.

Understand Section 4 FEMA: Holding Assets Outside India

FEMA controls how India's money moves across borders. Section 4 deals with one part of that: what a person living in India can keep abroad. The default rule is a prohibition. A person resident in India cannot acquire, hold, own, possess or transfer three kinds of assets: foreign exchange, a foreign security, or immovable property situated outside India.

The opening words matter: "Save as otherwise provided in this Act". So the ban is not absolute. It gives way where the Act itself allows the holding. Your answer must always look for that permission.

The main exception sits in section 6(4). A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or immovable property outside India if it was acquired, held or owned when he was resident outside India, or if he inherited it from a person resident outside India. Think of a person who lived abroad, bought a house there, and then returned to India to settle. The house was acquired when he was a non-resident, so he may keep it.

The rule turns on the person's residential status at the time of acquisition, not on his nationality. Also note that section 6(1) and 6(2)/(2A) allow capital account transactions through authorised persons within limits and conditions set by the Reserve Bank or the Central Government. Other rules made under the Act can also provide permission.

Contravention has consequences. Section 13(1) provides a penalty on adjudication of up to thrice the sum involved, or up to ₹2,00,000 where the amount is not quantifiable. Sections 13(1A) to 13(1D) and section 37A add heavier action for undisclosed foreign assets above a prescribed value.

Key rules to remember

General prohibition (section 4): Resident in India + acquires/holds/owns/possesses/transfers foreign exchange, foreign security or foreign immovable property = prohibited, unless the Act provides otherwise; Three asset types and five verbs. Quote them in the answer.
Exception: assets from non-resident days (section 6(4)): Allowed if acquired, held or owned while resident outside India, or inherited from a person resident outside India; The test is residence at acquisition or of the person from whom inherited.
Reverse rule (section 6(5)): Person resident outside India may hold Indian currency, security or immovable property acquired while resident in India, or inherited from a resident in India; Mirror of section 6(4). Do not mix up the two.
General penalty (section 13(1)): Up to 3 × sum involved, or up to ₹2,00,000 if not quantifiable; plus up to ₹5,000 per day for a continuing contravention after the first day; Imposed upon adjudication.
Undisclosed foreign assets (sections 13(1A), 13(1C), 37A): Value above the prescribed threshold: penalty up to 3 × sum involved, confiscation of equivalent value in India, and imprisonment up to 5 years with fine; Section 37A allows seizure of equivalent value in India. Prosecution is only on a written complaint by an officer not below Assistant Director.

How to solve Section 4 FEMA: Holding Assets Outside India questions

Use this order for any problem or theory question on holding assets abroad.

1Identify the person and their residential status at the relevant time. Section 4 applies only to a person resident in India.
2Identify the asset: foreign exchange, foreign security or immovable property outside India.
3Identify the act: acquire, hold, own, possess or transfer.
4State the general rule in section 4, including the words 'save as otherwise provided in this Act'.
5Test the exceptions: section 6(4) (acquired while non-resident or inherited from a non-resident) and permissions under section 6 or rules and regulations.
6Where the holding is in breach, mention the consequences: section 13(1), and sections 13(1A) to 13(1D) and 37A for assets above the prescribed value.
7Write a clear conclusion: permitted or contravention, and the likely action.

Quickest way: Three-question check

When to use it: For short case-law style questions when time is tight.

Was the person resident in India when the asset was acquired?
Is the asset foreign exchange, foreign security or foreign immovable property?
Was it acquired while non-resident, inherited from a non-resident, or otherwise permitted? If yes, allowed. If no, section 4 is breached.

Common mistakes in Section 4 FEMA: Holding Assets Outside India

Saying section 4 bans residents from holding foreign assets absolutely.
Students remember only the prohibition.
Fix: Always add 'save as otherwise provided in this Act' and give the section 6(4) exception.
Using nationality instead of residence.
Everyday language treats Indians as residents.
Fix: FEMA works on residence. An Indian citizen living abroad is a person resident outside India for this purpose.
Mixing up sections 6(4) and 6(5).
The two sub-sections look similar.
Fix: Section 6(4) is about residents in India holding foreign assets. Section 6(5) is about non-residents holding Indian assets.
Applying the exception to assets bought after becoming resident in India.
Students ignore the timing of acquisition.
Fix: Check when the asset was acquired. Only assets acquired or held while non-resident, or inherited from a non-resident, are covered.
Quoting penalties without conditions, or confusing section 13(1) with section 13(1A).
The penalty provisions are long.
Fix: Section 13(1) is the general penalty. Sections 13(1A) to 13(1D) apply to foreign assets above the prescribed threshold and add confiscation and imprisonment.

Worked examples

Example 1

Rohan, resident in India, bought a flat in Dubai last year using money he transferred without any permission. Is section 4 of FEMA attracted? State the consequences.

Show the solution

Provision: section 4 bars a person resident in India from acquiring, holding, owning, possessing or transferring immovable property outside India, save as otherwise provided in the Act.
Facts: Rohan is a resident in India. The flat is immovable property outside India. He acquired it while resident, so section 6(4) does not apply. No permission is stated.
Analysis: The acquisition is a contravention of section 4. The transfer of money abroad without permission may also breach section 3.
Consequence: Penalty under section 13(1) up to thrice the sum involved. If the value exceeds the prescribed threshold, sections 13(1A) and 13(1C) apply, and the Authorised Officer may seize equivalent value in India under section 37A.

Answer: Yes. Section 4 is contravened and Rohan is liable to penalty and, above the prescribed threshold, confiscation, seizure of equivalent value and possible prosecution.

Example 2

Meera lived in London for ten years and bought shares of a UK company there. She has now returned to India and is a resident. Can she keep the shares?

Show the solution

Provision: section 4 prohibits a resident in India from holding foreign securities, save as otherwise provided.
Exception: section 6(4) allows a resident in India to hold, own, transfer or invest in a foreign security acquired or held when she was resident outside India.
Facts: The shares were acquired while Meera was resident in the UK, so she was resident outside India at acquisition.
Conclusion: The exception applies.

Answer: Yes. Under section 6(4), Meera may hold, own, transfer or invest in the shares because she acquired them while resident outside India.

Exam tips

Begin with the section 4 rule, then give section 6(4) as the exception. Examiners reward this structure.
In case studies, underline the residence status and the date of acquisition first.
Name all three assets and all five verbs from section 4 rather than paraphrasing loosely.
Link to sections 13 and 37A in the conclusion, but give penalty figures only as in the Act.
End every answer with a clear verdict: permitted or contravention.

Practice questions from Setting up of Business outside India and Issues Relating thereto

Section 4 FEMA: Holding Assets Outside India: frequently asked questions

Can a resident Indian hold immovable property abroad under FEMA?

Not by default. Section 4 prohibits it, save as otherwise provided. It is allowed where the property was acquired while the person was resident outside India or inherited from a person resident outside India, as section 6(4) states, or where other permission under the Act applies.

Does section 4 apply to NRIs?

No. Section 4 applies to a person resident in India. A person resident outside India is not covered by it.

What is the penalty for breaching section 4?

On adjudication, section 13(1) provides a penalty up to thrice the sum involved, or up to ₹2,00,000 where the amount is not quantifiable. For foreign assets above the prescribed threshold, sections 13(1A) to 13(1D) add confiscation of equivalent value in India and possible imprisonment up to five years with fine.

What does section 37A do?

It lets the Authorised Officer seize value equivalent, situated in India, of foreign assets suspected to be held in breach of section 4, after recording reasons in writing. The order goes to the Competent Authority within thirty days of seizure.