NRO, NRE, FCNR, EEFC & RFC Bank Account for NRI's
The Reserve Bank of India (RBI) is the regulator of foreign exchange dealings in India. It prohibits, restricts, and regulates the opening, holding and maintaining of foreign currency accounts, and the limits up to which a person resident in India can hold the amount in such accounts.
These regulations are known as Foreign Exchange Management (foreign currency accounts by a person resident in India) (FEMA) Regulations, 2015 and contain separate provisions for resident and non-residents.
According to FEMA, a resident individual is a person who has been in India for more than 182 days in the preceding financial year. However, there are a few exceptions as under:
- A person who has come to, or stays in India, only for taking up employment or to carry on any business, or with an intention to stay in India for an uncertain period; he or she will be treated a resident in India.
- A person who has gone outside India for taking up employment or to carry out any business outside India for an uncertain period; he or she will be treated as a non-resident.
The following persons (other than individuals) are treated as person resident in India:
- Person or body corporate which is registered or incorporated in India;
- An office, branch or agency in India, even if it is owned or controlled by a person resident outside India; or
- An office, branch or agency outside India, if it is owned or controlled by a person resident in India.
The FEMA regulations allow a resident to remit an aggregate sum of US$250,000 per financial year (April 1 to March 31) for any permissible current account or capital account transaction under the Liberalized Remittance Scheme (LRS) without any approval from RBI. The LRS is a scheme established by the RBI to grant permission to citizens of India to transfer funds abroad for permitted current or capital account transactions or for both.
Here, we discuss the types of foreign currency accounts that can be opened, maintained and held by resident and non-resident individuals in India.
Foreign currency accounts for non-residents in India
1. Non-Resident (External) Rupee Account- NRE Account: The Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE scheme, was introduced in 1970. Any NRI/PIO can open an NRE account. It allows non-residents as well as Persons of Indian Origin (PIO) to transfer foreign earnings easily to India. A ͚PIO is a person resident outside India, who is a citizen of any country other than Bangladesh, Pakistan, or such other country as may be specified by the federal government. Joint accounts can be opened by two or more NRIs and/or PIOs or by an NRI/PIO with a resident relative(s) on ‘former or survivor’ basis. However, during the life time of the NRI/PIO account holder, the resident relative can operate the account only as a Power of Attorney holder.
Credits permitted to this account as inward remittance are interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds if such investments were made from this account or through inward remittance.
This is a repatriable account and transfer from another NRE account or FCNR(B) account is also permitted. An NRE rupee account may be opened as current, savings or term deposit. Local payments can be freely made from NRE accounts. Since this account is maintained in Rupees, the depositor is exposed to exchange risk. NRIs / PIOs have the option to credit the current income to their Non-Resident (External) Rupee accounts, provided the authorised dealer is satisfied that the credit represents current income of the non-resident account holders and income-tax thereon has been deducted / provided for.
Taxation: There is no tax on interest earned from NRE accounts, and no wealth tax. The tax exemptions are available only for an NRE Account held by an individual and not for those maintained by overseas corporate bodies. Overseas corporate bodies refer to a company, partnership firms, trust or other corporate body located overseas and owned by individuals of Indian nationality. It can also be owned by individuals residing outside India but who are of Indian nationality. The ownership of overseas corporate body by these individuals must be at least 60 percent.
2. Non-Resident Ordinary Accounts (NRO): An NRO deposit account allows non-residents (including foreign nationals) for collecting their funds from local bonafide transactions. The account can be credited with inward remittances from outside India, legitimate dues in India and rupee gift or loan made by a resident to an NRI or PIO relative subject to the limit prescribed under LRS.
NRO accounts being Rupee accounts, the exchange rate risk on such deposits is borne by the depositors themselves. When a resident becomes an NRI, his existing Rupee accounts are designated as NRO. Such accounts also serve the requirements of foreign nationals’ resident in India. AD Category-I banks may permit foreign nationals who have come to India on employment and are eligible to open/hold a resident savings bank account to re-designate their resident account maintained in India as NRO account on leaving the country after their employment to enable them to receive their legitimate dues subject to certain conditions. NRO accounts can be maintained as current, saving, recurring or term deposits.
Only current income such as rent, pension, and interest, can be remitted from an NRO account outside India. In addition to this, balances in the NRO account may be repatriated abroad or to an NRE account only up to US$1 million in a financial year (April to March). Repatriation of an amount in excess of US$1 million may be permitted by the RBI under the approval route in exceptional circumstances.
NRO accounts can be maintained in the form of savings account, fixed deposit, or recurring deposit account.
Taxation: Interest earned in this account is taxable.
3. Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account: Foreign Currency Non-Resident Account Bank or FCNR (B) was first introduced in 1993. It replaced the existing FCNR (A) scheme. The detailed instructions for opening and maintaining this account are laid down in Schedule 2 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. FCNR (B) accounts are maintained only in the form of term deposits of one to five years. FCNR is a fixed deposit foreign currency account that allows non-residents to keep their deposits in foreign currency.
Earlier this account is opened by the NRIs in 6 designated currencies US Dollars, Pounds Sterling, Euro, Japanese Yen, Australian Dollars, and Canadian Dollars. only, but Based on the recommendations of the Committee to Review the Facilities for Individuals under FEMA, 1999, Foreign Exchange Department (FED) has permitted banks to accept FCNR (B) deposits in any permitted currency with effect from October 19, 2011.
Repatriation of funds in foreign currencies is permitted. If the account holder so wishes these accounts can also be transferred to other NRE/FCNR accounts before the maturity period. Such transfers are subjected to penalties that are charged for premature withdrawals of the deposit. Transfer of funds from existing NRE accounts to FCNR (B) accounts and vice versa of the same account holder is permissible without prior approval of RBI.
Other conditions such as credits/debits, joint accounts, loans / overdrafts, operation by power of attorney etc., as applicable to an NRE account will be applicable to FCNR (B) account as well.
The entire deposit (principal and interest) is exempt from tax.
Foreign currency accounts by a person resident in India
(A) Exchange Earners’ Foreign Currency Account: -
A person resident in India may open, hold and maintain with an authorised dealer in India, a Foreign Currency Account to be known as Exchange Earners’ Foreign Currency (EEFC) Account, subject to the terms and conditions of the Exchange Earners' Foreign Currency Account Scheme specified as under:
1. Limit up to which foreign currency may be credited to EEFC account
(1) A person resident in India may credit to the EEFC Account with an Authorised Dealer in India 100 percent of the foreign exchange earnings as specified here under:
- inward remittance through 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 India or those received for meeting specific obligations by the account holder;
- payments received in foreign exchange by a 100 per cent Export Oriented Unit or a unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park for supply of goods to similar such unit or to a unit in Domestic Tariff Area and also payments received in foreign exchange by a unit in Domestic Tariff Area for supply of goods to a unit in Special Economic Zone (SEZ);
- payments received by an exporter from an account maintained with an authorised dealer for the purpose of counter trade, in accordance with the approval granted in terms of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, as amended from time to time;
- advance remittance received by an exporter towards export of goods or services;
- payment received for export of goods and services from India, out of funds representing repayment of State Credit in U.S. dollar held in the account of Bank for Foreign Economic Affairs, Moscow, with an authorised dealer in India;
- Professional earnings including director’s fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity.
(2) For the purpose of the sub-paragraph (1), payment received through an international credit card for which reimbursement will be provided in foreign exchange may be regarded as a remittance through banking channels.
2. Permissible credits to EEFC account: Following credits may be made to an EEFC Account, namely –
i) Inward remittance/ payment received by the recipient in foreign exchange subject to the provisions of paragraph (1);
ii) Interest earned on the funds held in the account;
iii) Re-credit of unutilised foreign currency earlier withdrawn from the account;
iv) Amount representing repayment by the account holder's importer customer, of loan/ advances granted in terms of clause (iv) of Paragraph 3.
v) Representing the disinvestment proceeds received by the resident accountholder on conversion of shares held by him to ADRs/ GDRs under the DR Scheme, 2014 approved by the Government of India
3. Permissible debits to the EEFC account: Following debits may be made to an EEFC Account, namely -
i) Payment outside India towards a current account transaction in accordance with the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and towards a capital account transaction permissible under the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.
ii) Payment in foreign exchange towards cost of goods purchased from a 100 percent Export Oriented Unit or a Unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park
iii) Payment of customs duty in accordance with the provisions of Export Import Policy of Central Government for the time being in force.
iv) Trade related loans/ advances, by an exporter holding such account to his importer customer outside India, subject to compliance with the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000.
v) Payment in foreign exchange to a person resident in India for supply of goods/ services including payments for air fare and hotel expenditure.
i) There is no restriction on withdrawal in rupees of funds held in an EEFC account. However, the amount so withdrawn in rupees cannot be re-credited to the account.
ii) Authorised dealer may issue cheque books of separate series with the superscription "EEFC Account" to the account holders maintaining such accounts, and also satisfy himself while honouring the cheques that the payment made by the account holder by issue of a cheque is permissible under these Regulations.
(iii) Resident individuals are permitted to include resident relative(s) as a joint holder(s) in their EEFC account on ‘former or survivor’ basis. However, such resident Indian relative(s) shall not be eligible to operate the account during the life time of the resident account holder.
(B) Resident Foreign Currency Account: -
(1) A person resident in India may open, hold and maintain with an authorised dealer in India a Foreign Currency Account, to be known as a Resident Foreign Currency (RFC) Account, out of foreign exchange –
- received as pension or any other superannuation or other monetary benefits from his employer outside India; or
- realised on conversion of the assets referred to in sub-section (4) of section 6 of the Act, and repatriated to India; or
- received or acquired as gift or inheritance from a person referred to in sub-section (4) of section 6 of the Act; or
- referred to in clause (c) of section 9 of the Act, or acquired as gift or inheritance there from; or
- received as the proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority.
(2) The funds in a Resident Foreign Currency Account opened or held or maintained in terms of sub-regulation (1) shall be free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form, by whatever name called, outside India.
(3) Resident individuals are permitted to include resident relative(s) as joint holder(s) in their Resident Foreign Currency account on ‘former or survivor’ basis. However, such resident Indian relative joint account holder shall not be eligible to operate the account during the life time of the resident account holder.
Explanation – For the purpose of this sub-regulation, the expression ‘relative’ shall have the same meaning as assigned to it under section 2(77) of the Companies Act, 2013.
(C) Resident Foreign Currency (Domestic) Account: -
(1) A resident Individual may open, hold and maintain with an Authorised Dealer in India a foreign currency account, to be known as Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, bank notes and travellers’ cheques as under:
- by way of payment for services not arising from any business in or anything done in India while on a visit to any place outside India; or
- 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 lawful obligation; or
- by way of honorarium or gift while on a visit to any place outside India; or
- in the form of unspent amount of foreign exchange acquired by him from an authorised person for travel abroad; or
- as gift from a relative;
Explanation - For the purpose of this sub-regulation, the expression ‘relative’ shall have the same meaning as assigned to it under section 2(77) of the Companies Act, 2013.
- by way of earning through export of goods/ services, or as royalty, honorarium or by any other lawful means;
- representing the disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/ GDRs under the DR Scheme, 2014 approved by the Government of India.
- by way of earnings received as the proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority
(2) Debits to the account shall be for payments towards a current account transaction in accordance with the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and towards a capital account transaction permissible under the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.
(3) The account shall be maintained in the form of Current Account and shall not bear any interest.
(4) There shall be no ceiling on the balances in the account
(D) A Unit in a Special Economic Zone (SEZ)
A unit located in a Special Economic Zone may open hold and maintain a Foreign Currency Account with an authorized dealer in India provided that,
- all foreign exchange funds received by the unit in the Special Economic Zone (SEZ) are credited to such account,
- no foreign exchange purchased in India against rupees shall be credited to the account without prior permission from the Reserve Bank,
- the funds held in the account shall be used for bona fide trade transactions of the unit in the SEZ with the person resident in India or otherwise,
- the balances in the accounts shall be exempt from the restrictions imposed under Rule 5, except item 1(ii) of the Schedule III, of the Government of India Notification No.GSR.381(E) dated May 3, 2000, as amended from time to time.
Provided that the funds held in these accounts shall not be lent or made available in any manner to any person or entity resident in India not being a unit in Special Economic Zones.
(E) Diamond Dollar Accounts (DDAs)
An Authorized Dealer Category-I bank in India may allow firms and companies who comply with the eligibility criteria stipulated in the Foreign Trade Policy of Government of India, in force from time to time and the directions as may be issued by Reserve Bank of India, from time to time, to open, hold and maintain Diamond Dollar Accounts (DDAs) in India subject to the terms and conditions of the DDA Scheme specified as under.
1. Firms and companies may open and maintain DDA with AD Category–I banks, subject to the following terms and conditions:-
a) The exporter should comply with the eligibility criteria stipulated in the Foreign Trade Policy of the Government of India, issued from time to time.
b) The DDA shall be opened in the name of the exporter and maintained in US Dollars only.
c) The account shall only be in the form of current account and no interest should be paid on the balance held in the account.
d) No intra-account transfer should be allowed between the DDAs maintained by the account holder.
e) An exporter firm/ company shall be permitted to open and maintain not more than 5 DDAs.
f) The balances held in the accounts shall be subject to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements.
g) 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.
2. Permissible Credits: -
- Amount of pre-shipment and post-shipment finance availed in US Dollars.
- Realisation of export proceeds from shipments of rough, cut, polished diamonds and diamond studded jewellery.
- Realisation in US Dollars from local sale of rough, cut and polished diamonds.
3. Permissible Debits:-
- Payment for import/ purchase of rough diamonds from overseas/ local sources.
- Payment for purchase of cut and polished diamonds, coloured gemstones and plain gold jewellery from local sources.
- Payment for import/ purchase of gold from overseas/ nominated agencies and repayment of US Dollars loans availed from the bank.
- Transfer to rupee account of the exporter.
The above transactions are subject to the provisions of the Foreign Trade Policy of Government of India, issued from time to time.
A person resident in India, being 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 may open, hold and maintain a Foreign Currency Account with a bank in India, provided that -
- approval as required under the Foreign Exchange Management (Export of goods and services) Regulations, 2015 has been obtained for undertaking the contract/ project/ export of goods or services, and
- the terms and conditions stipulated in the letter of approval have been duly complied with.