Foreign Currency and Foreign Currency Accounts for Residents under FEMA

Objectives & Agenda :

The Regulations under Foreign Exchange Management Act, 1999 regulate Foreign Currency that can held by an individual in India. In this Webinar we shall understand the Definition of the term 'Foreign Currency' and the regulation which governs the possession of foreign currency in India and the various types of Foreign Current Accounts that can opened by an Indian resident and the related conditions.

1. Foreign Currency and Foreign Currency Accounts for Residents: FEMA Perspective CA Divakar Vijayasarathy

2. Credits and Acknowledgments V Thirumal CA Jugal Gala

3. Legends used in the Presentation AD Authorised Dealer ADR American Depository Receipts DDA Diamond Dollar Account ECB External Commercial Borrowings EEFC Exchange Earner's Foreign Currency EHTP Electronic Hardware Technology Park EOU Export Oriented Units EPZ Export Processing Zone FEM Foreign Exchange Management FEMA Foreign Exchange Management Act, 1999 FDI Foreign Direct Investment GDR Global Depository Receipts IRDA Insurance Regulatory and Development Authority of India LRS Liberalised Remittance Scheme NRE Non-resident External NRI Non-resident Indian OCI Overseas Citizen of India ODI Overseas Direct Investment PIO Person of Indian Origin RBI Reserve Bank of India RFC Resident Foreign Currency SEZ Special Economic Zone STP Software Technology Park

4. Presentation Schema

5. means any currency other than Indian currency Introduction Foreign Currency [Sec 2(m) of FEMA] means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under section 28A of the RBI Act Indian currency [Sec 2(q) of FEMA] Possession and Retention of Foreign currency and Opening and Maintaining a Foreign Currency Account by a Resident are governed under FEMA regulations FEM (Possession and Retention of Foreign Currency) Regulations, 2015 FEM Master Direction – Deposits and Accounts

6. FEM (Possession and Retention of Foreign Currency) Regulation, 2015

7. Limit of Possession and Retention ‘To possess ' or ‘To retain ' means to possess or to retain in physical form Limits for possession and retention of foreign currency or foreign coins Person Particulars Limit Authorised Person Foreign Currency and Coins Possession without limit within the scope of its authority Any Person Foreign Coins Possession without Limit Indian Resident Foreign currency notes, bank notes and foreign currency travellers' cheques not exceeding US$ 2000 or its equivalent in aggregate, Provided it was Received abroad by way of payment for services not arising from any business in or anything done in India or Received from a non-residen t on visit to India , as honorarium or gift or for services rendered or any legal settlement or Received as honorarium or gift while being abroad or Represents unspent foreign exchange acquired for foreign travel

8. Possession by Not Permanently Resident Possession of foreign exchange by a person resident In India but not permanently resident ‘Not permanently resident' means a person resident in India for employment of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed 3 years

9. FEM Master Direction - Deposits and Accounts Opening, Holding and Maintaining Foreign Currency Accounts by a Person Resident in India

10. Foreign Currency Accounts that can be Held in India Exchange Earner's Foreign Currency (EEFC) Account Resident Foreign Currency (RFC) Account Resident Foreign Currency (Domestic) - RFC (D) Account Diamond Dollar Account (DDA) Scheme – DDA Account Accounts by Specified Persons

11. Exchange Earner's Foreign Currency (EEFC) Account A person resident in India may open an EEFC account with an AD in India as per FEMA regulations Permitted Credits * Counter-trade - exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money

12. Permitted Debits

13. Salient Features

14. Resident Foreign Currency (RFC) Account

15. Relative – Sec 2(77) of Companies Act, 2013 Includes Step-Father, Step-Mother, Step-Son, Step-Brother & Step-Sister

16. Resident Foreign Currency (Domestic)– RFC (D) Account A resident individual may open an RFC(D) account to retain in a bank account in India the foreign exchange acquired in the form of currency notes, bank notes and travellers cheques from overseas sources such as:

17. Diamond Dollar Account (DDA) Scheme – DDA Account Firms and companies which comply with the Eligibility criteria stipulated in the Foreign Trade Policy of the Govt. of India may open DDA accounts with an AD in India Eligibility criteria

18. Accounts by Specified Persons Indian Agent of shipping or airline foreign companies Can maintain foreign currency account in India for meeting the local expenses of the overseas company Permitted Credits - freight or passage fare collections in India or from his principal outside India Ship-manning/ crew managing agencies in India May maintain non-interest bearing foreign currency account in India for the purpose of undertaking transactions in the normal course of business Credits : Only by way of inward remittances through normal banking channels from the overseas principal Debits: Towards various expenses in connection with the management of the ships/ crew No credit facility should be granted against security of funds held in the account The bank should meet the prescribed Reserve Requirements in respect of such accounts No EEFC facility should be allowed in respect of the remittances received in the account The account will be maintained only during the validity period of the agreement with the overseas principal

19. Accounts by Specified Persons Project Offices of foreign companies Conditions Project Office has been established in India, with the permission of RBI , having the requisite approval from the concerned Project Sanctioning Authority The contract under which the project has been sanctioned, specifically provides for payment in foreign currency Each Project has only one Foreign Currency Account Debits: Payment of project related expenditure. Credits: Foreign currency receipts from the Project Sanctioning Authority, and Remittances from parent/ Group Company abroad or bilateral/ multilateral international financing agency The Foreign Currency account should be closed at the completion of the Project Inter-project transfer of funds - permitted with the prior permission of the Regional Office of RBI Disputes - In case of disputes between the Project Office and the project sanctioning authority or other Government/ Non-Government agencies etc.., the balance held in such account shall be converted into INR and credited to a special account which shall be dealt with as per the settlement of the dispute Can open non-interest bearing one or more foreign currency accounts in India for the project to be executed in India

20. Accounts by Specified Persons Organisers of international Seminars, Conferences, Conventions, etc. Can open temporary foreign currency account in India Conditions 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. 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; Refund of registration fees to foreign delegates and unutilised sponsorship/grant amount Bank charges, if any; Conversion of funds into rupees. All other credits/ debits would require the prior approval of RBI The account should be immediately closed, after the conference/event is over Exporter undertaking 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 prescribed approval under FEMA 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 complied

21. Accounts by Specified Persons A unit located in a SEZ May open hold and maintain a foreign currency account with an authorized dealer in India to credit all foreign exchange funds received by the unit. The account can be used for bona fide trade transactions between the unit and non-resident Foreign exchange purchased in India against rupees cannot be credited to the account without prior permission from RBI Balances in the accounts are free from the restrictions imposed under FEM ( Current Account Transaction ) Rules, except for the use of the balances for gift etc.. The funds held in these accounts cannot be lent or made available to any person or entity resident in India not being a SEZ unit Indian company receiving foreign investment under FDI route May open and maintain a 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 6 months from the date of opening of such account, whichever is earlier Re-insurance and Composite Insurance brokers registered with IRDA May open and maintain non-interest bearing foreign currency accounts with an AD bank in India for the purpose of undertaking transactions in normal course of business

22. Foreign Currency Accounts that can be held outside India Normal business and incidental transactions Indian Start-ups having an Overseas subsidiary Raising ECB/ ADRs/ GDRs Remittances under Liberalised Remittance Scheme (LRS) Making Overseas Direct Investment (ODI) Remitting/ receiving entire Salary Participating in Exhibition or Trade Fair Abroad Foreign Visit Education Abroad Opening a Foreign Currency Account abroad is permitted in the following cases

23. Normal Business and Incidental Transactions The following persons can open a foreign currency account with a bank outside India for carrying on normal business and incidental transactions:

24. Education, Foreign Visits and Exhibitions Indian resident who has gone abroad for studies May open a foreign currency account with a bank outside India during his stay abroad All credits to the account from India should be as per FEMA regulations On the student’s return to India after completion of studies, the account will be deemed to have been opened under LRS A person going abroad to participate in an exhibition/ trade fair Indian resident who is on a visit to a foreign country May open a foreign currency account with a bank outside India during his stay abroad Balance in the account should be repatriated to India on return of account holder to India May open a foreign currency account with a bank outside India for crediting the sale proceeds of goods Balance should be repatriated to India within 1 month from the date of closure

25. Salary, ODI and LRS The following persons can open a foreign currency account outside India for remitting/ receiving their entire salary payable to him in India An Indian Party may open a foreign currency account abroad for making ODI provided the oversees regulator mandates opening of such an account A resident individual can open a foreign currency account with a bank outside India for the purpose of sending remittances under the LRS ODI LRS

26. Indian startup, having an overseas subsidiary Fund-Raising and Start-ups May open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/ sales made by the said startup or its overseas subsidiary Balances held in such accounts, to the extent they represent exports from India, shall be repatriated to India within the period prescribed under FEMA regulations

27. Definition of Start-up An entity shall be considered as a Startup Entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation Turnover of the entity for any of the FYs since incorporation / registration has not exceeded Rs 100 crores Upto a period of 10 years from the date of incorporation / registration, if it is incorporated as a private limited company or registered as a partnership firm or a LLP in India Entity shall cease to be a start-up upon completion of 10 year or turnover exceeding Rs. 100 crores as specified above

28. Where account holder is an Individual - Current or Savings or Term deposit account Others - Current account or Term deposit account Miscellaneous Form of Foreign Currency accounts of Residents with AD Account can be held singly or jointly in the name of person eligible to open, hold and maintain such account Death of a foreign currency account holder AD with whom the account is held or maintained may remit to a nominee being non-resident, 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 RBI for such remittance Resident nominee of an account held outside India has to close the account and bring back the proceeds to India through banking channels

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