0022 residents' foreign currency accounts

8/3/2019 0022 Residents' Foreign Currency Accounts

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JVIRAHYAS @ GMAIL.COM

RESIDENTS FOREIGN CURRENCY ACCOUNTS

Indias liberalization and adequate foreign exchange reserves have resulted inresidents being permitted to maintain accounts in foreign currency in India. These,however, are not available for all. They are permitted under certain conditions themain one being that the account is opened with foreign currency brought into thecountry . These include export earners, non residents becoming residents and thosereturning to the country with foreign exchange after a business trip or holiday.

The accounts that can be opened are:

Exchange Earners Foreign Currency Account (EEFC) and Resident Foreign Currency Domestic Account (RFCD) Resident Foreign Currency External Account (RFCE)

Resident Foreign Currency Account (by Project / Service Exporter forexecution of Contract Abroad )

Resident Foreign nationals

a) Exchange Earners Foreign Currency (EEFC) Account

EEFC account of individuals and corporates

A person resident in India may open, hold and maintain with an authorised dealer inIndia, a foreign currency account to be known as Exchange Earners Foreign Currency(EEFC) Account. This account will be maintained only in the form of non-interest

bearing current account and no credit facilities either fund-based or non-fund based,should be permitted against the security of balances held in EEFC accounts, by theauthorised dealers. The limits of eligible credits to the EEFC accounts are 100% for Status Holder Exporter (as defined in Exim Policy in force), a resident in India for

professional services rendered in his personal capacity and 100% Export Oriented Unit/s,Unit/s in Export Processing Zones (EPZs), Software Technology Park (STP) andElectronic Hardware Technology Park (EHTPs) and 50% for other persons resident inIndia in respect of inward remittance received through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside Indiaor those received for meeting specific obligations by the account holder.

Payments received in foreign exchange by a unit in Domestic Tariff Area (DTA) for

supply of goods to a unit in Special Economic Zones out of its foreign currency a/c. are to be treated as eligible foreign exchange earnings for the purpose of credit to the EEFCA/c. Authorised Dealers may credit such payments received in foreign exchange by a unitin DTA to its EEFC A/c.

Authorised Dealers may till further notice, permit their exporter constituents to extendtrade related loans / advances to overseas importers out of their EEFC balances without


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any ceiling subject to compliance of provisions of Notification No.FEMA 3/2000-RBdated 3 rd May 2000 as amended from time to time.

Authorised Dealers may permit exporters to repay packing credit advances whether availed in Rupee or in foreign currency from balances in their EEFC A/c. and / or rupeeresources to the extent exports have actually taken place.

These accounts are to be current accounts. Savings and term deposits are notpermitted (at the initial stages when they were first permitted in the early 90ssavings accounts were permitted and interest was paid).

Inward remittance received through normal banking channels for meeting specialobligations by the account holders will not be eligible for credit to their EEFC account.

Individual professionals are permitted to keep up to 100 per cent of their foreignexchange earnings from consultancy and other services rendered to persons or bodiesoutside India, in their foreign exchange earners foreign currency (EEFC) account. The

facility has been permitted for the benefit and convenience of individual professionals,lawyers, doctors, artists, architects, engineers, consultants, cost/chartered accountants,directors on boards of overseas companies, etc. ( Press Release : 2002-2003/172 dated August15, 2002)

The current percentage of inward remittances allowed to be maintained in foreigncurrency is up to 50% which can go up to 70% in certain specific cases like those of Export Oriented Units (EOUs).

Press Release : 2002-2003/265 dated September 6, 2002 : T here are only two

categories of EEFC Account holders. One, those who can retain upto 100 per cent of their receipt in foreign exchange and others who can retain upto 50 per cent of their receipt in foreign exchange.

A 100 per cent Export Oriented Unit (EOU) or a unit situated in(a) Export Processing Zone (EPZ)(b) Software Technology Park (STP)(c) Electronic Hardware Technology Park (EFTP)

are eligible to credit upto 100 per cent of their foreign exchange receipts to their EEFCAccount, against the existing eligibility of credit upto 70 per cent.

EEFC account of Units in Special Economic Zones (SEZ)

A unit located in a (SEZ) may open and maintain an EEFC account.

1. All foreign exchange funds received by the unit in the SEZ should becredited to this account. This also includes foreign exchange purchased

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by units in DTA for making payment towards goods supplied by Units inSEZs

2. No foreign exchange purchased in India against rupees is to be credited tothe account without the permission of the Reserve Bank.

3. The funds must represent bona fide transactions of the unit in the SEZ.

Payments Received in foreign exchange by a unit in a Domestic Tariff Area (DTA) forsupply of goods to a unit in a Special Economic Zone (SEZ) out of its foreign currencyaccount is to be treated as eligible foreign exchange for the purpose of credit to theEEFC account (AP (Dir Series) Circular No. 62 dated December 12, 2002) .

Banks are permitted to allow exporters to repay packing credit advances whetheravailed for in rupees or in foreign currency from balances in their EEFC Account tothe extent exports have actually taken place. Banks should also tell exporters to

adhere to the exchange control requirements (AP ( DIR Series) Circular No. 34 datedOctober 31, 2002).

Earlier exporters were permitted to grant trade related loans/ advances notexceeding US $ 3 million from their EEFC account to overseas exporter clients. AP(Dir Series) Circular 78 dated February 14, 2003 removed the ceiling and permittedthese to be granted without any limit. This was upto June 30, 2003. AP (Dir Series)circular 104 dated May 31, 2003 extends this date till future notice.

Further, as per Notification No.FEMA 3/2000-RB dated May 3, 2000, where the amount of loan exceedsUSD 25,000 a guarantee of a bank of international repute situated outside India is required to be provided

by the overseas borrower in favour of the lender. A.P.(DIR Series) Circular No.94 dated June 7, 2004

further liberalizes the above limit to USD 1,00,000 from USD 25,000. Accordingly, guarantee of a bank of international repute situated outside India will be required to be provided by the overseas borrower infavour of the lender where the amount of trade related loan / advance by exporter out of his EEFC Accountexceeds USD 1,00,000.

These funds are not to be lent or made available to any person or entity in India. TheReserve bank of India vide A.P. (Dir Series) Circular No.21 dated 23 rd September,2003 has clarified that the balances in the EEFC accounts may be allowed to becredited to NRE/FCNR (B) Account, at the option/request of the account holdersconsequent upon change in the residential status from resident to non-resident.

Claims settled in rupees by ECGC should not be construed as export realization inforeign exchange and claim amount should not be credited to EEFC account (AP (DirSeries) Circular No. 22 dated September 24, 2003).

AP (Dir Series) Circular No. 20 dated September 12, 2002 states that the priorapproval of the Reserve Bank is not required for remittances made from EEFCaccounts for consultancy services received.

Master Circular No. / 8 /2004-05 dated July 1, 2004

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Foreign Currency Accounts Reserve Bank may consider applications in Form EFCfrom exporters having good track record for opening foreign currency accounts with

banks subject to certain terms and conditions. Applications for opening such an accountwith a branch of an authorised dealer in India may be submitted through the branch atwhich the foreign currency account is to be maintained. If the foreign currency account is

to be maintained abroad the application should be made by the exporter giving details of the bank with which the account will be maintained. An Indian entity has also been permitted to open, hold and maintain in the name of its office/branch set up outside India,a foreign currency account with a bank outside by making remittance for the purpose of normal business operations of the said office/branch or representative subject to certainconditions.

Indian corporates who have set up overseas offices abroad have been permitted to acquireimmovable property outside India for their business as also staff residential purposes with

prior permission of RBI, until further notice.

A unit located in a Special Economic Zone (SEZ) may be allowed to open , hold andmaintain a Foreign Currency Account with an authorised dealer in India subject to certainspecified conditions.

A person resident in India being a project /service exporter may open , hold and maintainForeign Currency Account with a bank outside or in India , subject to certain terms andconditions.

b) Resident Foreign Currency (Domestic) Accounts (RFCD)

AP (Dir Series) circular 37 dated November 1, 2002 permits Indians resident in Indiamay open RFCD accounts out of foreign exchange in the form of currency notes,bank notes and travelers cheques. These may have been:

1. Acquired while on a visit to any place outside India by way of payment forservices not arising from any business in or anything done in India; or

2. Acquired from any person not resident in India and who is on a visit to India,as honorarium or gift or for services rendered or in settlement of any lawfulobligation; or

3. Acquired by way of honorarium or gift while on a visit to any place outsideIndia; or

4. Being the unspent amount of foreign exchange acquired from an authorizedperson for travel abroad.

AP (Dir Series) Circular 64 dated December 24, 2002 clarifies that the account maybe credited with/ opened out of foreign exchange earned and or gifts received fromclose relatives and repatriated to India through normal banking channels by resident

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individuals. Foreign exchange earnings could be through export of goods and/ orservices, royalty, honorarium and the likes. RBI/2004-05/59 A.P.(DIR Series) Circular No.6dated July 20, 2004 states that the foreign exchange can be received by a resident individual by way of the

proceeds of life insurance policy claims/maturity/surrender values settled in foreign currency from aninsurance company in India permitted to undertake life insurance business by the Insurance Regulatory andDevelopment Authority and the same may be credited to RFC Account or RFC (Domestic) Account of the

beneficiary as the case may be.Debits to this account shall be for payment towards current account transaction inaccordance with the provisions of the Foreign Exchange Management (CurrentAccount Transactions) Rules, 2000 and towards a capital account transactionpermissible under Foreign Exchange Management (Permissible Capital Account

Transactions) Regulations, 2000.

These accounts have to be current accounts and will earn no interest. There are noceilings to the amount.

The Reserve bank of India vide A.P. (Dir Series) Circular No.21 dated 23 rd September,2003 has clarified that the balances in the RFC (D) accounts may be allowed to becredited to NRE/FCNR (B) Account, at the option/request of the account holdersconsequent upon change in the residential status from resident to non-resident.

A.P. (Dir Series) Circular No.51 dated December 15, 2003 states that residentbeneficiaries of insurance claims/ maturity/ surrender value settled in foreigncurrency may be permitted to open and credit the proceeds to the RFC (D) accountas opposed to RFC account.

AP (Dir Series) Circular No. 6 dated July 20, 2004 states that foreign exchangereceived by a resident individual by way of the proceeds of life insurance policyclaims/ maturity/ surrender values settled in foreign currency from an insurancecompany in India permitted to undertake life insurance business by the Insurance

Regulatory and Development Authority may be credited to the RFC Account or RFC(Domestic) Account of the beneficiary.

c) Resident Foreign Currency account outside India

A firm or company incorporated in India may open, hold and maintain a foreigncurrency account outside India by making remittances from India for the purpose of normal business operations of a branch office or a representative there. The surplusfunds in held in this account should not be invested abroad without prior permissionof RBI and any funds rendered surplus should be repatriated to India. The details of bank account opened in another country should be promptly reported to authorized

dealers.

The Reserve Bank of India vide A.P. (Dir Series) Circular No.17 dated 20 th September,2003 has permitted a citizen of India employed by a foreign company outside Indiaand on deputation to the office/branch/subsidiary/ joint-venture in India of suchforeign company, to open, hold and maintain a foreign currency account with a bankoutside India and receive the salary payable to him for services rendered to him for

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services rendered to the office/ branch / subsidiary / joint-venture in India of suchforeign company, by credit to such account subject to the following conditions:

1. The amount to be credited to that account does not exceed 75 percent of thesalary accrued to or received by such person from the foreign company.

2. The remaining salary is paid in rupees in India.

3. Income tax is paid on the entire salary in India.

AP (Dir Series ) Circular No. 32 dated October 28, 2003

Indian companies or individuals executing turnkey projects or civil constructioncontract may open foreign currency accounts abroad. They were earlier required tosubmit information to the RBI. They should now submit the following information /statements to the authorized dealer.

1. The account number, name of bank, place and country where the account isopened within 15 days from the date of opening of such account.

2. Statement of operation on the account should be on half yearly basis.

3. Bank certificates evidencing the amount repatriated periodically.

4. Closure of foreign currency account with bank certificates evidencing transferof balance to India immediately on completion of the relevant contract.

The Reserve bank of India vide A.P. (Dir Series) Circular No.64 dated 4 th February2004 has introduced a liberalized remittance scheme of USD 25000 for residentindividuals per calendar year for any purpose. The said circular permits residentindividuals to open maintain and hold foreign currency accounts with a bankoutside India without the prior approval of the RBI for the purpose of makingremittances under the scheme.

(d) Resident Foreign Currency Account in India (by Project / ServiceExporter for execution of Contract Abroad)

The Reserve Bank of India vide A.P. (Dir Series) Circular No.20 dated 23 th September,2003 has permitted a citizen of India being a project / service exporter may open,

hold and maintain Foreign Currency Account (in any convertible foreign currency)with a bank outside or in India subject to the following conditions:

1. Exporters will have to open, hold and maintain a separate Foreign CurrencyAccount for each project under execution abroad.

2. No rupee loans shall be permissible against the security of balances held insuch accounts and no overdraft in the account shall be permitted.

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3. The balances in the account will be subject to SLR/CRR requirement.

The account shall be closed immediately after completion of the project and theentire balance transferred to rupee account and / or EEFC account, as the case maybe. The Project funds temporarily rendered surplus may be invested in short-term

deposits not exceeding one year and on maturity, they should be transferred to theproject foreign currency account. Also the maturity of the fixed deposits should not inany case go beyond the date of the completion of the project.

The following credits / debits shall be permitted.

(a) Credits:

1. payment in foreign currency received from the client.

2. Interest earned on surplus funds parked in short-term deposits.

(b) Debits:

1. Payment to overseas supplier of goods and services to the extent approved bythe approving authority.

2. Transfer of funds to the project site.

3. Bank Charges.

4. Project related expenses in rupees.

5. Transfer of funds to rupee account in case payment made by the client forsupply of material / equipment from India has to be temporarily credited tothe account.

6. Conversion of balance in the account into Indian rupees at the end of thecontract.

7. All other debits/ credits would require prior approval of the approvingauthority / RBI.

e) Resident Foreign Currency Accounts (RFC)

A person of Indian nationality or origin, who has returned to India for permanentsettlement or persons inheriting assets abroad from persons who acquired suchassets while being a non resident, can open a RFC account. Balance held in a RFCaccount is repatriable without prior permission of RBI for a bona fide purpose. A RFCaccount is free from all restrictions regarding utilization including any restrictions on

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investments outside India. Also the account can be opened in any foreign currencyother than the currency of Nepal or Bhutan.

Persons who have been resident outside India for a continuous period of not less thanone year (exclusive of short visits for personal reasons) who return to India for

permanent settlement should change the status of their NRO/NRE Account from nonresident to resident and inform the bank of the change in status. Also such personshave to close NRE and FCNR (B) deposit accounts on maturity. The proceeds can betransferred either partly or wholly to an RFC account.

The main features are:

1) The account is available to NRIs returning from employment abroad.

2) RFC can be opened and maintained in any foreign currency.

3) Interest earned on the balance in this account is tax-free for 2 years from thedate of return to India. (with effect from the assessment year 2004-2005)

4) Principal and interest are fully repatriable.

The account can be held jointly or singly. Nomination facility is also available. If theaccount holder dies and the nominee is abroad, the monies can be repatriated tohim.

RFC can be savings or current or term deposits. The term of the deposits is between30 days to 6 months. However cheque facility is not available.

Credits to this account may be by way of transfers, inward remittances and intereston balance held in this account. Withdrawals are permitted for bona fidetransactions- Transfers to other RFC Accounts and local disbursements. An authorizeddealer may grant a loan against the balances lying in this account subject to itscommercial judgment.

A.P. (Dir Series) Circular No.51 dated December 15, 2003 states that Non- ResidentIndian policy holders who are the beneficiaries of insurance claims/ maturity/surrender value settled in foreign currency in respect of policies issued by insurance

companies in India and registered with IRDA to conduct insurance business may bepermitted to credit the proceeds to the RFC account opened by them on theirbecoming residents.

f. Resident Foreign Currency Account

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AP (DIR Series) Circular No. 28 dated October 3, 2002 states A unit in a specialeconomic zone (SEZ) may open and hold a foreign currency account in Indiaprovided:

All foreign exchange funds received by the unit in the SEZ are credited to such

account.

No foreign exchange purchased in India against rupees are credited to this accountwithout the permission of the Reserve Bank.

The funds held are used for bonafide trade transactions of the unit in the SEZ.

These funds are not lent to any person or entity resident in India not being a unit in aSEZ.

g. Resident Foreign Nationals

Branches of foreign firms in India and foreign nationals resident but not permanentlyresident in India are permitted to open bank accounts with authorized dealers (A.D.)

The Authorized Dealer has to take care that the foreign currency is not given toresidents. No rupee loans can be given except for personal loans. This may be up toRs.5 lakhs.

A national of another country living in India and working for a foreign company ondeputation in India or a citizen of India employed by a foreign company outside India on deputation in India (vide A.P. (Dir Series) Circular No.17 dated20 th September, 2003) may open, hold and maintain a foreign currency account witha bank outside India and receive the salary payable to him for services rendered inIndia, by credit to such account provided that:

1. The amount to be credited to that account does not exceed 75 percent of thesalary accrued to or received by such person from the foreign company.

2. The remaining salary is paid in rupees in India.

3. Income tax is paid on the entire salary in India.

The Reserve Bank of India vide A.P. (Dir Series) Circular No.18 dated 20 th September,2003 permitted Authorized Dealers to allow diplomatic missions, diplomaticpersonnel and non-diplomatic staff of foreign embassies, who are nationals of theconcerned foreign countries and hold official passport, to maintain foreign currencydeposit accounts.

Master Circular No. / 8 /2004-05 dated July 1, 2004

Diamond Dollar Account

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Under the scheme of Government of India, firms and companies dealing in purchase/saleof rough or cut and polished diamonds / diamond studded jewellery, with track record of at least three years in import or export of diamonds and having an average annualturnover of Rs. 5 crores or above during preceding three licensing years (licensing year isfrom April to March) are permitted to transact their business through Diamond Dollar

Accounts and may be allowed to open not more than five Diamond Dollar Accounts withtheir banks. Accordingly, eligible firms and companies may apply for permission to theChief General Manager, Foreign Exchange Department, Trade Division, Reserve Bank of India, Central Office, Mumbai 400 001, through their authorised dealer.

Remittance

The RBI announced on February 4, 2004 (AP (DIR Series) Circular No. 64 ) thatresident individuals may freely remit upto $25,000 per annum for any purpose. Itcould be for current account or capital account or for a combination of both. Thisresulted in several banks placing advertisements seeking deposits abroad from

residents. The RBI has therefore issued AP(DIR Series) circular No. 80 on March 18,2004 which states that all banks, both Indian and foreign, including those not havingan operational presence in India, should seek prior approval from RBI for theschemes being marketed by them in India to residents either for soliciting foreigncurrency deposits for their foreign/ overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company.

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0022 residents' foreign currency accounts

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