final - fema presentation-harshal bhuta_deposit and accounts fema

Deposits and Accounts by

Non-Residents +Foreign Currency Accounts by

Indian Residents

Harshal BhutaM.Com., F.C.A., A.D.I.T., LL.M. (Hons.) in International Tax Law [WU]

Chamber of Tax Consultants – Basic Intensive Study Course on

FEMA

P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 2

Deposits and Accounts by Non-Residents


Deposits and Accounts by Non-Residents

NRE Account vs. FCNR(B) Account vs. NRO Account

SNRR Account

Escrow Account

Deposit from NRI/PIO on repatriation basis

Deposit from NRI/PIO on non-repatriation basis

Deposit from NR towards Directorship

Other Accounts / Deposits

AD / branch

Foreign Shipping / Airline Company

UJV of foreign entity(ies) with Indian entity(ies)



Particulars NRE Account FCNR(B) Account NRO Account

Who can

open an

account

• NRIs and PIOs(Individual of Pakistan &

Bangladesh require prior

approval of RBI)

• NRIs and PIOs(Individual of Pakistan &

Bangladesh require prior

approval of RBI)

• Any person resident outside

India (including NRI/PIO)(Individual/Entities of Pakistan &

Bangladesh require prior approval

of RBI)

Who is

authorized

to open

• Authorised Dealer

• Authorised Banks

(including co-op bank

other than AD)


• Regional Rural Bank


• Authorised Banks (including

co-op bank other than AD)

Currency • INR • Forex (Any foreign

currency which is freely

convertible)

• INR

Type of

Account

• Savings

• Current

• Recurring/Fixed Deposit

• Term Deposit only • Savings

• Current

• Recurring/Fixed Deposit

Period for

fixed

deposits

• From 1 to 3 years(However, banks are allowed to

accept NRE deposits > 3 years

from their AL point of view)

• Between 1 to 5 years • As applicable to resident

accounts (eg: even 6

months)

Rate of

Interest

• As per guidelines issued by the Department of Banking Regulations



Notf. No. FEMA. 5/2000-RB dt

03/05/2000Vs.

Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16

FED Master Direction No.14/2015-16

Erstwhile definition of PIO New definition of PIO

PIO means a citizen of any country other

than Bangladesh or Pakistan, if

a) he at any time held Indian passport;

or

b) he or either of his parents or any of

his grandparents was a citizen of

India by virtue of the Constitution of

India or the Citizenship Act, 1955 (57

of 1955); or

c) the person is a spouse of an Indian

citizen or a person referred to in

sub-clause (a) or (b).

PIO is a person resident outside India who is a citizen of any

country other than Bangladesh or Pakistan or such other country

as may be specified by the Central Government, satisfying the

following conditions:

a) Who was a citizen of India by virtue of the Constitution of

India or the Citizenship Act, 1955 (57 of 1955); or

b) Who belonged to a territory that became part of India after

the 15th day of August, 1947; or

c) Who is a child or a grandchild or a great grandchild of a

citizen of India or of a person referred to in clause (a) or (b);

or

d) Who is a spouse of foreign origin of a citizen of India or

spouse of foreign origin of a person referred to in clause (a)

or (b) or (c)

Explanation: PIO will include an ‘Overseas Citizen of India’

cardholder within the meaning of Section 7(A) of the Citizenship

Act, 1955.



NRE & FCNR (B) account

Permitted Credits

a) Inward remittances from o/s India thru banking channels

b) Personal cheques of FCA outside India / travellers cheques / bank drafts deposited by the accountholder in person during his temporary visit to India

c) Tender of foreign currency / bank notes during his temporary visit to India

d) Transfers from other NRE/ FCNR(B) accounts

e) Interest accruing on the funds held in the account

f) Current income in India due to the account holder, subject to payment of applicable taxes in India(like rent, dividend, pension, interest) (no qualification of earlier investment account source i.e.original investment could have been made from either NRE or NRO a/c)

g) Maturity or sale proceeds of any permissible investment in India which was originally made fromNRE/FCNR(B) a/c or out of inward remittances from o/s India thru banking channels

(FEMA Notf. 21/2000 - Sale of immovable property in India: Credit to NRE a/c restricted to 2properties during lifetime and also restricted to investment amount from NRE a/c)

h) Refund of share/ debenture subscriptions to new issues of Indian companies or portion thereof, ifsubscription amount was paid from NRE/ FCNR(B) a/c of the account holder or out of inwardremittances from o/s India thru banking channels

i) Refund of application / earnest money / purchase consideration made by the house building agencies/ seller on account of non-allotment of flat / plot / cancellation of bookings / deals for purchase ofresidential / commercial property, together with interest, if any (net of income tax payable thereon),was paid from NRE / FCNR(B) a/c of the account holder or out of inward remittances from o/s Indiathru banking channels and AD is satisfied about the genuineness of the transaction



NRE & FCNR (B) account

Permitted Debits

a) Local disbursements

b) Remittances outside India

c) Transfer to NRE/ FCNR(B) accounts of the account holder or any other person eligible

to maintain such account

d) Investment in shares/ securities/ commercial paper of an Indian company or for

purchase of immovable property in India provided such investment/ purchase is

covered by the regulations made, or the general/ special permission granted by RBI

FCNR(B): If inward remittance is in currency other than designated

currency, currency conversion costs for conversion into designated

currency to be borne by remitter. Fully covered swap is permitted in such

cases.



NRO account

Permitted Credits

a) Inward remittances from o/s India thru banking channels

b) Tender of any permitted currency during his temporary visit to India

c) Legitimate dues in India of the account holder

d) Transfers from other NRO accounts

e) Rupee gift / loan made by a resident to a NRI / PIO relative within the limits prescribed underLRS

Permitted Debits

a) All local payments in rupees including payments for investments subject to compliance withthe relevant regulations made by RBI

b) Remittance outside India of current income in India of the account holder net of applicabletaxes

c) Transfers to other NRO accounts (whether of account holder or other eligible person?)

d) Balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD1 million, subject to conditions (Limit of $1 million over and above current incomerepatriation – FAQ 3 of Accounts in India by NR) (Undertaking from remitter for own funds)

e) Funds can be transferred to NRE account within this USD 1 Million facility

f) Settlement of charges on International Credit Cards issued by AD in India to NRIs or PIOs, uptoUSD 1 Million per financial year



Repatriability • Repatriable • Repatriable • Not repatriable except for

all current income.

• Indvl*: Balances in an NRO

account of NRIs/ PIOs are

remittable up to USD 1

(one) million per financial

year (April-March) along

with their other eligible

assets.

• Entities: RBI permission

Taxabilty • Exempt • Exempt • Taxable1

Joint account • Jointly with two or more NRIs/ PIOs

• Jointly with resident relative on ‘former or survivor’ basis (relative as defined

in Companies Act, 2013)

• The resident relative can operate the account as a Power of Attorney holder

during the life time of the NRI/ PIO account holder.


1NRO deposits constitute ‘Foreign Exchange Assets’ u/s 115C of Income Tax Act and therefore interest earned can

benefit from 20% tax rate under Chapter XII-A of ITA – V Ravi Narayanan (2008) 168 Taxman 65 (AAR)

*Where a/c is opened a foreign tourist visiting India, AD may convert INR to forex at the time of departure

provided a/c < 6 months and not credited with any local funds, other than interest accrued thereon.



Operations

by resident

POA holder

Permitted

• Withdrawal for local payments

• Make investments in India

• Remittance to account holder himself thru

banking channels

Prohibited

• Remittance outside India to other than

account holder himself

• Make payment by gift to resident

• Transfer funds to other NRE account

Permitted

• Withdrawal for local payments

• Make investments in India

• Remittance outside India of

current income, net of taxes

Prohibited

• Remittance outside India to other

than account holder himself

• Make payment by gift to resident

• Transfer funds to other NRO a/c

Loans

outside

India

(Secured)

• AD may allow their branches/

correspondents o/s India to grant loans to

NRI/PIO or to Third Parties for bona fide

purpose against the security of funds held

in the NRE/ FCNR (B) accounts in India,

subject to usual margin requirements.

• The term “loan” shall include all types of

fund based / non-fund based facilities

• Not permitted




Loans in India • AD can sanction loans in India to NRI/PIO/ third

parties without any limit, subject to usual margin

requirements.

• These loans cannot be repatriated outside India

• Should be used only for personal purposes or

business purposes (excluding relending, carrying

on agricultural/ plantation activities or

investment in real estate business)

• In case of loans sanctioned to a third party, there

should be no direct/indirect forex consideration

for NRI/PIO agreeing to pledge his deposits to

enable the resident individual/firm/company to

obtain such facilities

• In case of the loan sanctioned to the account

holder, it can be repaid either by adjusting the

deposits or through inward remittances from o/s

India thru banking channels or out of self NRO a/c

• The facility for premature withdrawal of deposits

not be available in such cases

• The term “loan” includes all types of fund

based/non-fund based facilities

• Loans against the

deposits can be granted

in India to the account

holder or third party

subject to usual norms

and margin

requirement. The loan

amount cannot be used

for relending, carrying

on agricultural/

plantation activities or

investment in real

estate business.

• The term “loan”

includes all types of

fund based/ non-fund

based facilities




Change in

residential

status from

Non-resident

to resident

• NRE accounts should

be designated as

resident accounts

or

• Funds held in these

accounts may be

transferred to the RFC

accounts

immediately upon

change of residential

status

• FCNR (B) deposits

allowed to continue till

maturity at the

contracted rate of

interest

• AD should convert the

FCNR(B) deposits on

maturity into resident

rupee deposit accounts

or RFC account

• From PROI to PRI:

Immediately designated

as resident accounts

• From PRI to PROI*:

Immediately designated

as NRO account


* For Foreign nationals leaving India after employment:

• AD can re-designate their resident account in India as NRO account on leaving India to enable them to receive their

pending bona fide dues

• The funds credited to the NRO account to be repatriated abroad immediately, after payment of applicable taxes.

Amount repatriated abroad should not exceed USD one million per financial year

• Debit to account should be only for the purpose of repatriation to the account holder’s account maintained abroad.

• Account should be closed immediately after all dues have been received and repatriated as per the declaration

made by the account holder when the account was designated as an NRO account


SNRR Account

Particulars SNRR A/c

Who can open the

account

PROI having a business interest in India can open SNRR a/c with AD(Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities

incorporated in Pakistan and Bangladesh requires prior approval of RBI)

Currency & Type INR | Current

Tenure Concurrent with tenure of the contract/ period of operation/ the business of

the account holder but < 7 years

Permissible Credits

/ Debits

• The debits/ credits and the balances in the account shall be incidental and

commensurate with the business operations of the account holder

• Transfers from any NRO account to the SNRR account are prohibited

• ADs to ensure that all operations in the SNRR account are FEMA compliant

Repatriability Balances in SNRR a/c are eligible for repatriation after payment of applicable

taxes

Change of

residential status

SNRR a/c to be designated as resident rupee account on the account holder

becoming a resident

Payment of funds

to NR Nominee

Amount due/ payable to non-resident nominee from the account of a

deceased account holder, will be credited to NRO account of the nominee

with an authorised dealer/ authorised bank in India

SNRR vs. NRO: SNRR a/c is Repatriable but non-interest bearing.

Also to consider taxability u/s 5(2)(a) of ITA for receipts in SNRR a/c


Escrow Account

Particulars Escrow A/c

Who can open the

account

Resident or non-resident corporate/ acquirers may open Escrow account in

INR with an authorized dealer in India as an Escrow agent

Purpose • The purpose is to receive money and make payments as required under

Open offers/delisting/exit offers;

• To facilitate acquisition / transfer of shares

Currency INR

Type of account Non-interest bearing

Tenure • Completion in accordance with SEBI (SAST) Regulations 2011

• Otherwise max 6 months

• Deferred payment upto 25% consideration – 18 months

Permissible

Credits / Debits

• Foreign inward remittance

• As per SEBI (SAST) Regulations 2011

• Receipt of consideration / remittance of consideration / remittance for

refund of consideration

Repatriability At the prevailing exchange rate


A Indian company including NBFC registered with the Reserve Bank cannot accept

fresh deposits on repatriation basis. It can, however, renew the deposits it had

accepted in accordance with terms and conditions mentioned in Schedule 6 of

Foreign Exchange Management (Deposit) Regulations), 2016.

Deposit from NRI/PIO on repatriation basis

Keeping deposits with an Indian company by persons resident outside India, in

accordance with section 160 of the Companies Act, 2013, is a current account

(payment) transaction and, as such, does not require any approval from Reserve

Bank. All refunds of such deposits, arising in the event of selection of the person

as director or getting more than twenty five percent votes, shall be treated

similarly.

Deposit from NR towards Directorship


Deposit from NRI/PIO on non-repatriation basis

Particulars Deposit on non-repatriation basis

Who can accept the

deposit

Proprietorship concern, firm, Indian company (including NBFC)

Mode Private arrangement or public deposit scheme

Credit rating If NBFC, then credit rating is required

Maturity < 3 years

Interest Max 12.5%

Investment Debit to NRO a/c only. Inward remittance and transfer from NRE/FCNR(B)

a/c prohibited.

End use restriction Amount cannot be used for relending, carrying on agricultural/

plantation activities or investment in real estate or investment in any

other entity engaged in above

Repatriability Not allowed

• Indian companies can also accept deposits from NRIs or PIOs by issue of a commercial

paper subject to conditions

• Contrast with FEMA Notf 4/2000: Borrowing in Rs. by Indian Cos. – NCD Public offer


AD / Branch:

Deposit made by an Authorised Dealer with its branch, head office or correspondent outside India,

Deposit made by a branch or correspondent outside India of an Authorised Dealer, and held in its books in India.

Foreign shipping / airline company:

Permitted Credits: Only freight or passage fare collections in India or by inward remittances through banking channels from its office outside India

Permitted Debits: Meeting the local expenses in India of such airline or shipping company

UJV of foreign entity(ies) with Indian entity(ies):

Purpose: Unincorporated joint ventures (UJV) of foreign companies/entities, with Indian entities, executing a contract in India for the purpose of undertaking transactions in the ordinary course of its business. (Opening of such accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior approval of RBI.)

Type: Non-interest bearing foreign currency account.

Permitted credits/debits: The debits and credits in these accounts should be incidental to the business requirement of the UJV.

Tenure: The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV.

Other Accounts / Deposits


Foreign Currency Accounts by Indian Residents



FCA in India

EEFC Account vs. RFC(D) Account vs. RFC Account

DDA Scheme

Other Accounts by:

Indian agent of foreign shipping / airline company

Ship-manning / crew managing Indian agency

Project Office in India

Organiser of International Seminar / Conferences / Conventions in India

Exporter for Project Exports and Service Exports

FDI Investee Company

SEZ Unit



Particulars Exchange Earners

Foreign Currency

(EEFC) Account

Resident Foreign

Currency (Domestic)

[RFC(D)] Account

Resident Foreign

Currency (RFC) Account

Who can

open the

account

• Exchange Earners

(including individuals,

companies, etc.)

• Individuals • Individuals

Joint account • Jointly with eligible

persons; or With

resident relative(s) on

former or survivor’

basis

• Jointly with eligible

persons

• Same as EEFC

Type of

Account

• Current only • Current only • Current

• Savings

• Term deposits

Interest • Non-interest earning • Non-interest earning • De-regulated (As decided

by the AD bank)

A. P. (DIR Series) Circular No. 124 dated 10th May 2012: The facility of EEFC scheme is intended

to enable exchange earners to save on conversion/transaction costs while undertaking forex

transactions in future. This facility is not intended to enable exchange earners to maintain

assets in foreign currency, as India is still not fully convertible on Capital Account.


Particulars Exchange Earners Foreign

Currency (EEFC) Account

Resident Foreign

Currency (Domestic)

[RFC(D)] Account

Resident Foreign Currency

(RFC) Account

Permitted

Credits

• 100% of forex recd on

account of export

transactions

• Advance remittance

towards export of goods

or services

• Repayment of loans given

to foreign importers

• Professional earnings like

director’s/ consultancy/

lecture fees, honorarium

and similar other earnings

received by a

professional by rendering

services in his individual

capacity

• Re-credit of unutilised

foreign currency earlier

withdrawn from the

account

• Foreign exchange

received as payment

for services/ gift/

honorarium while on

visit abroad or from a

non-resident who is on

a visit to India

• Unspent amount of

foreign exchange

acquired from AD for

travel abroad

• Gift from close relative

• Earning through export

of goods/ services,

royalty, honorarium

• Disinvestment proceed

on conversion of shares

into ADR/ GDR


received by him as

pension/

superannuation/ other

monetary benefits from

overseas employer


realised on conversion of

the assets referred to in

Sec 6(4) of FEMA

• Gift/ inheritance

received from a person

referred to in Sec 6(4) of

FEMA


acquired before the July

8, 1947 or any income

arising on it held outside

India with RBI permission



Particulars Exchange Earners Foreign

Currency (EEFC) Account

Resident Foreign

Currency (Domestic)

[RFC(D)] Account

Resident Foreign Currency

(RFC) Account

Permitted

Credits

• Disinvestment proceeds

on conversion of ADR/

GDR

• Interest earned on the

funds held in the account

• Payments recd in forex by

100% EOU / unit in

EPZ/STP/EHTP

• Payment recd in forex by

DTA unit from SEZ unit

• Payment recd by exporter

for purpose of counter

trade

• Payments received in

forex by an Indian startup

arising out of sales /

export made by the

startup or its overseas

subsidiaries


received as proceeds of

LIC claims/ maturity/

surrendered value

settled in forex from an

Indian insurance

company


received as proceeds of

LIC claims/ maturity/

surrendered value

settled in forex from an

Indian insurance

company

• Balances in NRE/

FCNR(B) accounts on

change in residential

status



Particulars EEFC Account RFC(D) Account RFC Account

Permitted

Debits

• Any permissible current / capital account

transaction

• Payment for Cost of goods purchased in

forex from 100% EOU / unit in

EPZ/STP/EHTP

• Payment of Customs duty

• Giving Trade related loans & advances to

account holder’s importer customer (Reg

5(4) of FEMA Notf 3)

• Payment in forex to PRI for airfare/hotel

expd booking

• Any permissible

current / capital

account

transaction

• No restrictions on

utilization in /

outside India

Tenure Balance to be converted into INR by end of succeeding calendar

month after adjusting for utilization of the balances for approved

purposes or forward commitments (A. P. (DIR Series) Circular No.

12 dt. 31st July 2012)

No time limitation

Change of

Residential

Status

Balances of EEFC a/c and RFC(D) a/c can be credited to

NRE/FCNR(B) a/c

Balance from

NRE/FCNR(B) a/c

can be credited to

RFC A/c


RFC vs. RFC(D): RFC by returning Indian who was NRI/PIO earlier whereas RFC(D) by

resident individual even if not NRI/PIO previously


DDA Scheme

Particulars DDA Scheme

Who can open the

account

• Firms and companies dealing in purchase/sale of rough or cut and polished

diamonds/precious metal jewellery plain, minakari and/or studded

with/without diamond and/or other stones, and

• Having a track record of at least 2 years in import/export of

diamonds/coloured gemstones/diamond and coloured gemstones studded

jewellery/plain gold jewellery, and

• Having an average annual turnover of Rs 3 crore or above during preceding

three licensing years.

• Exporter firms and companies maintaining foreign currency accounts,

excluding EEFC accounts, with banks in India or abroad, are not eligible to

open Diamond Dollar Accounts.

• Not more than 5 DDAs by an exporter form/company

Currency USD

Type of account Current

Permissible Credits Realisation of export proceeds and local sales (in USD) of rough, cut, polished

diamonds; and pre and post shipment finance availed in USD

Permissible Debits Payments for purchase of rough, cut and polished diamonds; and transfer to

rupee account of the exporter. Intra-transfer between DDAs not permitted.

Tenure Balance to be converted into INR by end of succeeding calendar month after

adjusting for utilization of the balances for approved purposes or forward

commitments


Permitted Credits: Only freight or passage fare collections in India or by

inward remittances from principal outside India

Permitted Debits: Meeting the local expenses in India of overseas

company

Accounts by Indian agent of foreign shipping / airline company

Type of Account: Non-interest bearing FCA

Permitted Credits: Only by way of inward remittances through normal banking channels from the overseas principal

Permitted Debits: Towards various expenses in connection with the management of the ships/ crew in the ordinary course of its business

Tenure: Validity of Agreement

No EEFC facility to be allowed in respect of the remittances received in the account

Accounts by Ship-manning / crew managing Indian agency


Account by Project Office in India

Particulars Account by Project Office in India

Who can open the

account

• 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;

• Only if the contract under which the project has been sanctioned,

specifically provides for payment in foreign currency

• Project office in India has requisite approval from the concerned Project

Sanctioning Authority

• Each Project can have only one Foreign Currency Account

• In case of disputes between the Project Office and the project

sanctioning authority or other Government/ Non-Government agencies

etc., the balance shall be converted into INR and credited to a special

account which shall be dealt with as per the settlement of the dispute

Type of account Current

Permissible Credits • Foreign currency receipts from the Project Sanctioning Authority

• Remittances from parent/ Group Company abroad or bilateral/

multilateral international financing agency

Permissible Debits • Payment of project related expenditure

• Inter-project transfer of funds will be permitted with the prior

permission of the Regional Office of the Reserve Bank

Tenure Till completion of Project


Account by Organiser of International Seminar / Conferences

/ Conventions in India

Particulars Account by Organisers

Who can open the

account

Organisers of international Seminars, Conferences, Conventions, etc

Permissible Credits All inward remittances in foreign currency towards registration fees

payable by overseas delegates, grant, sponsorship fees and donations,

received from abroad, in connection with the conference, convention, etc

Permissible Debits • Payment to foreign/ special invitees attending the conference, etc., on

the specific invitation of the organisers, towards travel, hotel charges,

etc., and honorarium to foreign guest speakers;

• Remittance towards refund of registration fees to foreign delegates and

unutilised sponsorship/grant amount;

• Bank charges;

• Conversion of funds into rupees.

Tenure Till completion of conference/event


An Indian company receiving foreign investment under FDI route (viz Sch 1. to

FEMA Notf 20/2000) can open and maintain such foreign currency account with

an Authorized Dealer 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 FDI Investee Company

An exporter who has undertaken a construction contract or a turnkey project

outside India or who is exporting services or engineering goods from India on

deferred payment terms (viz. Project Exports and Service Exports) can open,

hold and maintain such Foreign Currency Account in India, provided that:

approval as required under the Foreign Exchange Management (Export of goods and

services) Regulations, 2015, as amended from time to time has been obtained for

undertaking the contract/ project/ export of goods or services,

the terms and conditions stipulated in the letter of approval have been duly complied

with.

Account by Exporter for Project Exports and Service Exports


Permitted Credits / Debits:

All foreign exchange funds received by the unit can be credited to this account

This account to be used for bona fide trade transactions between the unit and a

person resident in/ outside India

Foreign exchange purchased in India against rupees cannot be credited to the account

without prior permission from the Reserve Bank

The balances in the accounts are exempt from the restrictions imposed under Rule 5,

of Foreign Exchange Management (Current Account Transaction) Rules, except for the

use of the balances for gift etc. (For eg: USD 1 million overseas consultancy payment

restriction will not apply)

The funds held in these accounts cannot be lent or made available to any person or

entity resident in India not being a unit in Special Economic Zones.

SEZ Units cannot open EEFC a/c

Account by SEZ Unit



FCA o/s India

Accounts by:

AD and its branch

Indian shipping / airline company

Insurance / reinsurance companies

Indian entity having foreign office / branch / representative abroad

Exporter for Project Exports and Service Exports

Student gone abroad for studies

PRI on visit to foreign country

PRI participating in exhibition / trade fair abroad

Resident Individual under LRS

Employees of Foreign entity / Indian entity for Salary payments

Indian entity raising ECB / funds through ADR/GDR

Indian party for Outbound Investment

Indian Startup


FCA outside India by AD with its branch/head office/correspondent outside India

for purpose of transaction foreign exchange business and other matters

incidental thereto.

FCA outside India by branch outside India of an Indian bank with a bank outside

India for purpose of carrying on normal banking business outside India.

Account by AD and its Branch

Purpose of undertaking transactions in ordinary course of business

Account by Indian Shipping / Airline Company

Permitted credit: Insurance / reinsurance premia received by them outside India

Permitted debit: Meeting expenditure incidental to the insurance /reinsurance

companies

Account by Insurance / reinsurance companies


A firm or a company or a body corporate registered or incorporated in India can

open, hold and maintain in the name of its office (trading or non-trading) or its

branch set up outside India or its representative posted outside India, FCA with a

bank outside India for the purpose of normal business operations of the office/

branch or representative.

The overseas branch/ office should be set-up or representative posted overseas

for conducting normal business activities of the Indian entity.

Remittance limits from India:

Initial expenses of the branch or office or representative: 15% of the average

annual sales/ income or turnover of the Indian entity during the last 2 FYs or

up to 25% of the net worth, whichever is higher;

Recurring expenses of the branch or office or representative: 10% of such

average annual sales/ income or turnover during the last financial year.

Above limits not applicable when remittance made out of EEFC a/c or

overseas branch/ office should be set-up or representative posted overseas

by 100% EOU/unit in EPZ/STP/EHTP within 2 years of its establishment

Account by Indian entity having foreign office / branch /

representative abroad


Overseas branch/office/representative shall not enter in any contract or

agreement in contravention of FEMA: Since status of such Overseas

branch/office/representative still considered as PRI

Closure of FCA:

If the overseas branch/ office is not set up within six months of opening the

account or where no representative is posted for six months: Immediately

On closure of overseas branch/office: Within one month

Purchase or acquisition of office equipment and other assets required for normal

business operations of the overseas branch/ office/ representative will not be

deemed as a capital account transaction. (Deeming provision since otherwise

they would constitute assets outside India of PRI)

Acquisition of immovable property outside India is permissible for business

purpose as well as residential purposes of its staff (FEMA Notf 7(R)/2015)

Account by Indian entity having foreign office / branch /

representative abroad


An exporter who has undertaken a construction contract or a turnkey project

outside India or who is exporting services or engineering goods from India on

deferred payment terms (viz. Project Exports and Service Exports) can open,

hold and maintain such Foreign Currency Account o/s India, provided that:

approval as required under the Foreign Exchange Management (Export of goods and

services) Regulations, 2015, as amended from time to time has been obtained for

undertaking the contract/ project/ export of goods or services,

the terms and conditions stipulated in the letter of approval have been duly complied

with.

Account by Exporter for Project Exports and Service Exports

A person resident in India who has gone abroad for studies can open, hold and

maintain a FCA with a bank outside India during his stay outside India. (Also refer

A.P.(DIR Series) Circular No. 45 dated 8th Dec 2003).

All credits from India into the account shall be made in accordance with FEMA

Regulations

On his return to India, after completion of studies, such FCA will deemed to have

been opened under LRS

Account by Student gone abroad for studies


A person resident in India who is on a visit to a foreign country can open, hold

and maintain FCA with a bank outside India during his stay outside India

On his return to India, the balance in the account has to be repatriated to India.

Account by PRI on visit to foreign country

A person resident in India who has gone out of India to participate in an exhibition/

trade fair outside India can open, hold and maintain FCA with a bank o/s India for

crediting the sale proceeds of goods on display in the exhibition/ trade fair

The balance in the account is to be repatriated to India through normal banking

channels within a period of one month from the date of closure of the exhibition/

trade fair

Account by PRI participating in exhibition / trade fair abroad

Resident individuals can open, maintain and hold FCA with a bank outside India for

making remittances under LRS. Such FCA can be used for putting through all

transactions connected with or arising from remittances eligible under this Scheme

Account by Resident Individual under LRS


The following persons can open a foreign currency account outside India for

remitting/receiving their entire salary payable to him in India.

A foreign citizen resident in India, being an employee of a foreign company,

on deputation to the office/ branch/ subsidiary/ joint venture/ group

company in India;

An Indian citizen, being an employee of a foreign company, on deputation to

the office/ branch/ subsidiary/ joint venture/ group company in India

A foreign citizen resident in India employed with an Indian company or LLP

Also to consider TDS implication u/s 192 - Eli Lilly & Co. (India) (P.) Ltd. [2009]

312 ITR 225 (SC)

Account by Employees of Foreign entity / Indian entity for

Salary payments

Subject to compliance with the conditions in regard to raising of ECB or raising of

resources through ADRs or GDRs, the funds so raised may, pending their

utilisation or repatriation to India, be held in deposits in foreign currency

accounts with a bank outside India

Account by Indian entity raising ECB / funds through ADR/GDR


An Indian party can open, hold and maintain FCA abroad for the purpose of

making ODI subject to the following terms and conditions:

The Indian party is eligible for making ODI under Outbound Regulations (FEMA Notf

120/2004)

The host country regulations stipulate that the investment into the country is required

to be routed through a designated account

The account shall be opened, held and maintained as per the regulation of the host

country

The remittances sent to the account by the Indian party should be utilized only for

making ODI into the Joint Venture/ Wholly Owned Subsidiary (JV/ WOS) abroad.

Any amount received in the account by way of dividend and/ or other entitlements

from the subsidiary shall be repatriated to India within 30 days from the date of credit

The Indian party should submit the details of debits and credits in the account on

yearly basis to the designated AD bank with a certificate from the Statutory Auditors

of the Indian party certifying that the account was maintained as per the host country

laws and the extant FEMA regulations / provisions as applicable

The account so opened shall be closed immediately or within 30 days from the date of

disinvestment from JV/ WOS or cessation thereof

Account by Indian party for Outbound Investment


An Indian Pvt Ltd Co. / Partnership Firm / LLP shall be considered as a start-up:

Upto 5 years from date of its incorporation; and

Turnover for any FY < 25 crores; and

It is working towards innovation, development, deployment or commercialisation of

new products, processes or services driven by tech or IP.

Such Indian Start-up with the overseas subsidiary is permitted to open FCA

abroad to pool the forex earnings out of the exports/sales made by the

concerned start-up;

The overseas subsidiary of the start-up is also permitted to pool its receivables

arising from the transactions with the residents in India as well as the

transactions with the non-residents abroad into the said foreign currency account

opened abroad in the name of the start-up

The balances in the said foreign currency account as due to the Indian start-up

should be repatriated to India within a period as applicable to realisation of

export proceeds (currently nine months)

An appropriate contractual arrangement between the start-up, its overseas

subsidiary and the customers concerned should be in place

This account is more beneficial than EEFC a/c

Account by Indian Startup


Case Study 1 – EEFC a/c


Case Study 1

Mr. Patel runs software business in India having exports to USA

He would like to know which transactions can be undertaken through his $ EEFC

a/c in the month of October 2016 and till time period can he hold the balance:

Kindly advise Mr. Patel about appropriate usage of EEFC a/c without committing

violation of FEMA Regulations.

USA Customer 1 export receipt $ 25,000

Advance remittance received towards export of services to

USA Customer 2

$ 50,000

Share application money received from USA investor $ 1,00,000

Outbound Investment in USA JV in Nov 2016 $ 25,000

Withdrawal for Business tour to USA in Nov 2016 $ 5,000


Case Study 1

Use of EEFC a/c:

USA Customer 1 export receipt $ 25,000 Permissible Credit

Advance remittance received towards

export of services to USA Customer 2

$ 50,000 Permissible Credit

Share application money received from

USA investor

$ 1,00,000 Prohibited Credit

Outbound Investment in USA JV in Nov

2016

$ 25,000 Permissible Debit

Withdrawal for Business tour to USA in

Nov 2016

$ 5,000 Permissible Debit

Balance @ 30th Nov 2016 to be converted into INR = $ 45,000


Case Study 2 - PRI to PROI


Case Study 2

Mr. Patel takes up employment in USA

He currently operates the following Bank Accounts / Deposits jointly held with

close relatives:

Kindly advise Mr. Patel about transition on change in residential status:

Fixed Deposits First name Rs. 25,00,000

Current a/c First name Rs. 1,50,000

RFC(D) a/c First name Rs. 5,00,000

Savings a/c Second name Rs. 10,00,000

Fixed Deposits First nameConvert to NRO a/c

Thereafter can continue a/c with

resident relative on “former or

survivor basis”. Can also give POA to

them for operating the account.

Current a/c First name

RFC(D) a/c First name Can be converted

to NRE/FCNR(B)

Savings a/c Second name Para 3 of RBI Master Direction 19/2015-16: Can continue

as resident a/c on “either or survivor basis”. Other

conditions applicable.


Case Study 3 - PROI to PRI


Case Study 3

Mr. Patel returns to India from USA after 10 years

He currently owns the following Bank Accounts / Deposits:

Kindly advise Mr. Patel about transition on change in residential status:

FCNR(B) a/c $ 2,00,000

NRE FD a/c Rs. 27,50,000

NRE Savings a/c Rs. 3,00,000

NRO a/c Rs. 2,50,000

Wells Fargo Bank Savings a/c $ 25,000

FCNR(B) a/c Can continue upto maturity. Thereafter, convert to

Resident a/c or RFC a/c.

NRE FD a/cConvert into Resident a/c or RFC a/c immediately

NRE Savings a/c

NRO a/c Convert to Resident a/c immediately

Wells Fargo Bank Savings a/c Can continue as per Sec 6(4) of FEMA, 1999


Thank you

Disclaimer : The opinions and views expressed in this presentation are for

informational purposes only. The information is not intended to be a substitute

for professional opinion. A fact-based professional opinion should always be

sought before advising the client.


Harshal BhutaM.Com., F.C.A., A.D.I.T., LL.M. (Hons.) in International Tax Law [WU (Vienna)]

M/s. P. R. Bhuta & Co. Chartered Accountants

Contact Information

Address 2-I, Jeevan Sahakar, 2nd Floor, Sir P. M. Road, Fort, Mumbai – 400001, India.

Telephone +91 22 22660010/3427; 43471727

Mobile +91 9930114418

Fax +91 22 22662793

E-mail [email protected]

Website www.bhutaco.com

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