Deposits and Type of Accounts- Foreign Currency and Rupee

Opening, holding and maintaining foreign currency accounts by a person resident in India is regulated in terms of section 9 of the FEMA-1999. Maintenance of deposit/accounts between a person resident in India and a person resident outside India is regulated in terms of sub section (3) of section 6 of FEMA-1999.

Reserve bank Master Direction on Deposit and Accounts vide Notification dated January 1, 2016 updated up to January 9, 2020. And Foreign Exchange Management (Deposit) Regulation,2016 dated April 1, 2016 updated up to November 13, 2019.

Foreign Currency Accounts that can be held in India:

Exchange Earner’s Foreign Currency (EEFC) Account:

A person resident in India may open an EEFC account with an AD Bank in India. The silent features of the scheme are:

i) The account will be in the form of a non-interest-bearing Current Account.

ii) Account may be opened in any permitted currency under FEMA. Generally, it is opened in USD, GBP, EURO and JPY.

iii) Joint account with ‘Former or Survivor Basis’ with close relatives. (Relative as defined in Sec.2(77) of Companies Act,2013)

iv) Credits permitted to this account are:

a. 100% of foreign exchange earnings by way of inward remittance (other than loans or investments)

b. Payment received for the purpose of counter trade.

c. Advance remittances received by an exporter towards export of goods and services.

d. Professional earnings received by a professional by rendering services in individual capacity.

e. Re-credit of un-utilized foreign currency withdrawn earlier from the account.

f. Re-payment of trade related loan and advances granted earlier from EEFC account.

g. Disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/GDRs under the ‘DR Scheme-2014’

h. Payment received in foreign exchange by Indian startups arising out of sales/export made by the startup or its overseas subsidiaries.

v) Debits allowed in the account are:

a. Payment outside India towards current/capital account transactions in accordance with the provision of FEMA.

b. Payment in foreign exchange towards the cost of goods purchased from 100% EOU/EPZ/STP/EHTP/BTP etc.

c. Payment of custom duty in accordance with the provision of Export import policy.

d. Trade related loans/advances by an exporter account holder to his importer customer outside India subject to provision/rules under FEMA.

e. Payment in foreign exchange to a person resident in India for supply of goods/services including payment for airfare and hotel expenditure.

vi) Withdrawal in rupee is permitted from this account provided the amount so withdrawn cannot be re-credited to the account.

vii) The sum total of the accruals in the account during the calendar month should be converted into Rupee on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

viii) Fund based/non-fund-based credit facilities should not be granted against EEFC balances.

ix) Exporters can repay packing credit advances, whether availed in rupee or foreign currency, from balances in their EEFC account to the extent exports have actually taken place.

x) Balances held in the account may be credited to NRE/FCNR(B) accounts, at the option/request of the account holder consequent upon change of their residential status from resident to non-resident.

xi) The claim settled in rupee by ECGC/Insurance companies should not be construed as export realization in foreign exchange and the claim amount will not be eligible credit to EEFC account.

Resident Foreign Currency Account (RFC):

i) A person resident in India is permitted to open a RFC account with an AD bank in India out of foreign exchange received or acquired by him:

a. As pension or superannuation benefits or other monetary benefits from his overseas employer.

b. By converting assets which were acquired by him when he was a non-resident or inherited from or gifted by a person resident outside India and repatriated to India.

c. Received as proceeds of LIC claims/maturity/surrender value settled in forex from an Indian insurance company permitted to undertake life insurance business by the IRDA.

ii) The balance in the RFC account is free from all restrictions regarding utilization of foreign currency balances outside India.

iii) Such accounts can be held jointly with resident relatives’ joint holders on ‘former or survivor basis. However, such resident Indian relative joint holders cannot operate the account during the lifetime of the resident account holder.

iv) The balances in the NRE and FCNR(B) account can be credited to the RFC account when the residential status of NRI or PIO changes to that of resident.

Resident Foreign Currency (Domestic) Account: (RFC(D)

i) A resident individual may open an RFC(D) account to retain the foreign exchange acquired in the form of currency notes, bank notes and travelers’ cheques from overseas sources such as:

a. Payment while on a visit abroad for services not arising from any business or anything done in India.

b. Honorarium or gift or for services rendered or in settlement of any lawful obligation from any person not resident in India and who is on a visit to India.

c. Honorarium or gift while on a visit to any place outside India.

d. Gift from a relative.

e. Unspent foreign exchange acquired from an AD for travel abroad.

f. Representing the disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADR/GDR under the DR scheme,2014.

g. Received as proceeds of LIC claims/maturity/surrender value settled in forex from an Indian insurance company permitted to undertake life insurance business by the IRDA.

ii) The account will be maintained in the form of Current Account only and no interest will be payable.

iii) Account can be opened jointly in the name of eligible persons as ‘former or survivor’ basis.

iv) Balances in the account can be used for any current or capital account transactions in accordance with the provision of FEMA.

v) Balances may be credited to NRE/FCNR(B) accounts, at the option/request of the account holder consequent upon change of their residential status from resident to non-resident.

vi) No loan/overdraft is permitted against balances held in this account.

vii) The sum total of the accruals in the account during the calendar month should be converted into Rupee on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

Diamond Dollar Account Scheme (DDA):

Firms and companies may open DDA accounts with an AD in India as per eligibility criteria stipulated in current Foreign Trade Policy. The silent features of the scheme are:

i) the exporter track record of at least 2 years in import/export of diamonds and having an average annual turnover of Rs.3 crore or above during preceding three licensing years.

ii) The DDA will be opened in the name of the exporter and maintained in US Dollars only.

iii) Account will be in the form of a current account with no interest payable.

v) An exporter/company is permitted to open/maintain not more than 5 DDAs.

vi) No intra-account transfer will be allowed between DDAs.

vii) Exporters/companies maintaining foreign currency accounts, excluding EEFC accounts, with banks in India/abroad are not eligible to open Diamond Dollar Account.

viii) The sum total of the accruals in the account during the calendar month should be converted into Rupee on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

Permissible Credit and Debits:

i) Realization of export proceeds and local sales (in USD) of rough, cut, polished diamonds and pre- and post-shipment finance available in USD can be credited.

ii) Payment for purchase of rough, cut, polished diamonds can be made from a DDA account. Funds can also be transferred to the rupee account of the exporter/company. Repayment of foreign currency loan availed.

The sum total of the accruals in the account during the calendar month should be converted into Rupee on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

Account of Units in Special Economic Zone (SEZ):

A unit located in SEZ may open hold or maintain a foreign currency account with an AD in India provided that:

i) foreign exchange funds received by the unit in SEZ are credited to such accounts.

ii) No foreign exchange purchased in India against rupee shall be credited to the account.

iii) Funds held in the account shall be used for bonafide trade transactions of the unit in SEZ with the person resident in/outside India.

iv) Balance in the account shall be exempt from the restrictions imposed under rule 5 of FEMA (current account) rules.

v) funds held in this account shall not be lent or made available to any person resident in India.

Other Cases of Opening Foreign Currency Accounts in India:

01) Indian agent of shipping or an airline company incorporated outside India can maintain a foreign currency account with an AD in India for meeting the local expenses:

Credits to such accounts are only by way of freight or passenger fare collection in India or from his principal outside India.

02) Ship manning/crew managing agencies in India and re-insurance and composite insurance brokers registered with IRDA may open and maintain non-interest-bearing foreign currency account in India for the purpose of undertaking transactions in the ordinary course of their business as detailed below:

i) Credit: Only by way of inward remittance from overseas principal.

ii) Debits: Towards various expenses in connection with the management of the ship/crew.

iii) No credit facility should be granted against balances held in the account.

iv) No EEFC facility should be allowed in respect of the remittances received in the account.

v) The account will be maintained only during the validity period of the agreement.

Accounts of Project Offices of Foreign Companies:

Project offices of foreign companies can open non-interest bearing one or more foreign currency accounts in India for the project to be executed in India. Such accounts will be subject to the following conditions:

i) Specific permission of Reserve Bank of India for establishment of a project office in India.

ii) The contract under which the project has been sanctioned, specifically provides for payment in foreign currency.

iii) Each project has only one foreign currency and rupee account.

iv) Credit: Foreign currency receipts from the project sanctioning authority and remittance from parent/group companies abroad or international financing agencies.

v) Debit: payment of project related expenditure.

vi)  Account should be closed on completion of project.

vii) Inter project transfer of funds will be permitted with the permission of RBI.

viii) In case of dispute between the project office and project sanctioning authority or any other agency, the balance held in the account will be converted into INR and credited in a special account till settlement of dispute.

Organizers of international Seminars, Conferences and Conventions etc:

They can open temporary foreign currency account in India:

Credits:

Inward remittance in foreign currency towards registration fees payable by overseas delegates, grant, sponsorship fees and donation received from abroad.

Debits:

a. Payment to foreign invitees towards hotel/travel expenses.

b. Honorarium to foreign guest speakers.

c. Remittance towards refund of registration fees to foreign delegates and unutilized sponsorship /grant amount.

d. Bank charges and conversion of funds into rupee.

The account will be closed immediately, after the conference/event is over.

Account of Foreign Portfolio Investor/Foreign Venture Capital Investor:

i) Registration with the Security and Exchange Board of India (SEBI).

ii) Only current account. No interest is payable.

iii) For making investment in accordance with FEMA (Non-Debt Investment) Rules 2019.

An Indian company receiving foreign investment under FDI route in terms of FEMA (Non-Debt Instruments) Rules, 2019 dated October 17,2019, as amended from time to time, may open and maintain a foreign currency account with an AD in India provided the Indian investee company has impending foreign currency expenditure and the account is closed immediately after the requirements are completed or within six months from the date of opening of such account whichever is earlier.

Account by Foreign Diplomatic Mission/Personnel/Family Members in India:

i) Diplomatic mission can open foreign currency account with an AD and transfer the collection of visa fees from its rupee account in India.

ii) Diplomatic personnel and their family members may also open savings accounts in foreign currency and such accounts can be credited by way of inward remittance.

iii) Funds held in such accounts, if converted in rupees shall not be converted back into foreign currency.

iv) Funds in the account may be repatriated outside India without the approval of RBI.

v) Deposit held by diplomatic missions and diplomatic personnel in a special rupee account namely ‘Diplomatic Bond Stores Account’ to facilitate purchases of bonded stocks from firms and companies who have been granted special facilities by custom authorities for import of stores into bond. Credit in the account by inward remittance or transfer from foreign currency account in India of the account holder. Debit to the account for local disbursement or for payment for purchase of bonded stocks from firms/companies granted special permission by customs for import of stores into bond.

Foreign Currency Accounts that can be held Outside India

Account of Authorized Dealer:

i) An AD in India may open and maintain foreign currency account with his branch/correspondent outside India.

ii) A branch outside India of a bank incorporated/constituted in India may open and maintain foreign currency account with a bank outside India.

iii) The purpose of the account is for carrying normal banking business.

They have to follow FEMA and RBI regulations as well as directions issued by regulatory authorities in the country where the branch is located.

Account by a Company/Firm Incorporated in India:

i) The foreign currency account may be opened in the name of an overseas branch/office of a representative posted outside India for carrying on normal business activities of Indian entity.

ii) The total remittances made under this for all such accounts in an accounting year shall not exceed:

a. 15% of the average annual sales/income or turnover of the Indian entity during the last two financial years or upto 25% of the net-worth, whichever is higher, where the remittances are made to meet initial expenses.

b. 10% of such average annual sales/income or turnover of the Indian entity during the last financial year, where the remittances are made to meet recurring expenses.

iii) The above provision will not apply, if remittances are made from an EEFC account or overseas office set up or representative posted by100% EOU/EPZ/EHTP/STP, within two years of establishment of the unit.

iv) The account will be closed, if the overseas branch/office is not set up within six months of opening the account or within one month of closure of the overseas branch/office, or where no representative is posed for six months and the balance held in the account shall be repatriated in India.

Account of Construction Contractor/Service Exporter:

An exporter who is exporting services and engineering goods on deferred payment terms or executing a turnkey project or a construction contract abroad may open, hold and maintain a foreign currency account with a bank outside India subject to approval as required under FEMA (Export of goods and services) Regulation.

For Making Overseas Direct Investment:

An Indian party may open, hold and maintain foreign currency accounts abroad for the purpose of making overseas direct investment.

The account shall be opened as per regulations of the host country. The remittance sent to the account by the Indian party should be utilized only for making overseas direct investment into the joint venture/wholly owned subsidiary (JV/WOS) abroad.

Any amount received in the account by way of dividend and or other entitlement from the subsidiary shall be repatriated to India within 30 days from the date of credit.

Indian parties should submit the details of debit/credit in the account on yearly basis to the designated AD bank along-with a certificate from statutory auditors that account was maintained as per host country laws and the extent of FEMA regulations.

The account will be closed immediately or within 30 days from the date of disinvestment from JV/WOS or cessation thereof.

Other Cases of Opening Foreign Currency Accounts Outside India:

Following are the other cases where a resident individual/entity can open foreign currency account.

i) A person resident in India who has gone abroad for studies provided credits from India into the account are as per FEMA and on completion of studies such an account shall be deemed to have opened under LRS.

ii) A person resident in India who is on a visit to foreign country provided on return, balance will be repatriated.

iii) A person going abroad to participate in an exhibition/trade fair for credit to sell proceeds.

iv) A resident individual can open foreign currency account for the purpose of sending remittances under LRS.

v)A shipping or airline company incorporated in India for carrying on normal business.

vi) Life Insurance Corp. Of India/General Insurance Corp. of India and its subsidiaries.

vii) Funds raised through ECB/ADR/GDR, pending their utilization/repatriation be held as deposit in foreign currency account with a bank outside India.

viii) Indian start-up, having their subsidiary abroad for the purpose of crediting export/sale proceeds.

On closure/ completion of activities abroad, balances in the account will be repatriated to India.

The following persons can open a foreign currency account outside India for remitting/ receiving their entire salary payable to him in India:

a) A foreign citizen resident in India, being an employee of foreign company, in India on deputation to an office/branch/subsidiary in India.

b) An Indian citizen, being an employee of foreign company on deputation to the office/branch/subsidiary in India.

c) A foreign citizen resident in India, employed with an Indian company.

Opening of Rupee Accounts in India by Foreign Nationals:

Rupee Account opened by Foreign Tourist in India:

Foreign tourists during their short visit to India can open a NRO account. Account may be current or saving. Passport/other identification details required for opening the account. Period of the account is six months.

Credits: Funds remitted from outside India/sale of foreign currency brought by tourists.

Debits: Local disbursements.

At the time of departure from India, balances in the account can be repatriated, provided the account is maintained for a period not exceeding six months and no local funds have been credited except interest accrued thereon.

In case the period exceeded six months, RBI permission is required for repatriation of funds.

Account of Foreign National Resident in India:

Foreign nationals who are staying in India for a long period due to work/business can open a resident rupee account on the basis of a long term valid Indian visa (valid for more than 182days).

Repatriation of salary/earnings in India to their family abroad allowed.

Account will be converted to NRO status when he/she goes back to his own country.

Account of Foreign Students in India:

NRO rupee account can be opened 0n the basis of passport and admission letter. Local address proof to be provided within 30 days. Till date monthly withdrawal upto Rs.50000/- and inward remittance upto USD 1000/- is allowed.

On receiving a local address, normal operation is permitted.

Accounts for Nepal and Bhutan:

Person Resident in India:

When a person resident in India leaves India, for Nepal or Bhutan for indefinite stay, his existing account will continue as a resident account.

Persons Resident of Nepal and Bhutan:

NRE/FCNR account of persons resident in Nepal or Bhutan, who are citizens of India/PIO, provided the funds are remitted in free foreign exchange. However, interest earned in these accounts can be remitted only in Indian rupee.

AD may open and maintain rupee accounts of residents of Nepal and Bhutan.

Opening of Rupee Account by resident of Bangladesh and Pakistan:

AD may open on one Non-Resident Ordinary (NRO) account for a citizen of Bangladesh and Pakistan, belonging to minority communities in those countries namely Hindus, Sikhs, Buddhists, Jains, Parsis and Christians, residing in India and who has been granted a Long-Term Visa (LTV) by the Central Government.

The account will be converted to a resident account once such a person becomes a citizen of India within the meaning of Citizen Act,1955.

This account can also be opened if such person has applied for LTV which is under consideration of the Central Government, in which case, the account will be opened for a period of six months and may be renewed at six monthly intervals subject to the condition that the individual holds a valid visa and valid residential permit issued by Foreign Regional Registration office (FRRO) concerned.

The opening of such NRO accounts will be subject to reporting of the details of the account opened by the concerned AD to the Ministry of Home Affairs (MHA) on a quarterly basis.

Acceptance of Deposit by Non-Banking Finance Companies (NBFC):

A company/NBFC may accept deposit from NRI/PIO on repatriation basis subject to following conditions:

i) The deposits are accepted under the ‘Public Deposit Scheme’.

ii) NBFC should be registered with RBI and should have obtained the required credit rating as per

RBI guidelines.

iii) The amount of deposit should be received as inward remittance from abroad or to the debit of NRE or FCNR(B) account.

iv) The maturity period shall not exceed 3 years and rate of interest as per RBI guidelines.

v) The repayment of deposit may be made by the NBFC to the depositor by remittance from India or to the credit of NRE/FCNR(B) account provided the depositor continues to be a non-resident at the time of repayment.

Nomination:

AD may provide nomination facility in respect of the accounts maintained by individual account holders.

Remittances out of the account after account holder death:

On the death of a foreign currency account holder, the AD with whom the account is held, may remit to a nominee being a person resident outside India, funds to the extent of his share or entitlement from the account of the deceased account holder.

A nominee being a person resident in India, who is desirous of remitting funds outside India out of his share for meeting the liabilities abroad of the deceased, may apply to Reserve Bank for such remittance.

A resident nominee of an account held outside India in accordance with regulation 5 shall close the account and bring back the proceeds to India through banking channels.

Responsibilities of AD maintaining Foreign Currency Accounts:

a) Comply with the directions issued by RBI from time to time.

b) Submit periodic return/statement, if any, as may be stipulated by the Reserve Bank.

Written by : Mr Vijay Kumar Chhatwal, former Executive, Punjab National Bank. The article is based upon the deliberations made by Mr Vijay Kumar Chhwal in Banking Quest' Foreign Exchange Training Program.