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A resident Indian is allowed to maintain foreign exchange outside India. An individual must maintain foreign funds in a bank account. For this purpose, an individual is allowed to maintain different types of foreign currency accounts.
There are specific norms that an individual would have to comply with for maintaining foreign currency accounts. Non-compliance with the rules would attract strict penalties for not maintaining foreign currency accounts as per the requirement of the specific authority.
The primary authority for foreign exchange transactions in India is the Reserve Bank of India (RBI). Apart from this, the Government of India (GOI) assists the RBI in bringing out new regulations for foreign exchange in India. The primary law governing foreign exchange in India is the Foreign Exchange Management Act, 1999. From time to time, the RBI brings out notifications and circulars amending foreign exchange regulations in India.
The GOI and RBI allow making laws on opening, holding, and maintaining foreign currency accounts by an individual in India. The RBI and Government of India brought out the Foreign Exchange Management (Foreign Currency Account by a person in India) Regulations, 2000. (2000 Regulations)
As per these regulations, an Individual is allowed to maintain foreign currency accounts in India. The latest amendment in the above regulation is the Foreign Exchange Management (Foreign Currency Account by a person in India) Regulations, 2015. (2015 Regulations)
Under section 10 of the Foreign Exchange Management Act, 1999 the RBI provides guidelines to authorized dealers to carry out transactions related to foreign exchange in the country. Authorized dealers can carry out foreign exchange transactions on behalf of resident Indians.
The RBI has allowed maintaining and opening foreign currency accounts as per the FEMA law. Foreign currency accounts operate like regular bank accounts. However, foreign currencies are maintained in these accounts. As per the 2015 regulations, any form of foreign currency can be held in the foreign currency account. However, currencies of Nepal and Bhutan cannot be maintained in this account.
As per the regulations, no individual can open and maintain foreign currency accounts. This is the general provision related to maintaining foreign currency accounts. However, an individual can maintain a foreign currency account if permission is taken from the RBI.
An individual has to make an application to the RBI for maintaining foreign currency accounts outside India. With the application, the individual has to provide the requisite documentation. After scrutinizing the application, the RBI will provide permission to open a foreign currency account. If the RBI refuses to open the bank account, they will provide reasons for refusal.
Section 4 of the 2015 regulations allows an individual to open an Exchange Earners Foreign Currency Account (EEFC). This is allowed for a resident Indian. A resident Indian can open, hold, and maintain this form of account with an authorized dealer/authorized bank in India. An EEFC account permits the individual to hold multiple types of foreign currencies. This account is opened as per the EEFC Account Scheme.
According to the requirements, a resident is allowed to open the resident foreign currency account. An individual can operate this form of account for maintaining foreign currencies in the account.
The following foreign exchange is allowed in this form of account:
The above funds would be subject to approval from the RBI. The funds held outside India for the Resident Foreign Currency Account (RFC) should be free from any form of regulation and encumbrances. The investor is also allowed to invest outside India with the proceeds of the above funds.
As per section 6 of the regulation, a shipping or airline company can open a foreign currency account outside India. This would be required for business dealings within India and outside India. Either the airline or shipping company can open an account in India or its representative agent or officer is permitted to open foreign currency accounts.
The accounts opened by airline/ logistics companies are permitted if the company adheres to the following conditions:
Foreign Currency Accounts can be opened and maintained under the following circumstances:
These accounts are opened to carry out transactions that occur outside India. Such transactions are incidental for the bank.
There is no permissible limit mentioned by the RBI for holding foreign currencies for the above purposes. Any amount can be held in the foreign currency account. However, the amount has to be allowed by the host countries governing laws.
Foreign Currency Accounts are divided into the following:
The above three accounts are permissible, where the account holder is an individual. In all other cases, the current account or term deposit account is used for a foreign currency account.
An individual can open a foreign currency account. Apart from this, a joint account can also be opened by two or more parties.
A foreign currency account can be maintained in unforeseen circumstances, such as the account holder’s death. The account holder would have to nominate another individual outside India for this purpose. The funds will be transferred from the Authorised Dealer to the nominee as per the share or the entitlement of the nominee.
If the nominee is a resident Indian, he can use the funds in the account to meet the liabilities outside India. However, prior permission is required from the RBI for carrying out this procedure.
Authorized Banks/ Authorised Dealers have the following duties to carry out for a foreign currency account:
The following are permissible credits for a foreign currency account:
The following are permissible debits for a foreign currency account:
Resident individuals can open foreign accounts. The permissible accounts which can be opened by a resident individual are the EEFC account and the resident foreign currency account (RFC). The regulatory requirements for these accounts are different. Even the permissible debits and credits carried out for these forms of account are not similar.
Hence before opening any foreign currency account, the resident individual has to weigh the advantages and disadvantages for a particular account and choose the most beneficial account.
Also, read: Guide to the Types of NRI Bank Accounts in India.