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TMI BlogMaster Direction - Deposits and Accounts (Updated as on January 09, 2020)X X X X Extracts X X X X X X X X Extracts X X X X ..... h amendment notifications. 2. Within the contours of the Regulations, Reserve Bank of India also issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999 . These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/constituents with a view to implementing the regulations framed. 3. Instructions issued on maintenance of deposits and accounts under the Foreign Exchange Management Act, 1999 have been compiled in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix. Reporting instructions can be found in Master Directions on reporting ( Master Direction No. 18 dated January 1, 2016 ) 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnel, (other than loans or investments); b. payments received for the purpose of counter trade; c. advance remittance received by an exporter towards export of goods or services; d. 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capacity; e. interest earned on the funds held in the account; f. Re-credit of unutilised foreign currency earlier withdrawn from the account; g. repayment of trade related loans/ advances (which were granted to the account holder's importer customer out of balances held in the EEFC accounts); h. disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/ GDRs under the 7 DR Scheme, 2014; and i. 8 Payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its overseas subsidiaries. 2) Debits: The debits allowed in these accounts are: a. Payment outside India towards capital or current account transactions in accordance with the provisions of Foreign Exchange Management (Permissible Capital Account Transactions) Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing thereon which is held outside India in pursuance of a general or special permission granted by the Reserve Bank; d. received as proceeds of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company permitted to undertake life insurance business by the Insurance Regulatory and Development Authority. 2) The balances in the RFC account are free from all restrictions regarding utilisation of foreign currency balances outside India. 3) Such accounts can be held jointly with resident relative as joint holder on former or survivor basis. However, such resident Indian relative joint account holder cannot operate the account during the life time of the resident account holder. 4) The balances in the Non-Resident External (NRE) Account and Foreign Currency Bank [FCNR (B)] Account can be credited to the RFC account when the residential status of the non-resident Indian (NRI) 9 or person of Indian origin (PIO) changes to that of a Resident. 3.3 Resident Foreign Currency (Domestic) Account RFC (D) Account 1) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and polished diamonds can be made from DDA account. Funds can also be transferred to rupee account of the exporter. 3. The account should be maintained in the form of a non-interest bearing current account. 4. The sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. 3.5 Indian agent of shipping or airline companies incorporated outside India can maintain foreign currency account in India for meeting the local expenses of the overseas company. The credits permitted to such accounts are freight or passage fare collections in India or from his principal outside India. 3.6 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 ordinary course of their business, as detailed: 1. Credits: Only by way of inward remittances through normal banking channels from the overseas principal. 2. Debits: Towards various expenses in connection with the management of the ships/ crew in the ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance towards refund of registration fees to foreign delegates and unutilised sponsorship/grant amount, if any; (iii) Bank charges, if any; (iv) Conversion of funds into rupees. 3. All other credits/ debits would require the prior approval of the Reserve Bank. 4. The account should be closed immediately, after the conference/event is over. 3.9 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, as amended from time to time 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. 3.10 A unit located in a Special Economic Zone (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. 1. The account can be used for bona fide trade transactions betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abroad. All credits to the account from India should be made in accordance with FEMA and the rules and regulations made thereunder. 15 On the student s return to India after completion of studies, the account will be deemed to have been opened under the Liberalised Remittance Scheme. 4.3 A person resident in India who is on a visit to a foreign country may open a foreign currency account with a bank outside India during his stay abroad. The balance in the account should be repatriated to India on return of the account holder to India. 4.4 A person going abroad to participate in an exhibition/ trade fair may open a foreign currency account with a bank outside India for crediting the sale proceeds of goods. The balance should be repatriated to India within one month from the date of closure of the exhibition/ trade fair. 4.5 The following persons can open a foreign currency account outside India for remitting/ receiving their entire salary payable to him in India. a) A foreign citizen resident in India, 16 being an employee of a foreign company, on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India; b) An Indian citizen, being an employee of a foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a person resident outside India, funds to the extent of his share or entitlement from the account of the deceased account holder; b. 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 the Reserve Bank for such remittance. c. 18 A resident nominee of an account held outside India in accordance with Regulation 5 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015, dated January 21, 2016, (viz., paragraph 4 of Part I of this Master Direction) has to close the account and bring back the proceeds to India through banking channels. Part II - Opening, holding and maintaining accounts in India by a person resident outside India 1. Introduction 1.1 The Foreign Exchange Management Act, 1999 (FEMA) empowers the Reserve Bank to frame regulations to restrict, regulate and prohibit the maintenance of deposits between a person resident in India and a person resident outside India. These regulations are notified under 19 Notification No. FEMA 5(R)/2016-RB of April 1, 2016, (FEMA 5(R)) as amended from time to time. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount will be inward remittances received from outside India through banking channels; and transfer of funds, from the rupee account of the diplomatic mission in India, which are collected in India as visa fees and credited to such account; b. Funds held in such account if converted in rupees cannot be converted back into foreign currency; c. The account may be held in the form of current or term deposit account, and in the case of diplomatic personnel and non-diplomatic staff, may also be held in the form of savings account; d. The rate of interest on savings or term deposits shall be such as may be determined by the authorised dealer maintaining the account; e. The funds in the account may be repatriated outside India without the approval of Reserve Bank. 3.3 Deposits with Authorized Dealer maintained in rupees by persons resident in Nepal and Bhutan. 3.4 Deposits with authorized dealer maintained by any multilateral organization and its subsidiary/ affiliate bodies and officials in India, of which India is a member nation. 4. Non-Resident (External) Rupee Account Scheme (NRE Account): The detailed instructions for opening and maintaining this account are laid down in Schedule 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential use subject to the provisions of the relevant Regulations made under the Act. In case of loans sanctioned to a third party, there should be no direct or indirect foreign exchange consideration for the non-resident depositor 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 outside India through banking channels or out of balances held in the NRO account of the account holder. 4.8.2 Authorised Dealers may allow their branches/ correspondents outside India to grant loans to or in favour of non-resident depositor or to third parties at the request of depositor for bona fide purpose against the security of funds held in the NRE accounts in India and also agree for remittance of the funds from India, if necessary, for liquidation of the outstanding. 4.8.3 The facility for premature withdrawal of deposits will not be available where loans against such deposits are availed of. 4.8.4 The term loan shall include all types of fund based/ non-fund based facilities. 4.9 NRE accounts should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted in any permissible currency. 5.2 The accounts can be maintained only in the form of fixed deposit. 5.3 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. 5.4 The rate of interest and tenor applicable to these accounts will be in accordance with the directions/ instructions issued by the Department of Banking Regulation, Reserve Bank of India. 6. Non-Resident (Ordinary) Account Scheme NRO account The detailed instructions for opening and maintaining this account are laid down in Schedule 3 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. The salient features of the scheme are given below: 6.1 Any person resident outside India (as per Section 2 (w) of FEMA), may open and maintain NRO account with an Authorised Dealer or an Authorised Bank for the purpose of putting through bona fide transactions denominated in Indian Rupees. 6.2 Post Offices in India may maintain savings bank accounts in the names of persons resident outside India and allow operations on these accounts subject to the same terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he FRO/FRRO concerned; (vi) complete address and contact number of the branch where the bank account is being maintained. The Head Office of the AD bank shall furnish the above details on a quarterly basis to the Under Secretary (Foreigners), Ministry of Home Affairs, NDCC-II Building, Jai Singh Road, New Delhi 110 001. AD banks are advised to ensure strict compliance to these instructions. 6.5 The accounts may be maintained in any form, e.g. savings, current, recurring or fixed deposit account. 6.6 The accounts may be held jointly with residents 26 on former of survivor basis. NRIs and PIOs may hold an NRO account jointly with other NRIs and PIOs. 6.7 Inward remittances from outside India, legitimate dues in India 27 and transfers from other NRO accounts are permissible credits to NRO account. Rupee gift/ loan made by a resident to a NRI/PIO relative within the limits prescribed under the Liberalised Remittance Scheme may be credited to the latter s NRO account. 6.8 The account can be debited for the purpose of local payments, 28 transfers to other NRO accounts or remittance of current income abroad. Apart from these, balances in the NRO account cannot be repatriated abroad except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... older s FCNR (B) / NRE / NRO Accounts. 6.14 Income-Tax - The remittances (net of applicable taxes) will be allowed to be made by the Authorised Dealer banks on production of requisite information in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, Government of India from time to time. Reserve Bank of India will not issue any instructions under FEMA, clarifying tax issues. It shall be mandatory on the part of Authorised Dealers to comply with the requirement of tax laws, as applicable. 7. 30 Special Non-Resident Rupee Account - SNRR account 7.1 Any person resident outside India, having a business interest in India, may open a Special Non-Resident Rupee Account (SNRR account) with an authorised dealer for the purpose of putting through bona fide transactions in rupees, not involving any violation of the provisions of the Act, rules and regulations made thereunder. 31 The business interest, apart from generic business interest, shall include the following INR transactions, namely: i. Investments made in India in accordance with Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 dated October 17, 2019 and Foreign Exchange Management (Debt I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be applicable to SNRR accounts opened by persons resident outside India for the 34 purposes stated at sub-paragraphs (i) to (v) of paragraph 7.1 above. 7.6 The operations in the SNRR account shall not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner. 7.7 The balances in the SNRR account shall be eligible for repatriation and transfers from any NRO account to the SNRR account are prohibited. 7.8 All transactions in the SNRR account will be subject to payment of applicable taxes in India. 7.9 SNRR account may be designated as resident rupee account on the account holder becoming a resident. 7.10 35 The amount due/ payable to non-resident nominee from the account of a deceased account holder, shall be credited to NRO/NRE account of the nominee with an authorised dealer/ authorised bank in India or by remittance through normal banking channels. 7.11 Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior approval of Reserve Bank. 8. Escrow Account 8.1 Resident or non-resident corporate/ acquirers may open Escr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen, hold and maintain a Foreign Currency Account with an authorized dealer for meeting the local expenses in India of such airline or shipping company. The credits permitted to such accounts are only freight or passage fare collections in India or by inward remittances through banking channels from its office outside India. 43 12.3 An Authorised Dealer may allow unincorporated joint ventures (UJV) of foreign companies/ entities, with Indian entities, executing a contract in India, to open and maintain non-interest bearing foreign currency account and an SNRR account as specified in Schedule 4 of the Deposit Regulations for the purpose of undertaking transactions in the ordinary course of its business. The debits and credits in these accounts should be incidental to the business requirement of the UJV. The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV and all operations in the account shall be in accordance with the provisions of the Act or the rules or regulations made or the directions issued thereunder. Opening of such accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M (Deposit) Regulations, 2016 with effect from April 1, 2016. 3 Updated up to April 12, 2019 (cf. AP (DIR Series) circular No 29 dated April 11, 2019). The Original Master Direction No. 14/2015-16 was issued on January 1, 2016. 4 FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000 was repealed and replaced by FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015 with effect from January 21, 2016. 5 Inserted by FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015 with effect from January 21, 2016. Prior to insertion it read as section 6 of the Companies Act, 1956 . 6 Inserted by Amendment Notification No. FEMA 10(R)/(1)/2016-RB notified vide G.S.R.No.570(E) dated June 1, 2016 intimated vide AP (Dir Series) Circular No. 77[(2)/10(R)] dated June 23, 2016. 7 Inserted by FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015 with effect from January 21, 2016. Prior to insertion it read as ADR/GDR Scheme approved by the Government of India. 8 Inserted by Amendment Notification No. FEMA 10(R)/(1)/2016-RB notified vide G.S.R.No.570(E) dated June 1, 2016 intimated vide AP (Dir Series) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Series) circular No 67/2015-16/ [(1)/5(R)] dated May 5, 2016 vide FEMA Notification No. 5(R)/2016-RB dated April 1, 2016. Prior to insertion it read as Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan who had (a) 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; or (c) the person is a spouse of an Indian citizen or a person referred to in (a) or (b). 22 Inserted by AP (DIR Series) circular No 67/2015-16/ [(1)/5(R)] dated May 5, 2016 vide FEMA Notification No. 5(R)/2016-RB dated April 1, 2016. Prior to insertion it read as, section 6 of the Companies Act, 1956. 23 Inserted by AP (DIR Series) circular No 67/2015-16/ [(1)/5(R)] dated May 5, 2016 vide FEMA Notification No. 5(R)/2016-RB dated April 1, 2016. 24 Inserted by AP (DIR Series) circular No 67/2015-16/ [(1)/5(R)] dated May 5, 2016. Prior to insertion it read as, An authorised dealer or its overseas branch/ correspondent can grant loans against security of the funds to the account holder/ a third party in or outside India, respectively without any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he foreign currency account of the RFPI. 7.3 The permitted debits are: (a) Purchase of securities in India; (b) Transfers to the foreign currency account of the RFPI 31 Inserted vide AP (Dir) Circular no. 9 dated November 22, 2019 and vide Notification No. FEMA 5(R)/3/2019-RB dated November 13, 2019. 32 Modified vide AP (Dir) Circular no. 9 dated November 22, 2019 and vide Notification No. FEMA 5(R)/3/2019-RB dated November 13, 2019. Prior to modification, it read as, The SNRR account shall carry the nomenclature of the specific business for which it is opened and shall not earn any interest. 33 Modified vide Foreign Exchange Management (Deposit) (Amendment) Regulations, 2018 Notification No. FEMA 5 (R)(1)/2018-RB dated November 09, 2018 and AP (DIR Series) Circular No.28 dated March 28, 2019. Prior to modification it read as, The tenure of the SNRR account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and in no case should exceed seven years. No operations are permissible in the account after seven years from the date of opening of the account. 34 Modified vide AP (Dir) Circular no. 9 dated November 22, 2019 and vide No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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