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The following acts are formed by the Central Government as per the Indian Constitution.The acts are listed alphabetically.

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Foreign Exchange Regulation Act (FERA)

 

 

1.                 Basic Concept

 

2.                 Restriction in foreign currency

 

3.                 Restriction on payments

 

4.                 Exports

 

5.                 Investment provision

 

6.                 Provisions for   immovable property

 

7.                 Business & profession in India

 

8.                 Type of bank account

 

9.                 Foreign currency accounts

 

10.              Miscellaneous

 


Foreign Exchange Regulation Act (FERA)

 

BASIC CONCEPTS & DEFINATIONS

 

FERA is an act to regulate dealings in foreign exchange and foreign securities with the objective of conservation of foreign exchange resources of India and its proper utilization in the economic development of India. It extends to whole of India and applies to all the citizens of India, outside India as well as in India and to branches and agencies of Indian companies or body corporates, outside India.

 

FERA is a very stringent act. Unlike other laws where everything is permitted unless specifically prohibited, under FERA nothing is permitted unless specifically permitted. Hence the tenor and tone of the Act is very drastic. It provides for imprisonment for violation of even a very minor offense. Under this act, a person is presumed guilty unless he proves himself innocent whereas under other laws, a person is presumed innocent unless he is proven guilty. Therefore one has to be very careful while dealing in foreign exchange and ensure that all legal compliances are carried out.

 

With liberalization, there has been a move to remove the drastic measures of FERA and replace it with a set of liberal foreign exchange management regulations. A draft of the Foreign Exchange Management Bill (FEMA) has been prepared by the Government of India to replace FERA keeping in view the liberal spirit of the Indian economy. However, until FEMA is enacted, the provisions of FERA apply.

 

FERA contains definitions of certain terms which have been used throughout the Act. Their meaning of these terms may differ under other laws or under common language. But for the purposes of FERA, the terms will signify the meaning as defined thereunder. Let us take up some of the more important ones.

 

Authorized dealer means a person for the time being authorized by the Reserve Bank of India (RBI) under section 6 to deal in foreign exchange.

 

Bearer certificate means a certificate of title to securities, whose ownership can be transferred by mere delivery, whether with endorsement or not. In this sense, it is similar to a bearer cheque ie whoever has such a certificate can easily encash it without any other personís endorsement.

 

Certificate of title to a security means any document used in the ordinary course of business as a proof of the possession or control of the security or authorizing or purporting to authorize, either by endorsement or by delivery the possessor of the document to transfer or receive the security thereby represented.

 

Coupon means the coupon representing the dividends or interest on a security. Eg Dividend warrants

 

Currency includes all coins, currency notes, bank notes, postal notes, postal orders, money orders, cheques, drafts, travellerís cheques, letters of credit, bills of exchange and promissory notes.

 

Foreign currency means any currency other than Indian currency.

 

Foreign exchange means foreign currency and includes :-:

 

1. All deposits, credits and balances payable in any foreign currency and any drafts, travellerís cheques, letters of credit and bills of exchange expressed or drawn in Indian currency but payable in any foreign currency.

 

2. Any instrument payable at the option of the drawee or the holder thereof or any other party, either in Indian currency or in foreign currency or partly in one and partly in the other.

 

Foreign security means any security created or issued outside India and any security, the principal of or the interest on which is payable in any foreign currency or is payable outside India.

 

Indian currency means the 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 Reserve Bank of India Act, 1934. Such Rupee One notes are issued by the Ministry of Finance.

 

Indian Customs Waters means water extending into the sea upto a distance of 12 nautical miles measured from the appropriate base line on the coast of India and includes any bay, gulf, harbour, creek or tidal river.

 

Money changer means a person for the time being authorized under section 7 to deal in foreign exchange.

 

Owner, in relation to any security, includes :-

 

1. Any person who has the power to transfer the security; or

 

2. Any person who has the custody thereof; or

 

3. Any person who receives, whether on his own behalf or on behalf of any other person, dividends or interest thereon and who has any interest therein;

 

4. In a case where a security is held on in any trust or dividends or interest thereon are paid into a trust fund, owner also includes any trustee or any person entitled to enforce performance of the trust or to revoke or vary, with or without the consent of any other person, the trust or any terms thereof or to the control investments of the trust moneys.

 

Person resident in India means

 

1. A citizen of India, who has at anytime after 25th March 1947 been staying in India but does not include citizen of India who has gone out of or stays outside India :-

 

(i) for taking an employment outside India ; or

 

(ii) for carrying on outside India any business or vocation ; or

 

(iii) for any other purpose, in circumstances which indicate the intention to stay outside India for an uncertain period.

 

2. A citizen of India who having ceased to be a person resident in India as per the above conditions, who returns to or stays in India :-

 

(i) for taking an employment in India ; or

 

(ii) for carrying on business or vocation in India ; or

 

(iii) for any other purpose in circumstances which indicate his intention to stay in India for an uncertain period.

 

3. A person, not being a citizen of India who has come to or stays in India :-

 

(i) for taking an employment ; or

 

(ii) for carrying on business or vocation in India ; or

 

(iii) for any other purpose in circumstances which indicate his intention to stay in India for an uncertain period.

 

(iv) for staying with his or her spouse, such spouse being a person resident in India.

 

4. A citizen of India who has not stayed in India at anytime after 25th day of March 1947 comes to India for any of the aforesaid purposes.

 

Person resident outside India means a person who is not resident in India.

 

Precious stones include pearls and semi precious stones and such other stones or gems as the Central Government may, for the purposes of this Act, notify in the Official Gazatte.

 

Securities means shares, stock, bonds, debentures stock, government securities as defined in the Public Debt Act, 1944, savings certificates to which the Government Savings Certificate Act, 1959 applies, deposit receipts in respect of deposits of securities and units or sub-units of the Unit Trust and includes certificates of title to securities but does not include bills of exchange or promissory notes other than government promissory notes.

 

Transfer in relation to any security includes transfer by way of loan or security.

 

Authorized dealer in foreign exchange:

 

Authorized dealers are persons who can legally deal in foreign exchange. Most of the authorized dealers are banks. However, not all branches of the banks are authorized dealers. Only certain designated branches of banks act as authorized dealers. Any person wanting to deal in foreign exchange must deal through the authorized dealers unless specifically exempted from doing so.

 

A application must be made by a person desiring to be an authorized dealer to the RBI. The RBI may authorise that person to be an authorized dealer if he meets with certain parameters laid down for this purpose. An authorisation by the RBI for this purpose will be in writing and may authorise dealing in all foreign currencies or may be restricted to authorized dealing in specified foreign currencies only. It may authorise transaction of all descriptions in foreign currency or it may be restricted to specific transactions only. It may be granted for a specific period or within specified amount. It may be granted subject to such conditions as many specified therein.

 

An authorisation granted by the Reserve Bank may be revoked at anytime if the RBI is satisfied that it may be in public interest to do so or if authorized dealer has not complied with the conditions subject to which the authorisation was granted or has contravened any of the provision of this Act or rules, notification direction or orders made thereunder. However before revoking the authorisation, the authorized dealer should be given a reasonable opportunity of making representation in the matter.

 

An authorise dealer must in all his dealings in foreign exchange and in the exercise and discharge of the powers and functions given to him under FERA comply with all general and special directions and instructions that the reserve bank may from time to time think fit to give. Except with the previous permission of the reserve bank, the authorized dealer cannot not engage in any transaction relating any foreign exchange which is not in conformity in the terms of his authorisation.

 

An authorized dealer must before undertaking any transaction in foreign exchange on behalf of any other person, require that person to make such declaration and to give such information which reasonably satisfies him that the transaction will not involve and is not designed for the purpose of contravention or evasion of the provisions of FERA or any rules, notification or direction made thereunder and if that person refuses to comply with such requirement or makes only unsatisfactory compliance thereof, the authorized dealer should refuse to undertake the transaction and must report the matter to the reserve bank.

 


Money Changer:

 

Money changers are authorized to deal in foreign exchange but for very limited and specific purposes. Generally, hotels, foreign travel agents, foreign tour operators, etc who have foreign exchange requirements for specific purposes only are allowed to become money changers. They must function strictly within the terms and conditions under which they are licensed to act as money changers.

 

A application must be made by a person desiring to be a money changer to the RBI. The RBI may authorise that person to be a money changer if he meets with certain parameters laid down for this purpose. An authorisation by the RBI for this purpose will be in writing and may authorise dealing in all foreign currencies or may be restricted to authorized dealing in specified foreign currencies only. It may authorise transaction of all descriptions in foreign currency or it may be restricted to specific transactions only. It may be granted for a specific period or within specified amount. It may be granted subject to such conditions as many specified therein.

 

All other provisions are similar to those applicable to authorized dealers. For the purpose of dealings with money changers, foreign currency means foreign currency in the form of notes, coins and travellerís cheques and dealing means purchasing foreign currency notes, coins or travellerís cheque or selling foreign currency in form of notes and coins.

 

Restriction on dealing in foreign currency:

 

FERA imposes restriction on every dealing involving foreign exchange. No dealing in foreign exchange is permitted unless allowed by the RBI. Under section 8, except with the previous general or special permission of the reserve bank, no person, other than an authorized dealer, can deal in India and no person resident in India, other than an authorized dealer, can outside India purchase or otherwise acquire, borrow from, or sell, or otherwise transfer or exchange with any person not being an authorized dealer, any foreign exchange.

 

This restriction will not apply to any purchase or sale of foreign currency in India between any person and a money changer.

 

A person who deposits foreign exchange with another person or opens an account in foreign exchange with another person will be deemed to lend foreign exchange to such other person.

 

Except with the previous general or special permission of the reserve bank, no person, whether an authorized dealer or a money changer or otherwise, can enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates of exchange for the time being authorized by the reserve bank.

 

Where any foreign exchange is acquired by any person other than a authorized dealer or money changer for any particular purpose or where any person is permitted to conditionally acquire foreign exchange, that person cannot use the foreign exchange so acquired otherwise than for that purpose or fail to comply with any condition subject to which permission was granted to him. Where any foreign exchange so required cannot be used for that particular purpose or the condition cannot be complied with, that person must, within a period of 30 days from the date on which he comes to know that the foreign exchange cannot be so used for that purpose or that the condition cannot be complied with, sell the foreign exchange to an authorized dealer or to a money changer.

 

The above provision is not applicable to buying from any post office in accordance with any law or rules made thereunder any foreign exchange in the form of a postal order or money order.

 

The RBI has issued notifications from time to time for granting permissions for dealings in foreign exchange. Where so permitted by the RBI, permission need not be sought for undertaking such transactions. Let us discuss some of the more important permissions : -

 

I. Notification no FERA 47/77-RB dated 24/11/1977 as amended by Notification no FERA 135/93 dated 26/4/93

 

Reserve Bank of India permits -

 

1) Any person to acquire the foreign exchange by way of scholarship or stipend from charitable trust or educational institutions or foundation or from foreign government to enable him either to undergo a course or study or training or both

 

2) Any person to acquire the foreign exchange by way of income on assets held outside India or by way of inheritance, settlement or gift.

 

3) Any person to acquire from any person not in India, foreign exchange by the way of remuneration of services rendered whether in or outside India or in settlement of any lawful obligation ;provided the person who acquires foreign exchange as in clause 2 or clause 3 above shall, if he is an Indian citizen and receiving foreign exchange as in clause 2 or clause 3 shall, if he is an Indian citizen and receives foreign exchange in India, within seven days from its receipt and in any case other than within three months from its receipt, offer it or cause it to be offered for sale to an authorized dealer in the prescribed manner laid down in the Central Government's Notification.

 

4) Any person resident in India while on visit to any place outside India to receive foreign exchange by way of gift or honorarium or payment of the services not arising out of business in or anything done in India.

 


II. Notification no FERA-158/94-RB dated 24th February, 1994 in suppression of the notification no 62/83-RB dated 13/9/83

 

The Reserve Bank is pleased to permit any person to receive payment in any foreign currency from any person resident outside India who is on visit to India for services rendered or settlement of any lawful obligation provided that such foreign currency acquired in excess of 500 US Dollar or its equivalent is sold to or caused to be sold within seven days from its receipt to an authorized dealer in the prescribed manner.

 

III. Notification no FERA-73/88-RB dated 27/2/1998

 

The Reserve Bank of India permits any person resident in India who has acquired foreign exchange under the general or special permission of Reserve Bank of India for travel abroad to retain unspent foreign exchange brought to India for a period not exceeding 90 days from the date of his return.

 

IV. Notification no FERA-98/91-RB dated 18/11/91 as amended notification no 137/93 dated 26/4/93

 

The Reserve Bank permits the exporters who have obtained post-bid letters of approval from the Exim Bank on the behalf of the Working Group on Projects Exports or Exim Bank or authorized dealers within their delegated powers in respect of export of engineering goods on deferred payment, execution of turnkey projects or civil construction projects abroad or for the export of consultancy, technical or other services abroad :-

 

1) To operate and maintain such number of foreign currency bank accounts and at such places outside India for the purpose receiving payments due under and meeting expenditure connected with the export contract as provided in the letter of approval.

 

2) To establish a temporary site office at such place or at such places outside India for purpose of co-ordinating the work or services in the execution of the export contract as approved in the letter of approval.

 

3) To pay such commission due to any agent outside India in connection with export contract as approved in the letter of approval.

 

4) To raise such foreign currency loan or overdraft abroad against the guarantees of their bankers in India for the purpose of bridging temporary shortfall in cashflows in the execution of export contracts as approved in the letter of approval; subject to the condition that :-

 

1) Terms and conditions specified in the letter of approval and any directions that may be given from time to time by the Reserve Bank are strictly complied with by the exporters.

 

2) Within the 15 days of opening of such foreign currency bank account, temporary site office, payment of any agency commission or availing of foreign currency loan or over-draft the export submits to the concerned regional office of Reserve Bank, a statement containing full particulars of such bank accounts, site office, commission or loan or overdraft.

 

3)A quarterly statement in the form specified for the purpose along with the document specified in the such form is submitted by the exporter to the concerned regional office of the Reserve Bank.

 

V. Notification no FERA-159/49-RB dated 31/3/94 in suppression of notification no 112-92- RB dated 12/3/92

 

The Reserve Bank is pleased to permit :-

 

1) 100% export oriented units or units located in export processing zone or software technology park or in hardware or electronic hardware technology park to open and operate an account in India expressed in foreign currency with an authorized dealer and to Credit to such amount upto 50% of any remittance received from outside India in convertible foreign exchange by the unit

 

2) Any other person to open and operate in India account expressed in foreign currency with an authorized dealer and to credit such account upto 25% of any remittance received by the person from outside India in convertible foreign currency provided that such remittances were other than those received pursuant to an undertaking or for meeting any specific obligation and provided further that withdrawal from such account, other than for remittance outside India or for the payment in India in foreign currency for the such purposes as may be advised through any circular is allowed by the authorized dealer only in Indian rupees at market rate prevailing on the date of such withdrawal.

 

VI. Notification no FERA-116/92-RB dated 19/7/1992

 

The Reserve Bank has directed that the provisions imposed by the Section 8(1) shall not apply to the maintenance of and operation on an account expressed in foreign currency with an authorized dealer in India in accordance with any scheme approved by the Reserve Bank of India in this behalf or outside India if such foreign currency was acquired by a person

 

1) Otherwise than in contravention of the said Act (FERA) while he was resident outside India; or

 

2) Through employment, business or vocation outside India taken up or commenced while such person was resident outside India provided that in either case such person has been resident outside India for a continuous period not less than one year.

The general permission also applies to all income i.e. interest, dividend, etc. earned on the foreign exchange assets i.e. bank deposits, investments in foreign currency shares or securities, or immovable properties situated outside India or investments in business etc. outside India, lawfully acquired by such persons while resident outside India as well as to sale proceeds of such investments (but received after their return to India). Pension received by such persons from erstwhile employment outside India is also covered by the general permission. In the case of persons who have not returned to India for good i.e. those who have retained their links abroad through employment, business or vocation outside India, taken up or commenced while they were resident outside India, the exemption applies to foreign currency continued to be acquired through such employment, business or vocation outside India even after their return to India. Balances held in overseas bank accounts by such persons at the time of their return to India are not required to be surrendered or declared to Reserve Bank. Fresh credits to such accounts should be out of foreign currency acquired for which exemption is available as indicated above.

 

Permission for opening New Accounts in certain cases: Persons of Indian nationality/origin returning to India for permanent settlement and satisfying either of the aforesaid 2 conditions would be eligible for continuing to maintain their existing foreign currency accounts with banks abroad or to open fresh accounts to deposit the eligible funds in such accounts. They can also retain eligible funds in Resident Foreign Currency (RFC) Accounts with an authorized dealer in India. However, persons who do not satisfy any of the two conditions e.g. persons returning to India after short assignments abroad of less than one year, should arrange to close their foreign currency accounts, if any, maintained by them during their stay abroad and transfer the balances therein to India within three months from the date of their arrival in the prescribed manner. Reserve Bank may agree, on application, in deserving cases to the retention of the foreign currency accounts abroad for a slightly longer period in order to facilitate settlement of outstanding dues, collection of income-tax refund, etc. subject to the balance being eventually repatriated to India. Applications for this purpose may be made in form FAD 1. They will also be permitted, on application, to keep funds in RFC accounts with an authorized dealer in India.

 

Accounts abroad of Indian Firms, Companies, etc.: Indian shipping companies will be permitted, on application, to maintain foreign currency accounts with banks abroad for retaining foreign exchange earnings by way of freight collections etc. to meet their operating expenses in foreign ports on condition that they will maintain at all times balances not exceeding reasonable fund requirements to meet disbursements at foreign ports subject to such overall limit as may be stipulated by Reserve Bank from time to time as also for meeting expenditure such as P & I Club fees, charter hire payments, ship repairs, dry docking, spares, etc. Any surplus funds should be repatriated to India without delay. Investment of foreign currency balances in any form including placement on call or term deposits with overseas banks is not permitted. Applications for permission to open and maintain foreign currency accounts abroad should be made to the concerned office of Reserve Bank in whose jurisdiction the shipping company is functioning.

 

VII. Notification no FERA-125/93-RB dated 22/3/93

 

The RBI permits any person resident in India :-

 

1) To incur liability

 

2) To purchase from the authorized dealers sums of money

 

3) To make payments

 

4) To receive payments in foreign exchange in respect of the global bids where the Central Government has authorized bidding procedures enabling Indian as well as foreign companies entities to bid for supply of goods and services for projects to be executed in India and in cases of bids submitted by persons resident in India, they have accepted by the Indian Agency authorized by the Government inviting bids.

 

VIII. Notification no FERA-127/93-RB dated 22/3/1993

 

The Reserve Bank permits any person who has entered into the agreement in one or more credit card servicing bank / organisation in India to receive payment in Indian rupees for the goods and services sold in India against charge slips raised on internationally recognised credit cards of persons resident outside India provided that the dues are realised in the foreign exchange through authorized dealers from the credit card issuing institutions overseas in an approved manner.

 

IX. Notification no FERA 134/93-RB dated 25/4/1993

 

The Reserve Bank permits a person resident in India who is out of India to open with the bank outside India, an account in foreign currency and operate thereon during his stay outside India provided that deposit in such money such account is made out such

 

(i) Foreign exchange obtained from authorized dealer or money changer in India ; or

 

(ii) Foreign exchange received outside India by the way of scholarship or stipend or by way of salary or payment of services not arising from business in or anything done while in India.

 

The general permission ceases to be operative on the return of the account holder to India. The accounts opened in terms of the general permission should, therefore, be closed and balances transferred to India immediately on return to India.


X. Notification No FERA 161/95-RB dated 13/1/95

 

The RBI permits a person resident in India but who out of India for participation in exhibition or trade fair to open with a bank outside India an account in foreign currency and to operate for depositing the foreign exchange obtained by the sale of jewellery or other goods exported for display cum sale in international exhibition or trade fair provided that the account is closed immediately after the close of the exhibition or trade fair and the amount is repatriated in foreign exchange at the time of closure of exhibition or trade fair and the exporter furnishes to the Reserve Bank full account of transaction and sale of goods exported for display cum sale in the exhibition or trade fair duly by the certified by his banker and evidence of re-importing of the jewellery/goods within the period of 15 days.

 

Loans against Foreign Currency

 

Authorized dealers should obtain prior approval of Reserve Bank for granting loans and overdrafts whether in India or abroad, to residents against foreign currency balances or foreign securities held by them

 

Restrictions on payments

 

FERA imposes restrictions on making payments in foreign currency. Under section 9, except as provided below and in accordance with any general or special exemption from the provisions of this section, which may be granted conditionally or unconditionally by the reserve bank, no person resident in India shall :-

 

1. Make any payment to or credit of any person resident outside India.

 

2. Receive otherwise than through an authorized dealer, payment by order or on behalf of any person resident outside India. Where any person in or resident in India receives any payment by order or on behalf of any person resident outside India through any other person including an authorized dealer without a corresponding inward remittance from any place outside India, such person shall be deemed to have received such payment otherwise than through an authorized dealer.

 

3. Draw, issue or negotiate any bill of exchange or promissory note or acknowledge any debt so that a right, whether actual or contingent to receive a payment is created or transferred in favour of any person resident outside India.

 

4. Make any payment to or for the credit of any person by order or on behalf of any person resident outside India.

 

5. Place any sum to the credit of a person resident outside India.

 


6. Make any payment to or for credit of any person or receive any payment for or by order or on behalf of any person as consideration for or in association with :-

 

(i) Receipt by any person of a payment or the acquisition by any person of property outside India

 

(ii) Creation or transfer in favour of any person or right, whether actual or contingent, to receive payment or aquire property outside India.

 

7. Draw, issue or negotiate any bill of exchange or promissory note, transfer any security or acknowledge any debt so that a right, whether actual or contingent, to receive a payment is created or transferred in favour of any person as consideration for or in association with any matter referred to in clause 6.

 

The above provisions do not affect and will not render unlawful the making of any payment already authorized either with foreign exchange obtained from an authorized dealer or a money changer or with foreign exchange retained by a person in pursuance of authorisation granted by the Reserve bank. It will also not affect and render unlawful the making of payment with foreign exchange received by way of salary or payment for services not arising from any business or anything done while in India.

 

Except in accordance with any general or special exemption from the provisions of this section, which may be granted conditionally or unconditionally by the reserve bank, no person shall remit or cause to be remitted any amount from any foreign country into India except in such a way that the remittance is received in India only through an authorized dealer.

 

Under section 9, any remittance into India from abroad can be made only through an authorized dealer unless a special or general permission to the contrary is given from the Reserve Bank. Under notification no 50 / 1977-78 dated September 21, 1977 persons who receive any payment in India from a non-resident must ensure corresponding inward remittance from outside India; otherwise they will not be deemed to have received such payment through an authorized dealer. The RBI has also advised banks authorized to deal in foreign exchange that they should ensure, before making remittances in foreign exchange or transfer of rupees to non-resident Bank accounts that the counterpart rupee payment is made by the remitter only by debit to his account with the remitting bank or by a crossed cheque on his own bank, if the remittance or transfer is for some equivalent of Rs 1000 and above. This restriction is applicable irrespective of whether the remittances or transfers are made by the authorized dealer under the authority delegated to them by the Reserve bank or against specific exchange permits except blank exchange permits issued by the Reserve Bank.

 

The RBI has issued notifications from time to time for granting permissions for dealings in foreign exchange. Where so permitted by the RBI, permission need not be sought for undertaking such transactions. Let us discuss some of the more important permissions : -

 


I. Notification no FERA 6/74-RB dated 1/1/1974

 

The Reserve Bank is pleased to permit making of any payment in rupees by order or on behalf of any person resident outside India out of rupees funds provided by the sale of foreign exchange by such person to an authorized dealer in India.

 

II. Notification no FERA 7/74-RB dated 1/1/74

 

The Reserve Bank directs that non of the prohibitions imposed by the various clauses of sub-section 9 (1) shall apply to any transaction entered into in Indian rupees by a or with :-

 

1) Indian, Nepalese or Bhutanese resident in Nepal or Bhutan.

 

2) A Branch situated in Nepal or Bhutan of any business carried on by a company or corporation incorporated or established under law in force in Nepal, India or Bhutan

 

3) A branch situated in Nepal or Bhutan of business carried on as partnership firm or otherwise by Indian, Nepalese or Bhutanese.

 

III. Notification no FERA 48/77-RB Dated 24/11/1977

 

The Reserve Bank is pleased to permit any person to receive any payment by order or on behalf of a person resident outside India :-

 

1) Made in rupees during such personís stay in India out of rupee funds provided by sale by such person of foreign exchange to an authorized dealer in India.

 

2) Made in rupees representing income from immovable property held in India by non-resident provided that the rupees are credited within two months from the date of such receipt of income to the account of the non-resident with an authorized dealer in foreign exchange in India and provided that such properties are held in accordance with Section 31 of FERA Act where applicable.

 

3) By means of postal order issued by a post office outside India or by a postal money order issued by such post office.

 

4) By means of cheques drawn on banks situated outside India or bankdraft or travellerís cheques issued outside India.

 

5) Foreign currency notes received by him directly out from India subject to condition that any foreign exchange received shall within seven days of the receipt be offered for sale in the prescribed manner to an authorized dealer.

 


IV. Notification no FERA 85/89-RB dated 9/10/89

 

The Reserve Bank hereby directs that provision imposed by the clause 9(1)(c) shall not apply to the issue of commercial paper to non-residents of Indian nationality or origin by a company which issues commercial paper in accordance with the terms and conditions stipulated by the RBI in that regard provided that

 

(i) the amount invested in such commercial paper and income thereon shall not allowed to be repatriated outside India ; and

 

(ii) the commercial paper issued to NRI shall not be transferable.

 

A person not being a citizen of Pakistan or Bangladesh shall be deemed to be of Indian origin if :-

 

1) He had any time held Indian Passport; or

 

2) He or either of his parents or any of his grandparents was a citizen of India ; or

 

3) That person is a spouse of an Indian citizen or of a person of Indian origin not being a citizen of Pakistan or Bangladesh.

 

V. Notification no FERA 91/92-RB dated 13/9/1991

 

The Reserve Bank is pleased to :-

 

1) To permit any person resident in India (host) to make payment to another resident in Indian rupees towards meeting an expenses on account of boarding, lodging and services relating thereto/travel within India of a person resident outside India and who is on visit to India in connection with business, activity or any other work of the host

 

2) To permit any person resident in India to receive from another person resident in India any payment, such payment being made or received towards the meeting expenses on the account of boarding, lodging services relating thereto and travel within India of a person resident outside India but on a visit to India.

 

VI. Notification no 92/91-RB dated 13/9/91 as amended by notification no FERA 146/93-RB Dated 26/4/1993

 

The Reserve Bank hereby directs that prohibition imposed by section 9 (1) shall not apply to the making of any payment by a person in or resident in India towards technical know-how fees and royalty under foreign technical collaboration arrangement approved by the Central Government or the Reserve Bank, subject to condition that: -

 

1) Payment is made strictly in accordance with terms and conditions specified for the purpose in the letter of approval for the technical collaboration issued by the Government of India or the Reserve Bank.

 

2) The payment is affected through an authorized dealer designated for the purpose by the Reserve Bank in respect of that technical collaboration

 

3) Statement in duplicate in the prescribed form shall submitted to Exchange Control department of the concerned Regional office of the Reserve Bank within the prescribed time in the first fortnight of January each year by the Indian party to the technical collaboration in respect of all payment made under the collaboration agreement.

 

VII. Notification No FERA 113/92-RB dated 27.4.92 as amended by notification no. 148/93-RS dated 26.4.93

 

The Reserve Bank permits :-

 

(1) Non residents of Indian nationality or origin to invest on non-repatriation basis by way of capital contribution in any proprietory or partnership concern in India engaged in any industrial, commercial or trading activity and such NRI and Indian concerns to carry on the abovemetioned activities in India.

 

(2) A proprietory or partnership concern in India to place to the credit of or make payment to or for the credit of any NRI any sum invested by him in their proprietory or partnership concern or income accruing therefrom.

 

Provided that: -

 

(i) The amount is received from the NRI investor either by remittance from abroad through normal banking channels or by transfer of funds held in his NRI/FCNR/NRO accounts maintain with banks authorized to deal in foreign exchange in India or authorized co-operative / commercial banks in India. A declaration in the specified form giving the particulars of amount invested by NRI is filed with the Reserve Bank within a period of 90 days from the date of receipt of investment.

 

2) the proprietory or partnership concern or the NRI is not engaged in India in any agricultural or plantation activity or real estate business.

 

3) Amount invested and the income accruing from such investment is not eligible for repatriation to any place outside India and is payable only on non-repatriable Indian rupees. All such payments as and when made are credit to ordinary non-resident rupee account of the NRI investor maintained with a bank authorized to deal in foreign exchange in India.

 


VIII. Notification no FERA 128/93 Dated 29/3/93

 

The Reserve Bank hereby directs that prohibition contained in clause 9 (1) shall not apply to making of payment in Indian rupees by a company in or resident in India to its non-whole time director who is resident outside India and is on visit to India for the company's work such as attending board meeting of the company etc and is entitled to the payment of sitting fees or commission or remuneration by way of monthly or quarterly or annual payment or in accordance with the provision therefore contained in the company's memorandum of association or articles of association or any agreement entered into by it or any resolution passed by the company in the general meeting by its Board of Directors provided that the Central Government's approval has been obtained by it company under Section 309 (4) or Section 310 of the Companies Act where applicable.

 

IX. Notification no FERA 167-95-RB dated 30/5/1995

 

The Reserve Bank permits any person resident in India to make payment in Indian rupees by means of crossed cheque in India as consideration for the purchase of gold, silver in any form including ornaments excluding ornaments studded with stones or pearls to a person resident outside India who has imported or sold the such silver or gold in accordance with the terms and conditions imposed under any order issued by the Central Government under the Foreign Trade Development and Regulation Act, 1992 or under any law for the time being in force.

 

Blocked Account : Sometimes, non-residents are entitled to payments under normal law of a nature which cannot be approved by the Reserve Bank under current exchange control regulations to be taken outside India notwithstanding that they have arisen legitimately and lawful. Such payments to non-residents must be made to their blocked accounts in India. A block account means an account opened as a blocked account at any office or any branch in India of a bank authorized in this behalf by the Reserve bank or an account blocked by order of the Reserve Bank.

 

Where the RBI directs that a payment must be made to a blocked account only, it will be the responsibility of the authorized dealer to whom the direction is issued to ensure that the payment is made only to the credit of blocked account in the name of the non-resident concerned. The banker with whom the non-resident may maintain or has arranged to open blocked account in his name must obtain RBI approval in Form A4 for credit of that amount and confirm to the paying banker the fact of his obtaining such approval. Form A4 must be completed in respect of all transactions dealing with the operation of a blocked account. The words "Blocked Account" must be prominently written in red ink at the top of every Form A4 in respect of every debit or credit entry in a blocked account. Where the Forms are for the purpose of obtaining RBI specific approval, they must be sent to the Reserve Bank in duplicate and the entry made in the account only after one copy of the form has been returned by the Reserve Bank duly approved. A Copy of each Form A4 must be submitted to the Reserve Bank along with the annual statement regarding the operations of blocked accounts.

 

The Reserve Bank issues special directions regarding the operations on individual blocked account at the time of authorising the opening such blocked account. Such balances will not ordinarily be allowed to be invested in India. No blocked account can be de-blocked by authorized dealers except under specific directions from the Reserve Bank.

 

Payment for exported goods

 

The Central Government may, by notification in the official gazette, prohibit the taking or sending out by land, sea or air of all goods or any goods or class of goods specified in notification from India, directly or indirectly, to any place so specified unless the exporter furnishes to the prescribed authority a declaration in the prescribed form (Form GR) supported by such evidence as may be prescribed and true in all matters. This shall include details of :-

 

1) The full export value of the goods

 

2) If the full export value of the goods is not ascertainable at the time export, the value which exporter having regard to prevailing market condition expects to receive on the sale of goods in the overseas market; and affirms in the said declaration that the full export value of the goods whether ascertainable at the time of export or not has been or will within the prescribed period be paid in the prescribed manner.

 

Where any exports of goods to which the notification applies has been made, no person can, except with the permission of the Reserve Bank do or refrain from doing anything or take or refrain from taking any action which has the effect of: -

 

(i) Securing that the payment of the goods is made otherwise than in the prescribed manner or

 

(ii) is delayed beyond the period prescribed or

 

(iii) that the proceeds of sale of the goods exported do not represent the full export value of the goods subject to such deduction if any allowed by the Reserve bank or

 

(v) the sale of the goods is delayed to the extent which is unreasonable having regard to ordinary course of trade.

 

In relation to any goods to which any notification applies, if the prescribed period has expired and payment therefor has not been made, it shall be presumed that, unless the contrary is proved by the person who has sold or entitled to sale the goods or to procure the sale thereof, that such person has not taken all reasonable steps to receive or recover the payment of goods as aforesaid and he shall accordingly be presumed to contravene the provision of this section.

 

Where in relation to any goods to which the notification applies, the prescribed period has expired and the payment thereof has not been made as aforesaid, the Reserve Bank may give to any person who has sold the goods or who is entitled to sell the goods or procure the sale thereof, such directions as appear to be expedient for the purpose of securing the payment in respect of the sale or for the purpose of re-import of the goods into India as the circumstances permit within such period as the Reserve Bank may specify in this behalf.

 

In such circumstances, the RBI may also direct the goods, the right to receive the payment or any other right to enforce such payment shall be transferred or assigned to the Central Government or to a person specified in the direction. If any goods or any right to receive any payment or any other right to enforce such payment are transferred or assigned, the Central Government shall pay to the person transferring or assigning, the same amount recovered by or on behalf of Central Government in respect of the goods after deducting the cost, charges and expenses incurred by the Central Government in selling the goods or recovering or realising amount in the respect of the such goods.

 

For the purpose of ensuring compliance with the provisions of this section and any order or direction made thereunder, the Reserve bank or the prescribed authority may require any person making any export of goods to which the notification applies to exhibit contracts with his foreign buyers or the other evidence to show that the full export value of the goods has been or will be received within the prescribed period in the prescribed manner.

 

The Reserve bank may for the purpose of ensuring that full export value of the goods is received in proper time or without delay, by general or special order, direct from time to time that in respect of goods to any destination or any class of export transactions or any class of the goods or class of exporters, the exporter shall, prior to export of goods, comply with the any of or all of the following conditions as may be specified in the order namely: -

 

1) Any contract or any other arrangement for sale of the goods shall be registered in such manner and with such authority or organisation as may be specified in the order

 

2) That the payment for the goods is covered by irrevocable letter of credit or by such other arrangement or document specified as may be specified in the order

 

3) That the copy of declaration to be furnished to the prescribed authority under sub-section 1 shall be submitted to such authority or organisation as may be specified in the order for certifying the value of the goods specified in such declaration represent proper value thereof

 

4) That any declaration to be furnished to the prescribed authority under sub-section 1 shall be submitted to the Reserve bank for its prior approval, which may having regard to the circumstances, be given or withheld, or may be given subject to such conditions as the Reserve Bank may deem fit to impose provided that no approval shall be withheld by the Reserve Bank under this clause unless the exporter has been given reasonable opportunity for making representation in the matter.

 

Where the Central Government is of the opinion that, in respect of any goods or any class of goods or class of exporters or in respect of export to any destination, the practice of exporting goods in accordance with terms which effectively lead to a situation or is likely to lead to a situation where the full export value of the goods is not brought to India in the prescribed manner or within the prescribed period, then it may, by general or special order prohibit the export in accordance in such terms of such goods and class of goods or by such exporters to such destination.

 

Exchange Earners Foreign Currency (EEFC) Accounts

 

The Reserve Bank by its Notification No. F.E.R.A. 183/98-RB dated 22nd April, has permitted exporters of goods and services and other beneficiaries of inward remittances in convertible foreign currency, other than those remittances received pursuant to undertakings given by them or those received for meeting specific obligations, to open and maintain with authorized dealers in India accounts expressed in foreign currency and titled "Exchange Earners Foreign Currency (EEFC) Accounts" and to credit to such accounts amounts not exceeding 50% of such remittances and operate on such accounts. In the case of 100% Export Oriented Units or units located in Export Processing Zones or in Software Technology Parks or in Electronic Hardware Technology Parks, amounts up to 70% of the remittances can be credited to such accounts. Authorized dealers may also allow credits to EEFC accounts in the following cases:

 

1. Up to 50%/70% of the inward remittances, as the case may be, received towards export advance in freely convertible currencies subject to monitoring of the advances received by the authorized dealers concerned.

 

2. Up to 50% of the payments received by exporters by debit to U.S. Dollar Escrow accounts maintained in India as also under the foreign currency debt repayment route, towards value of goods exported by them.

 

3. Up to 50% of the payments received by hotels from Credit Card Servicing Organisations (CCSO) in India in rupees against goods/services sold/supplied to foreign tourists against international credit cards issued abroad, provided CCSO in India confirms that the total bill amount as per charge slips received by the hotels has been realised in convertible foreign currency in an approved manner. In such cases foreign exchange equivalent of the 50% of the amount received in rupees may be credited to their EEFC accounts by converting at the market rate.

 

Minimum balance

 

Authorized dealers maintaining EEFC accounts may prescribe a suitable minimum balance for these accounts.

 

Utilisation of Funds for Approved Purposes only

 

The funds held in EEFC accounts may be permitted to be utilised by the accountholder for all bona fide payments of the account holder subject to certain limits and conditions and on verification of the prescribed documents and/or against permits issued by Reserve Bank. Authorized dealers may also permit utilisation of the funds held in EEFC accounts for making bona fide payments of the account holders in foreign exchange connected with their trade and business related transactions which are of a current account nature (i.e. other than for capital account transactions viz. for investments abroad or for repayment of loans, etc.), without any restriction except in the case of remittance of agency commission on exports. In other words such business/trade related remittances may be allowed by authorized dealers beyond the monetary or prescribed percentage ceilings or for similar other purposes not expressly stated therein but where the rate of agency commission on exports exceeds 12.5 per cent prior approval of Reserve Bank should be obtained. Before allowing such remittances authorized dealers should satisfy themselves about the bona fides of the transaction with reference to the documentary evidence produced by the account holder. Doubtful cases should, however, be referred to Reserve Bank with full details together with comments of the authorized dealer.

 

Reserve Requirements

 

The balances in the EEFC accounts will be exempt from the Cash Reserve Ratio and Statutory Liquidity Ratio requirements.

 

Rate of Interest

 

The rate of interest payable on the balances in savings/term deposit accounts will be determined by the banks taking into account the interest rates prevailing in international markets. No interest is payable on the balances held in the form of current accounts.

 

Transfer to Other Accounts

 

Funds held in the EEFC accounts will not be permitted to be sold/transferred to accounts of other residents in India. However, authorized dealers may permit, on application, transfer of funds from the EEFC account/s of the Indian tour operator/s to EEFC accounts of hotels and other establishment/s provided the tour operator confirms that the amount represents the proportionate share of the latter in relation to the services rendered to foreign tourists.

 

Liquidation of Export Credit

 

In case the exporter has obtained any export credit from a bank against shipment in respect of which a percentage of the proceeds is sought to be credited to the EEFC account, authorized dealers should ensure that the export credit has been liquidated fully before affording any credit out of export proceeds to the EEFC account.

 

Facilities against the Security of Deposits

 

No credit facilities, whether fund based or non-fund based, should be permitted either in India or abroad, against the security of funds held in the EEFC accounts.

 

Statement of Operations on EEFC Accounts

 

Central/Head Offices of authorized dealers should submit a consolidated quarterly statement in form STAT 7 giving summary of operations in EEFC accounts maintained by all their branches as at the close of each calendar quarter i.e. March, June, September and December so as to reach the concerned Regional Office of Reserve Bank of India, Exchange Control Department, under whose jurisdiction the Central/Head Office of the bank is situated, on or before the 15th day of the month following the quarter to which it relates.

 

Payment for lease, hire or other arrangement

 

This section deals with international lease arrangements or exports on deferred payment basis. Under this section, no person can, except with general or special permission of the Reserve Bank, take or send by land, sea or air any goods from India to any place on hire or on lease or under any arrangement other than sale or disposal in any other manner of such goods.

 

INVESTMENT PROVISIONS

 

Regulation of export and transfer of securities

 

FERA imposes restrictions on the dealing and investing outside India of Indian securities. It also imposes restrictions on dealing and investing in foreign securities in India. It overrides the provisions of the Companies Act also in this connection. No person can, except with general or special permission of the Reserve bank :-

 

1) Take or send any security to the place outside India

 

2) Transfer any security or create or transfer any interest in the security to or in the favour of person resident outside India

 

3) Issue whether in India or elsewhere in the security which is registered or to be registered in India to a person resident outside India.

 

4) Acquire, hold or dispose any foreign security

 

Where the holder of a security is a nominee, neither he nor any person through whose agency the exercise of all or any of holder rights in respect security is controlled, can, except with general or special permission of the Reserve bank, do any act whereby he becomes obligated to hold the security for a person resident outside India.

The Reserve Bank, may for the purpose of securing that the provisions of this section are not evaded require that person transferring any security and the person to whom such security is transferred shall subscribe to the declaration that the transferee is not resident outside India.

 

No person in India shall except with the permission of the Reserve bank :-

 

(1) Enter any transfer or transfer of securities in a register or book in which securities are registered and inscribed if he has any ground for suspecting that the transfer involves an contravention of provisions of this Section.

 

(2) Enter in any such register or book in respect of any securities whether in connection with issue or transfer of security or otherwise and address outside India except by way of substitution for such address in the same country or for the purpose of any transaction for which the permission has been granted under this Section with knowledge that it involves entry of the said address.

 

Notwithstanding anything contained in another law, no transfer of any share, bond, debenture of a company registered in India made by the person resident outside India or by a national of a foreign state to another person resident in India shall be valid unless such transfer is confirmed by the Reserve bank on an application made it on this behalf by the transferor or transferee. If the Reserve bank is of the opinion that it is necessary or expedient in the public interest to do so, it may by general or special permission exempt any such transfer or any class of such transfers from the operation of this provision subject to such condition as may be prescribed or specified in such permission.

 

Except with the general or special permission of Reserve Bank, no person can in India and no person resident in India can outside India, create or issue any bearer certificate or coupon or alter any document that it becomes bearer certificate or coupon.

 

The RBI has issued several notifications allowing dealing in securities. Some of them are as follows :-

 

I. Notification no 143/93-RB dated 26th April 1993

 

The Reserve bank has permitted :-

 

1) A non-resident India citizen of Indian origin to subscribe in the Memorandum of Association and Articles of Association and take up shares of a company for the purpose of incorporation of such company in India.

 


2) A company to issue shares to such non-resident provided that such following conditions are satisfied: -

 

(i) Total face value of the shares to be taken up by the non-resident Indian citizen in the company does not exceed Rs 10000

 

(ii) Such company is not engaged in any activity relating to the agriculture or plantation

 

(iii) Memorandum of such company does not permit to take up any agricultural or plantation activity or and to deal in real estate business other than the development of real estate

 

(iv) Such company files declaration with the Reserve bank in the prescribed form not later than the 90 days from the date of its incorporation giving full particular of the shares acquired by non-resident Indian citizen or persons of Indian origin.

 

II. Notification No 149/93-RB dated 26th April, 1993

 

The RBI permits sale or transfer of shares, bonds and debentures by non-resident on non-repatriation basis through stock exchange subject to certain conditions.

 

III. Notification no 150/93 dated 26th April, 1993 as amended upto 31/10/95 permits sale and transfer of shares, bonds and debentures by NRI's with repatriation rights through stock exchange subject to certain conditions.

 

IV. Notification no 151/93 dated 26th April, 1993 permits gifting of shares, bonds, debentures by NRIs provided that such shares, bonds or debentures are held by the transferor with the permission of Reserve Bank of India and the transfer is between relatives as defined in Section 6 of the Companies Act.

 

V. Notification no FERA 122/92 dated 17th September, 1992 permits companies in India to enter into register of books in which the securities are registered or inscribed an address outside India of the holder of any securities consequent on change of residential status of such holder from resident to non-resident subject to such company obtaining an undertaking from the holder that he would not seek repatriation of any income, dividend or sale proceeds of the securities.

 

VI. Notification no 145/93 dated 26th April, 1993 permits the conversion of shareholding into joint holdings by with NRI's or resident Indian subject to certain conditions.

 

The Reserve Bank has clarified that no company in India can issue rights shares to non-resident shareholders except with the prior approval of the Reserve Bank nor can any non-resident shareholder renounce or sell any rights in favour of or to a person resident in India or outside India without the Reserve Bank's prior approval.

 

VII. Notification No. FERA.118/92-RB dated 7th September 1992

 

The Reserve Bank has granted general permission to persons resident in India to acquire, hold or dispose of any foreign security in the following cases:-

 

1. Where it is obtained out of foreign exchange acquired by them (a) in a manner otherwise than in contravention of the provisions of FERA 1973 while they were resident outside India or (b) through employment, business or vocation outside India taken up or commenced while they were resident outside India and in either case, their stay outside India was for a continuous period of not less than one year.

 

2. Where it is held since prior to 8th July 1947 and for which the permission/licence of Reserve Bank was obtained.

 

3. Where it is acquired by way of gift or inheritance from persons referred to in category (1) and (2) above and covered by the exemption granted by Reserve Bank, provided in the case of gift, the recipient donee is a relative i.e. husband, wife, brother, sister or any lineal ascendant or descendant of the donor and the tax payable thereon, if any, has been paid in India.

 

The general permission also applies to acquisition of fresh securities out of the foreign exchange held by residents if any of the conditions mentioned 1 (a) or 1 (b) are satisfied. Such persons can credit the income or sale/maturity proceeds of such securities to their foreign currency accounts abroad and in the case of persons referred to in category 1 (a), the income or sale/maturity proceeds of securities can also be credited to their RFC accounts with an authorized dealer in India.

 

Persons resident in India who are not covered by the general permission referred to in sub-paragraph (1) above and holding or becoming owners of foreign securities should make an application to Reserve Bank for permission to hold foreign securities, in form FAD 1.

 

Persons resident in India who are not covered by the general permission referred to in sub-paragraph (1) above and holding foreign securities with the permission of Reserve Bank will be allowed to remit up to US $ 10,000 in a block of 5 years towards acquisition of rights shares of foreign companies if the dividends received by them are not sufficient to cover the cost of rights issues. The applicants should approach Reserve Bank for necessary permission with relevant documents.

 

Acquisition of Foreign Currency Shares by Employees of Indian Offices/ Branches/ Subsidiaries/Joint Ventures in India of Foreign Companies: Persons who are permanently resident in India are not normally allowed to make remittances from India to foreign countries for acquisition of foreign securities. However, Reserve Bank may consider applications from employees of Indian offices/branches of foreign companies as also joint ventures/subsidiaries in India in which foreign equity holding is 51 per cent and above for remittance towards acquisition of foreign currency equity shares of the foreign companies offered at concessive rates below the market price, provided the remittances do not exceed U.S.$ 10,000/- or its equivalent per employee, in a block of five years including acquisition of shares on rights basis, if any. The application for this purpose may be made to the Reserve Bank with relevant details such as, total number and face value of foreign currency shares to be allotted and the concessive rate offered for the shares vis-a-vis the prevailing market price, together with certified copies of the foreign company's latest audited balance sheet and resolution passed by its Board of Directors or any other document/s in support of the offer of shares to at concessive rate. Furthermore, acquisition of shares of the foreign company by the employees of their Indian branches/offices/wholly-owned subsidiaries in lieu of bonus payment will be allowed without any ceiling. For this purpose, the applicants should approach Reserve Bank for necessary permission with relevant documents.

 

Import and Export of Foreign Securities :

 

There are no restrictions on import into India of any security, whether Indian or foreign. Reserve Bank's permission is, however, required for taking or sending any security to any place outside India in terms of Section 19(1)(a) of FERA 1973. Persons in India who are holders of foreign securities and wish to send the securities to banks or agents abroad for purposes of sale, transfer, etc., should therefore apply to Reserve Bank through an authorized dealer for the necessary export permit. Permission for export of foreign securities will be granted, provided the authorized dealer gives an undertaking in the case of sale that the foreign currency proceeds of the securities sold will be repatriated to India and in the case of transfer that the securities after transfer will be received back in India within a reasonable period.

 

VIII. Notification No FERA 114/92 RB dated 27/4/92 as amended upto 26/4/93

 

The RBI permits :-

 

(a) Non-residents of Indian nationality or origin and OCBs to take up or subscribe on non-repatriation basis, shares or convertible debentures, whether by public issue or private placement by an Indian Company

 

(b) An Indian company to issue shares or debentures by way of new/rights/bonus issues to NRIs / OCBs

 

(c) The taking or sending of shares or convertible debentures issued to such NRIs or OCBs out of India to their place of residence or incorporation as the case may be.

 


PROVISIONS PERTAINING TO IMMOVABLE PROPERTY

 

Restriction on holding an immovable property outside India

 

FERA imposes several restrictions on holding immovable properties outside India. No person resident in India can, except with general or special permission of Reserve Bank, acquire or hold or transfer or dispose off by sale or mortgage or lease or gift or settlement or otherwise any immovable property outside India. However this restriction is not applicable to acquisition or transfer of any immovable property by the way of lease for period not exceeding 5 years.

 

The RBI has issued notifications from time to time for granting permissions for acquiring and holding immovable property outside India. Where so permitted by the RBI, permission need not be sought for undertaking such transactions.

 

These regulations will be applicable to acquisition, holding etc. of immovable property in Nepal by Indian nationals resident in India and firms/companies registered/incorporated in India even though the transactions may be settled in Indian rupees.

 

Under Notification No. FERA.120/92-RB dated 7th September 1992, the Reserve Bank has granted general permission to Indian nationals to acquire/hold immovable property outside India to the following categories of persons-

 

1. Persons returning to India after a minimum continuous stay of one year abroad as persons resident outside India, provided (A) the property has been purchased out of foreign exchange lawfully acquired by them while resident outside India or (B) earned through employment, business or vocation taken up or commenced while resident outside India.

 

2. Persons holding the property since prior to 8th July 1947 and for which permission/ licence of Reserve Bank was obtained.

 

3. Persons acquiring the property by way of gift or inheritance from persons referred to in category (1) or (2) above and covered by the exemption granted by Reserve Bank, provided in the case of gift, the recipient donee is relative i.e. husband, wife, brother, sister or any lineal ascendant or descendant of the donor and the tax payable thereon, if any, has been paid in India.

 

The general permission also applies to fresh acquisition (which includes holding/disposal) of properties out of foreign exchange held by such persons satisfying any of the conditions of clause 1 above. Income on such properties can also be credited to their foreign currency accounts abroad. In the case of persons referred to in category (B) above, the income can also be credited to their RFC accounts maintained with an authorized dealer in India.

 

Indian nationals resident in India who are not eligible for the general permission and holding or becoming owners of immovable properties abroad should apply to Reserve Bank in form FAD 1 for permission to hold immovable properties outside India acquired by them.

 

It may be necessary for firms/companies registered in India desiring to establish offices abroad to acquire or take on long lease, immovable properties outside India. In cases where applications for establishing offices abroad are approved, permission for acquiring immovable properties required for establishing the offices will be considered.

 

The Reserve Bank will permit, on application, any person/firm/company holding immovable property abroad to sell it, provided Reserve Bank is satisfied that the property is being sold at the best possible price and the seller has undertaken to repatriate sale proceeds to India through an authorized dealer. Reinvestment abroad of sale proceeds of a property will not be permitted. Sale of immovable property held abroad to another resident in India is also not permitted. Transfer of property by gift, settlement, lease (for a period exceeding five years), etc. in favour of any person will require prior permission of Reserve Bank.

 

Restriction on holding, acquisition, etc of immovable property in India

 

FERA imposes certain restrictions on non-residents and foreign citizens on holding immovable property outside India. No person who is not citizen of India and no company (other than banking company) which is not incorporated under Indian laws can, except with the previous general or special permission of Reserve Bank acquire or hold or transfer or dispose off by way of sale or mortgage or lease or gift or settlement or otherwise, an immovable property situated in India. However, this restriction does not apply to the acquisition or transfer of any such immovable property by the way of lease for the period not exceeding five years.

 

Such a person desiring to hold or acquires an immovable property may make an application to the Reserve Bank in the prescribed form and content as may be prescribed containing such particular as may prescribed. On receipt of such application, the Reserve Bank may, after making such inquiry as it deems fit, either grant or refuse to grant the permission applied for. No permission shall be refused unless the applicant have been given reasonable opportunity of making a representation before the RBI. If before the expiry of the period of 90 days from the date on the application was received by the Reserve Bank, the Reserve Bank does not communicate to the applicant that the permission applied has been refused, it shall be presumed that the Reserve Bank has granted such permission. In computing the period of 90 days, the period taken by the Reserve Bank for giving an opportunity to the applicant for making representation shall be excluded.

 

The RBI has permitted a foreign company to acquire or hold any immovable property which is necessary for or incidental to carry on by such company any activity permitted by section 28 or section 29 of FERA and such company files a declaration within 90 days from the date of such acquisition or holding giving full particulars of transactions as may required by the Reserve Bank in that regard. Such company may also transfer such property by the way of security for any borrowing permitted under FERA. This permission is not available to a company which has been permitted to under Section 29 to open a liason office or to post a representative in India. Application for the above purpose will have to be made in from IPI-1 prescribed for the purpose.

 

Notification no 99-1992 dated 8/1/92 permits a non resident Indian citizen to let out any the residential property, provided that the property held in by him for his bonafide residential purpose, but due to his residence abroad, he is not able to occupy the same. The rentral income is however non-repatriable.

 

Notification no 152/93 dated 26th May, 1993 permits general permission to foreign citizens of Indian origin to acquire by way of purchase or inheritance and dispose off by way of sale any immovable property other than agricultural land or farmhouse or plantation property situated in India and to acquire by the way of gift and dispose off by the way of sale or gift any residential property situated in India subject to certain conditions. It also permits repatriation of original investment in foreign exchange in residential properties after obtaining prior approval, subject to maximum of two houses

 

BUSINESS & PROFESSION IN INDIA

 

Restriction on appointment of certain persons and companies and agents of technical or management advisers in India

 

FERA has imposed certain restrictions on the appointment of certain persons and companies and agents of technical or management advisers in India. A person resident outside India, whether a citizen of India or not, or person who not a citizen of India but is resident in India or company (other than banking company) which is not incorporated under any law in force in India or any branch of such company shall not, except with the general or special permission of the Reserve Bank, act or accept appointment as agent in India of any person or company in trading or commercial transactions of such person or company.

 

Where any such person or company acts or accepts appointment as such agent without permission of Reserve Bank, such acting or appointment shall be void.

 

Where any such person or company desires to act or accept appointment as such agent, it must make an application to the Reserve Bank in such form and containing such particulars as specified by the Reserve Bank. On receipt of an application as above, the Reserve Bank after making such inquiry as it deems fit either allow the application subject to certain conditions if any as the Reserve Bank may deem fit to impose or reject the application. No application shall be rejected this sub-section unless the parties who may be affected by such rejection has been given a reasonable opportunity for making representation in the matter.

 

Where any direction made has not been complied with by any person or company, then, the acting shall be void with effect from the period of specified in the direction.

 

Restrictions on the establishment of business of place in India

 

FERA imposes restrictions on the establishment of business of place in India. A person resident outside India, whether a citizen or not, or a person who is not citizen of India but is resident in India or company (other than banking company) which is not incorporated under law in force in India or any branch of such company cannot except with general or special permission of the Reserve Bank:

 

1) Carry on in India or establish in India a branch office or other place of business for carrying the activities of a trading, commercial and industrial nature other than activity for carry of which permission of the Reserve Bank has been obtained

 

2) Acquire the whole or any part of any undertaking in India of any person or the company carrying on such trade, commerce or industry or purchase the share of such company in India.

 

A Company (other than banking company) in which the non-resident interest is more than 40% cannot except with general or special permission of the Reserve Bank carry on any activity in India relating to agriculture and plantation or acquire whole or any part of undertaking in India of any person or company carrying on activity relating to agriculture or plantation or purchase of share of in such company.

 

I. Notification no FERA 146-93 dated 26th April, 1993 directs that none of the restriction on appointment as agents or technical or management advisers in India or establishment of a place of business in India shall apply to foreign nationals of Indian origin permanently resident in India. Foreign citizens of Indian origin are treated as not permanently residing in India, if he is residing in India for the employment of specific duration irrespective of the length thereof or for a specific job or assignment, duration of which does not exceed 3 years.

 

II. Notification no FERA 22/74-RB dated October 11, 1974 has permits shipping companies which are not incorporated in India and which do not have branch office or other place of business in India to carry on in India through their local agents and subject to other provisions of FERA or of any rules, directions or orders made thereunder, the normal commercial activities like transportation of goods and passengers and collection of freight charges and fare.

 

Prior Approval of Reserve Bank required for taking up employment, etc in India by the nationals of foreign state

 

No national of a foreign country can, without the previous permission of Reserve Bank practice any profession or carry on any occupation, trade or business in India in a case where such national desires to acquire any foreign exchange for the remittance outside India out of any money received by him in India by the reason of practising such profession or on carrying of an occupation, trade, business as the case may be.

 

Where any national of foreign state desires to obtain the permission of Reserve Bank, he must make an application to the RBI in the prescribed form containing prescribed particulars. On the receipt of such application the Reserve Bank may after making such inquiry as it deems fit allow the application subject to such conditions as it seems fit to impose or reject the application, provided that no application shall be rejected under sub-section unless the applicant has been given reasonable opportunity of making representation in the matter.

 

Application must accompanied by :-

 

1) Certified copies of the contract in duplicate giving terms and conditions of the employment

 

2) Applicant's current passport.

 

TYPES OF BANK ACCOUNTS

 

RUPEE ACCOUNTS OF NON-RESIDENTS

 

The RBI has come out with several schemes under which non-resident can maintain rupee accounts in India. However there are certain categories of non-residents whose bank accounts in India are treated as resident bank accounts. Such accounts may be opened and operated upon freely provided similar to a resident account. These persons are :

 

1. Indians, Nepalese or Bhutanese resident in Nepal or Bhutan.

 

2. Offices and branches situated in Nepal or Bhutan of any business carried on by a company or a corporation incorporated or established under any law in force in India, Nepal or Bhutan.

 

3. Offices and branches situated in Nepal or Bhutan of any business carried on as a partnership firm or otherwise by Indians, Nepalese or Bhutanese.

 

Now let us briefly discuss the main schemes available to non-residents to maintain bank accounts in India.

 


I. Ordinary non-resident rupee (NRO) accounts

 

Authorized dealers may open accounts in the names of non-resident individuals/ entities without approval of Reserve Bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of FERA 1973 and Exchange Control regulations framed thereunder. The operations on the accounts do not allow making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner in India. At the time of opening of the account, the account holders should give an undertaking that in cases of debits to the accounts for the purpose of investment in India and credits representing sale proceeds of investments, they would ensure that such investments/ disinvestments would be covered either by the general or special permission of Reserve Bank. Once this undertaking has been obtained, authorized dealers need not verify the particulars of approvals for investments/disinvestments while permitting individual credits/debits to the account.

 

Opening of and operations on the accounts of individuals/entities of Pakistani/Bangladesh nationality/ownership require approval of Reserve Bank.

 

Post Offices have been authorized to maintain savings bank accounts in the names of persons resident outside India and to allow operations on these accounts subject to the same rules as are applicable to NRO accounts maintained by authorized dealers.

 

Accounts of non-residents may be held jointly with residents.

 

Change of Status from Resident to Non-resident :

 

When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, business or vocation outside India or for any other purpose indicating his intention to stay outside India permanently or for an uncertain period, he becomes a person resident outside India. His account should, therefore, be designated as non-resident. Doubtful cases should be referred to Reserve Bank by letter in duplicate giving full particulars.

 

Change of Status from Non-resident to Resident :

 

NRO accounts may be re-designated as resident accounts on the return of the account holder to India, provided authorized dealers are satisfied that the account holder has returned to India for taking up employment, business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident even during such visit.

 


Types of Accounts under the NRO scheme

 

NRO accounts may be maintained in the nature of current, savings, recurring or fixed deposit accounts. The requirements laid down in the directives issued by Reserve Bank in regard to resident accounts shall apply to NRO accounts.

 

Operations on the Accounts

 

The undernoted credit and debit transactions may be allowed in the accounts by authorized dealers.

 

Credits

 

1. Proceeds of remittances received in any permitted currency from abroad through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.

 

2. Legitimate dues in rupees of the account holder in India.

 

Debits

 

1. All local payments in rupees

 

Form A4 (see blocked accounts also)

 

Form A4 should be completed in respect of operations on the account where the transactions are for Rs. 10,000 and above (except interest earned on funds in the account or on deposits held by the account holder). These forms A4 need not be forwarded to Reserve Bank but should be retained with authorized dealers for scrutiny at the time of audit/inspection. Form A4 need not be forwarded to the non-resident constituent for completion. As far as possible, authorized dealers should have the form completed by the resident party to the transaction or complete it themselves after obtaining requisite particulars from resident beneficiary or remitter, as the case may be.

 

Authorized Dealer's Responsibilities regarding Non-resident Accounts

 

Authorized dealers should report to Reserve Bank any transactions in the NRO accounts which may appear to represent reimbursement in rupees against foreign exchange made available to person resident in India other than an authorized dealer. Any other transactions of suspicious nature should also be reported to Reserve Bank.

 


Remittance of Balances

 

Balances in NRO accounts are not normally eligible for remittance abroad and requests for such remittance should not be acceded to without securing approval of Reserve Bank. Funds derived by remittances from abroad and which cannot be said to have lost their identity as remittable funds will only be considered for remittance abroad. Where an account (current/savings) is opened by a foreign tourist visiting India, with funds remitted from abroad in an approved manner or by sale of foreign exchange brought by him to India, authorized dealers may convert the balance in the account at the time of departure of the tourist from India provided the account has been maintained only for a short period not exceeding six months. Form A2 needs to be completed in such cases.

 

Grant of Loans/Overdrafts to Account holders

 

Loans/overdrafts to non-resident account holders may be granted on the security of fixed deposits held by them subject to usual norms as are applicable to resident accounts, except for the purpose of relending, carrying on agricultural/plantation activities or for investments in real estate business.

 

Grant of loans/overdrafts to third parties against security of NRO deposits

 

Authorized dealers may grant loans/overdrafts to resident individuals/firms/companies in India against the security of deposits held in NRO accounts, subject to the following terms and conditions: -

 

1. The loans should be utilised only for meeting borrower's personal requirements and/or business purpose and not for relending or investment in shares/securities/real estate or for undertaking agricultural and plantation activities.

 

2. The funds held in NRO accounts of the lender should be his own funds and not borrowed funds.

 

3. Regulations relating to normal margin, rate of interest as stipulated by Reserve Bank from time to time should be complied with.

 

Before granting such loans authorized dealers may obtain an undertaking from the resident borrower to the effect that the loan amount will be utilised for meeting his personal/business requirements and not for other purposes referred to in (1) above.

 

Authorized dealers should apply the usual norms and considerations as they do in the case of advances to trade/industry and satisfy themselves as to the acceptability of purpose, genuineness of credit needs of the borrower and end-use of funds and need not be guided solely by the availability of security.

 


Temporary Overdrawings

 

Authorized dealers may allow temporary overdrawings in NRO Savings Bank accounts, up to a limit of Rs. 20,000 subject to the condition that the overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks either by way of remittances from abroad or out of legitimate funds of the account holder or transfer from his NRE/FCNR accounts. However, Authorized dealers may exercise their own discretion/commercial judgement while allowing overdraft under this provision.

 

Continuance of Loans/Overdrafts to Residents who become Non-residents

 

In case of persons who had availed of loan or overdraft facilities while resident in India and who subsequently become non-resident, authorized dealers may allow continuance of the loan/overdraft facilities granted to them subject, to the following conditions:-

 

1. The borrower is an Indian citizen or a person of Indian origin.

 

2. The rupee loan/overdraft was granted for business purposes or to meet the borrower's personal requirements while he was resident in India and not for investment.

 

3. The loan or overdraft will be restricted to the period originally fixed or up to one year from the date of the borrower's departure from India, whichever period is longer, and must not exceed the amount outstanding when he became non-resident.

 

4. So long as the borrower continues to be a non-resident, repayment of the loan/overdraft as also payment of interest accruing thereon will be made out of remittance from abroad through normal banking channels or from the funds held in his Non-resident (External) account. Loan/overdraft can be allowed to be repaid out of local rupee resources held in the NRO account of the borrower subject to the condition that the loan so repaid would be charged interest at commercial rate as in force from time to time.

 

Before according their approval, authorized dealers should obtain from such borrowers an application stating,

 

(i) the date of the borrower's departure from India,

 

ii) country to which he has gone,

 

(iii) the purpose and probable duration of his stay abroad, and

 

(iv) reasons for continuing the rupee loan/overdraft.

 


Transfer of Funds to Non-resident Nominees

 

The Banking Companies (Nomination) Rules, 1985 framed under the Banking Regulation Act, 1949, enable banks to pay the amount standing to the credit of the deceased depositor to his nominee. There is, therefore, no objection to the registration of nomination either in favour of a resident or non-resident. In the case of non-resident nominee, the amount entitled to him from the account(s)/deposit(s) of a deceased person will be credited to his NRO account but shall not be allowed to be remitted outside India.

 

II. Non-resident (external) rupee accounts (NRE accounts)

 

These accounts are permitted to be opened in the names of non-resident individuals of Indian nationality or origin (NRIs), overseas companies, firms, societies and other corporate bodies which are owned directly or indirectly to the extent of at least 60% by NRIs and overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons (OCBs).

 

Repatriation of Balances

 

NRE account holders are permitted to repatriate balances held in such accounts along with interest accrued thereon outside India at any time without approval of Reserve Bank.

 

Tax Exemptions

 

Any income from interest on monies standing to the credit of NRE accounts is exempt from income-tax. Likewise, balances held in such accounts are exempt from Wealth-tax. Gifts made to close relatives in India from out of balances in such accounts are also free of Gift tax. Tax exemptions referred to above are available only in respect of NRE accounts maintained by NRIs and not for those maintained by OCBs.

 

Opening of Accounts in the Names of NRIs/OCBs

 

Authorized dealers may freely open NRE accounts in the names of NRIs/OCBs provided funds for the purpose are transferred to India in an approved manner in freely convertible foreign currency. While opening an account, authorized dealer should obtain an undertaking from the account holder that he would intimate the authorized dealer about his return to India immediately on his coming to India for permanent residence. This undertaking should be obtained in the account opening form itself. The account should be opened by the non-resident account holder himself and not by the holder of power of attorney in India on behalf of the non-resident.

 

Authorized dealers should obtain from OCB, along with the account opening form, a certificate from an overseas auditor/chartered accountant/certified public accountant of OCB in form OAC where the ownership/beneficial interest is directly held by NRIs and in form OAC 1 where it is held indirectly by NRIs. Similar certificates should be called for on an annual basis to ensure that the ownership/beneficial interest held by NRIs continue to be at or above the level of 60%. If the ownership/beneficial interest in OCB is reduced to a level below 60%, authorized dealers should intimate such a change to Reserve Bank immediately after they come to know of it, furnishing the name and address of the corporate body/trust and full particulars of the account maintained including the type of account and balance in it. Opening of NRE accounts in the names of Pakistani/ Bangladeshi nationals though of Indian origin requires Reserve Bank's approval.

 

Opening of Accounts during Temporary Visits to India

 

Accounts may be opened in the name of any eligible NRI during his temporary visit to India against tender of foreign currency travelers cheques issued in his own name or notes and coins tendered, provided the authorized dealer is satisfied that the person has not ceased to be non-resident. The amount so tendered should be endorsed on the Currency Declaration Form, where applicable. Authorized dealers should, however, ensure that the travellers cheques and currency notes tendered by the account holder have in fact been brought by him from abroad and not acquired locally.

 

Joint Accounts

 

Opening of joint NRE accounts in the names of two or more non-resident individuals is permitted provided all the account holders are persons of Indian nationality or origin. When one of the joint holders becomes resident, authorized dealers may either delete his name and allow the account to continue as NRE account or redesignate the account as a resident/RFC account, at the option of the account holders.

 

The Non-resident (External) Accounts Rules, 1970 do not permit opening of such accounts by non-residents jointly with residents.

 

Operations by Residents under Powers granted by Non-residents

 

Authorized dealers may allow operations on NRE accounts by residents in terms of Power of Attorney or other authority granted in the residents' favour by the non-resident account holders, provided they are restricted to withdrawals for local payments. In cases where the account holder or a bank designated by him has been granted permission by Reserve Bank to make investments in India, the Power of Attorney holder may be permitted by authorized dealers to operate the account to facilitate such investments. The resident power of attorney holders should not, however, be allowed to repatriate outside India funds held in the accounts under any circumstances or make payment of gifts on behalf of the account holder.

 


Free Transferability between NRE and Foreign Currency (Non-Resident) Accounts (FCNR Accounts)

 

Funds held in NRE accounts may be freely transferred to FCNR accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holder.

 

Loans/Overdrafts to NRE Account Holders in India

 

Authorized dealers may grant loans/overdrafts in India to the account holders themselves for purposes other than investment in India, provided that the advances are fully secured by the fixed deposits and regulations relating to normal margin, interest rate, etc. are complied with. Repayment will have to be made either by adjustment of the deposit or by fresh remittances in foreign exchange from abroad. The loan can also be repaid out of local rupee resources held in the NRO account of the borrower subject to the condition that the loan repaid from local resources would be charged interest at commercial rate as in force from time to time.

 

Authorized dealers may also grant loans/overdrafts in India to the account holders themselves for purposes of making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/companies engaged in manufacturing/industrial activities, export oriented trading activities, hospitals, hotels of 3 star or higher grades, shipping, development of computer software and oil exploration services subject to compliance with the following conditions:-

 

1. The concerned Indian investee company intends to issue shares to NRIs on non-repatriation basis in terms of Reserve Bank's Notification No. FERA.114/92-RB dated 27th April 1992 (See details on "Regulation of export and transfer of securities")

 

2. The period of loan shall not exceed the unexpired period of maturity of NRE fixed deposit accepted as security. There is no objection to the renewal of deposit and the loan at the request of the depositor and borrower subject to compliance with the interest rate directives of Reserve Bank.

 

3. The loan amount shall be disbursed to the investee firm/company on behalf of the NRI account holder.

 

4. The investment made out of the loan will not be allowed to be repatriated outside India at any time in future.

 

5. The loan will be repaid together with interest thereon either by remittance from abroad or by utilisation of maturity proceeds of his NRE deposits accepted as security. The loan can also be repaid out of local rupee resources held in NRO account of the NRI borrower in India subject to the condition that the loan repayable from local resources would be charged interest at commercial rate as in force from time to time.

 

6. Requirements regarding margin, interest rate etc. as stipulated by Reserve Bank from time to time are complied with.

 

7. Authorized dealers may grant loans to non-resident individuals of Indian nationality and foreign citizens of Indian origin against their NRE deposits in India for the purpose of acquisition of flats/houses in India for their own residential use subject to the following conditions: -

 

(i). The period of loan does not exceed the period of unexpired maturity of the NRE deposits accepted as security. There is no objection to the renewal of deposit and the loan at the request of the depositor and borrower subject to compliance with the interest rate directives of Reserve Bank.

 

(ii). The loan will be repaid together with interest thereon either by remittance from abroad or by utilisation of maturity proceeds of the NRE deposit/s accepted as security. The loan can also be repaid out of local rupee resources held in NRO account of the NRI borrower in India subject to the condition that the loan repayable from local resources would be charged interest at commercial rate as in force from time to time.

 

(iii). The house/flat to be acquired/constructed with the loan should be meant for residential use of the borrower and not for any commercial purpose.

 

(iv). The sale proceeds of the house, if sold, will not be allowed to be repatriated outside India.

 

(v). Requirements regarding margin, interest rate, etc. as stipulated by Reserve Bank from time to time are complied with.

 

(vi). Acquisition of the property by foreign citizens of Indian origin will be subject to Reserve Bank's approval under Section 31 of FERA, 1973.

 

The above facility will, however, not be available for OCBs.

 

Applications not covered by foregoing provisions should be referred to Reserve Bank in form LOV 1 for consideration.

 

Loans/Overdrafts to Residents against Security of Fixed Deposits in NRE Accounts

 

Authorized dealers may grant loans/overdrafts to resident individuals/firms/companies in India against the collateral of fixed deposits held in NRE accounts subject to the following conditions:-

 

1. 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 the loan/overdraft facility.

2. The period of the loan shall not exceed the unexpired period of maturity of the fixed deposit accepted as security. In addition, the non-resident depositor should furnish an irrevocable undertaking to the authorized dealer not to withdraw the deposit during the period of the loan/overdraft. There is no objection to the renewal of deposit and the loan at the request of the depositor and borrower subject to compliance with the interest rate directives of Reserve Bank.

 

3. Regulations relating to margin, interest rate, purpose of loan, etc., as stipulated by Reserve Bank from time to time should be complied with.

 

4. The loan should be utilised for personal purposes or for carrying on business activities other than agricultural/plantation activities.

 

5. The loan should be granted by the bank against the NRE fixed deposit(s) issued by the same bank (irrespective of its branch) and not by any other bank.

 

6. The branch giving the loan should hold the original deposit receipt(s) against which the loan is granted and the branch which has issued the receipt should be advised of the lien.

 

7. Loans against NRE deposit(s) to the depositor himself or to a third party is granted only under his specific request/mandate and after verifying the authenticity of the signature of the depositor.

 

Authorized dealers should apply the usual norms and considerations as they do in the case of advances to trade/industry and satisfy themselves as to the acceptability of purpose, genuineness of credit needs of the borrower and end-use of funds and need not be guided solely by the availability of security.

 

Loans/Overdrafts to NRE Account Holders outside India

 

Authorized dealers may allow their overseas branches/correspondents to grant any type of fund based and/or non-fund based facilities to or in favour of non-resident depositor or to third parties at the request of the depositor for bona fide purpose against the security of funds held in the NRE Accounts in India. Authorized dealers may also agree to remittance of the funds from India, if necessary, for liquidation of the outstandings, subject to report to Reserve Bank.

 

Change of Status from Non-resident to Resident

 

NRE accounts should be redesignated as resident rupee accounts or as RFC accounts (if eligible), at the option of the account holder immediately upon the return of the account holder to India if authorized dealer is satisfied that he has returned to India for taking up employment or for carrying on a business or vocation or for any other purpose with the intention of residing in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in this country. In respect of funds held in fixed deposits in NRE accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full term even after conversion into resident account.

 

Reserve Requirements

 

In respect of the liabilities representing amounts received under NRE accounts, authorized dealers are required to comply with CRR/SLR requirements as laid down by Reserve Bank from time to time.

 

Rates of Interest

 

Rates of interest payable on NRE accounts should be in accordance with the instructions issued by Reserve Bank from time to time.

 

Premature Withdrawal of Term Deposits

 

Wherever a term deposit in NRE account is withdrawn before maturity, directions issued in this behalf by Reserve Bank including directions, if any, about levy of penalty should be complied with. In cases where FCNR deposits are converted into NRE deposits before maturity at the request of account holders, the FCNR deposits should be treated as if they have been withdrawn prematurely for making new deposits in NRE accounts. The rule regarding rate of interest for premature withdrawal of FCNR deposits will be applicable in such cases.

 

Remittance/Transfer of Funds to Non-resident Nominees

 

The Banking Companies (Nomination) Rules, 1985 framed under Banking Regulation Act, 1949 enable banks to pay the amount standing to the credit of the deceased depositor to his nominee. Authorized dealers may allow remittance of funds lying in the NRE/FCNR accounts of the deceased accountholders to their non-resident nominees subject to the following conditions:-

 

1. Application in form LEG is submitted by the nominee(s);

 

2.A valid nomination has been registered on the bank's records in favour of the nominee/s in conformity with the provisions of the Banking Companies (Nomination) Rules, 1985;

 

3. The nominee continues to be non-resident at the time of the claim/remittance sought for from India and that the deceased depositor was non-resident at the time of his/her death;

 

4. All the legal heirs are non-residents. A signed declaration to the effect duly witnessed may be submitted by the nominee to the authorized dealer.

 


Application in form LEG together with the documents/particulars mentioned therein received from the nominees should be scrutinised and after satisfying about the legality of the claim as per the internal guidelines, authorized dealers may settle the claim and allow transfer of funds to the nominee to the extent of balances held in the deceased depositor's NRE/FCNR accounts. A copy of the form LEG and the relevant documents should be kept on records for verification by the inspecting officials of Reserve Bank. All other cases which do not fulfil the aforesaid terms and conditions or where the amount in NRE/FCNR account is claimed by a person other than the nominee should be referred to the concerned Regional Office of Reserve Bank for prior approval by authorized dealer in form LEG supported by documents indicated therein together with the legal representation issued by an Indian Court.

 

Types of Accounts under the NRE scheme

 

Authorized dealers may open NRE accounts in any form, e.g. savings, current, recurring or fixed deposit account.

 

Special Series of Cheques for NRE Account Holders

 

In order to facilitate easy identification and quicker processing of cheques drawn on NRE accounts, authorized dealers have been advised to issue to their constituents holding NRE accounts cheque books containing a special series of cheques with the prefix "NRE" printed on them in a different colour. They should ensure that only the special NRE cheques are issued to all customers holding NRE accounts with them.

 

Transfer of Funds from One Account to Another

 

1. Transfer of NRE accounts from one branch of authorized dealer to another branch of same authorized dealer may be freely made. Occasionally, NRE account holders may wish to transfer funds from accounts held with one authorized dealer to another authorized dealer at the same centre or at another centre for opening new NRE accounts or for funding NRE accounts. Authorized dealers may open (or credit) NRE accounts with funds transferred from other authorized dealers in this manner provided :-

 

(a) account is opened (or held) in the name of the same account holder/s; and

 

(b) a certificate, issued by the authorized dealer transferring funds confirming the Non-Resident (External) status of the account from which transfer is being made, is produced along with the relative pay order or draft.

 

2. Authorized dealers may allow transfer of funds between NRE accounts of different persons held with themselves or different authorized dealers for any purpose. Where the transfer of funds is by way of gift, it may be allowed after obtaining an undertaking from the transferee/transferee's banks that gift tax, if any, payable on the transfer of funds will be paid to the Income-tax authorities in India. In case of transfer of funds between NRE accounts held with different authorized dealers, the authorized dealer transferring the funds should issue a certificate confirming the non-resident status of the transferor.

 

Temporary Overdrawings

 

Authorized dealers may allow temporary overdrawings in NRE Savings Bank accounts, up to a limit of Rs. 20,000 subject to the condition that the overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, either by fresh remittance in foreign exchange from abroad through normal banking channel or out of transfer of funds held in other NRE/FCNR accounts. However, authorized dealers may exercise their own discretion/commercial judgement while allowing overdraft under this provision.

 

Form A4 (See blocked accounts also)

 

Form A4 should be completed in respect of operations on NRE accounts which call for either a report to, or approval of Reserve Bank. Forms requiring approval should be completed in duplicate and submitted to Reserve Bank. If the transaction is approved, one copy of the form will be returned to authorized dealer, with the approval of Reserve Bank marked thereon. The debit or credit entry in the relative account may be made only after receipt of the approved form. All forms A4 covering transactions requiring completion thereof should be collected and sent along with the monthly statement of operations on NRE accounts.

 

In cases where funds in NRE accounts are remitted abroad or foreign currency notes, travellers cheques, etc. are issued on the instruction of account holder, form A2 covering the sale of foreign exchange should be completed and sent to Reserve Bank along with appropriate R Return. In such cases, form A4 need not be completed.

 

Credits to NRE Accounts

 

The following credits may be allowed in NRE accounts by authorized dealers in conformity with conditions, if any, laid down against each item. A report of the transaction should be submitted to Reserve Bank on form A4 only in cases where

 

(i) the transaction is of Rs. 1,00,000/- or above and

 

(ii) a specific indication has been given against the relative item. Funds remitted from abroad in fulfilment of an undertaking given by the account holder should not be credited to the account.

 

1. Proceeds of remittances to India in freely convertible foreign currency in an approved manner from abroad. (Report on form A4 should be submitted).

 

2. Proceeds of foreign currency travellers cheques, drafts and personal cheques drawn by account holder on a foreign currency account maintained abroad by him (including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency or in rupees from the account of a non-resident bank) deposited by account holder during his temporary visit to India, provided authorized dealer is satisfied that the account holder is still normally resident abroad, the travellers cheques/drafts are standing in the name of account holder and have not been endorsed in his favour and in the case of travellers cheques, they are discharged by the account holder in the presence of the bank officials. (Report on form A4 should be submitted.)

 

3. Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to the authorized dealer in person by the account holder himself and the authorized dealer is satisfied that account holder is still normally resident outside India (Report on form A4 should be submitted).

 

Foreign currency notes/bank notes and travellers cheques tendered by the Power of Attorney holder or any person other than the account holder should not be credited to NRE account. Rupee proceeds of foreign currencies/bank notes or travellers cheques tendered to a bank other than the one maintaining NRE account or to a money changer should not be credited to NRE account on the strength of encashment certificate issued by them.

 

4. Transfers from other NRE accounts provided in case the transfer is made from the account of another person, it is made for bona fide personal purposes. Report on form A4 should be submitted.

 

5. Interest accruing on the deposit account.

 

6. Interest on Government securities and dividend on Units of Unit Trust of India, provided the securities/units were purchased by debit to account holder's NRE account or FCNR account (Report on form A4 should be submitted).

 

7. Maturity proceeds of Government securities including National Plan/Savings Certificates as well as proceeds of Government securities sold on a recognised Stock Exchange in India and sale proceeds of Units received from Unit Trust of India, provided the securities/units were originally purchased by debit to account holder's NRE account or FCNR account (Report on form A4 should be submitted).

 

While crediting interest/dividend on securities/units or maturity/sale proceeds thereof in terms of (6) and (7) above, authorized dealers should satisfy themselves that the investments were originally made from out of account holder's funds in NRE/FCNR accounts with them. Suitable notes of the original debits should be taken in the ledger folios to facilitate verification of the transactions by Reserve Bank. While completing form A4 for credits, similar information should be furnished. In the case of units purchased directly from the Unit Trust of India, the payment should be received from the Trust with a confirmation that the units were purchased by the non-resident investor either out of remittances sent from abroad in an approved manner or out of funds in NRE/FCNR accounts.

8. Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof if the amount of subscription was paid earlier from the same account or from another NRE/FCNR account of the account holder or by remittance from abroad through normal banking channels (Report on form A4 should be submitted).

 

9. Any other transaction if covered under general or special permission granted by Reserve Bank subject to compliance with conditions, if any, laid down by it (Report on form A4 should be submitted).

 

10. Refund of application/earnest money made by the house building agencies on account of non-allotment of flat(s)/plot(s), provided that the original payment was made by debit to the NRE/FCNR accounts of the concerned NRI or by direct remittance from abroad to the house building agencies and the authorized dealer is satisfied about the genuineness of the transaction with reference to the documentary evidence such as receipts issued by the house building agency and/or copy of agreement/sale deed/letter from the house building agency indicating non-allotment of flat/plot. Before allowing the credit of such refunds authorized dealers may call for inward remittance certificate evidencing receipt of funds from abroad by the agency concerned or a certificate from the concerned bank with whom the NRE/FCNR account is maintained to the effect that the payment of application/earnest money was made by debit to the FCNR/NRE account of the applicant. A declaration from the account holder to the effect that he continues to be a non-resident with his overseas address should be obtained. The net amount of Interest, (i.e. after payment of tax) if any, paid by the house building agency on the application/earnest money may also be credited to NRE/FCNR account. (Report on form A4 should be submitted).

 

Debits to NRE Accounts

 

The following debits may be allowed in NRE accounts.

 

1. Local disbursements;

 

2. Remittances abroad;

 

3. Transfer to NRE/FCNR accounts of the same account holder;

 

4. Transfer to NRE accounts of persons other than the account holder for any purpose

 

5. Investment in shares/securities/commercial paper of Indian companies or for purchase of immovable property in India provided such investment is covered by general/special permission granted by Reserve Bank (Report on Form A4 should be submitted if the amount involved is Rs. 1,00,000/- or more).

 

6. Any other transaction if covered under general or special permission granted by Reserve Bank.

 

Statement of Operations on NRE Accounts

 

Authorized dealers should submit to Reserve Bank, a monthly statement in form STAT 1 in respect of operations on Non-resident (External) Rupee accounts maintained by them so as to reach Reserve Bank by 10th of the month following the month to which it relates. Forms A4 covering operations on the accounts during the month requiring report to Reserve Bank (including forms approved by Reserve Bank) should be enclosed. A monthly statement in form STAT 8 for the bank as a whole may be forwarded to the Chief General Manager, Exchange Control Department (Central Statistical Division), Reserve Bank of India, Central Office, Mumbai 400 001 so as to reach him by 10th of the month following the month to which it relates.

 

III. Non-resident (non-repatriable) rupee deposit scheme

 

Opening of Accounts

 

The Scheme is open to all non-residents including foreign citizens of non-Indian origin (except Pakistani and Bangladeshi nationals) and overseas entities. Accounts under the Non-resident (Non-repatriable) Rupee Deposit Scheme may be opened in Indian rupees by authorized dealers out of the funds in freely convertible currency transferred for the purpose to India in an approved manner. Accounts may also be opened by transfer of funds from the existing NRE/FCNR Accounts of the non-resident account holder

 

FOREIGN CURRENCY ACCOUNTS IN INDIA

 

Opening of accounts expressed in foreign currency with authorized dealers in India by non-residents/residents require general or special permission of Reserve Bank. Non-resident individuals/entities are permitted to maintain foreign currency accounts/deposits in India under special schemes. Reserve Bank has also granted general permission for opening of foreign currency accounts in India to residents/returning Indians under different schemes. Non-residents/resident firms/companies are also permitted to open foreign currency accounts with authorized dealers in India for certain specified purposes. The various schemes and the purposes for which authorized dealers have been permitted to open foreign currency accounts in India have been discussed.

 

Applications for permission to open foreign currency accounts with authorized dealers in India in other cases should be referred to Reserve Bank with full particulars.

 

Foreign currency (non-resident) accounts (banks) scheme [FCNR(B)]

 

This scheme protests the non-resident against fluctuations in foreign exchange rates since the account is maintained in foreign exchange. The provisions applicable to NRE accounts apply to FCNR(B) accounts as well. The authorized dealers are allowed to accept deposits from NRIs and OCBs in such currencies as specified by Reserve Bank from time to time. At present, accounts are permitted to be maintained only in Pound Sterling, U.S. dollar, Deutsche Mark and Japanese Yen. The salient features of the scheme are as under :-

 

1. Reserve Bank will not provide exchange rate guarantee to banks for deposits of any maturity under the Scheme.

 

2. FCNR (B) accounts are permitted to be opened only in the form of term deposit. The deposits may be accepted for four maturity periods viz. six months and above but less than one year, one year and above but less than two years, two years and above but less than three years and three years only.

 

3. In respect amounts received under the scheme, authorized dealers are required to comply with CRR/SLR requirements as laid down by Reserve Bank from time to time.

 

4. Lending of resources mobilised under the Scheme will not be subject to any interest rate stipulations.

 

5. Advances outstanding against the accounts under this Scheme will not be considered as part of net bank credit for the purpose of determining priority sector lending.

 

Authorized dealers may accept deposits under FCNR (B) accounts scheme with the facility of automatic reinvestment of interest as and when it accrues, provided the compounding of interest on the deposits, period of deposit, etc. are otherwise in conformity with directives issued by Reserve Bank from time to time and subject to guidelines issued by Indian Banks' Association/Foreign Exchange Dealers' Association of India in this regard.

 

Premature withdrawal of NRE/FCNR(B) deposits for the purpose of opening NRNR Rupee Deposit accounts with a different authorized dealer will attract penalty as per the directions issued by Reserve Bank from time to time.

 

Opening of and Utilisation of Funds in FCNR(B) Accounts

 

FCNR (B) term deposit accounts may be opened with funds remitted from abroad inconvertible foreign currency through normal banking channel or funds received in rupees by debit to the repatriable accounts of nonresident banks or funds in terms of general or special permission granted by Reserve Bank. The accounts under the Scheme may also be opened by transfer of funds from the existing NRE/FCNR accounts of the nonresident accountholders at the time of maturity or when prematurely withdrawn.

 

Mode of Remittance

 

1. Remittances from abroad for opening/crediting to FCNR(B) accounts would ordinarily be made only in the designated currency in which the account is desired to be opened/maintained. If, however, remittance is received in a currency other than the designated currency (including funds received in rupees by debit to the account of a nonresident bank) it will be converted into the latter currency by an authorized dealer at the risk and cost of the remitter and account opened/maintained in the designated currency.

 

2. In case a customer with any convertible currency other than a designated currency desires to place a deposit under the Scheme, authorized dealers can undertake a fully covered swap in that currency against the desired designated currency with the depositor. There is no objection also for such a swap being done between two designated currencies.

 

Conversion of Rupees into Designated Currencies and vice versa

 

1. Remittances received in Indian rupees for opening FCNR (B) accounts should be converted by authorized dealers into the designated foreign currency at the clean Telegraphic transfer. selling rate for that currency ruling on the date of conversion.

 

2. Maturity proceeds of FCNR (B) accounts or premature withdrawal thereof for purpose of meeting local disbursements including investment requirements of account holder in India should be converted into rupees at the authorized dealer's clean Telegraphic Transfer buying rate for the relative currency ruling on the date of withdrawal.

 

Inland Movement of Funds

 

Any inland movement of funds for the purpose of operating FCNR(B) Accounts as well as for repatriation abroad of balances held in FCNR(B) accounts will be free of inland exchange or commission for the nonresident depositors. Authorized dealers receiving foreign currency remittances under the Scheme will also on request pass on the foreign currency to another authorized dealer if FCNR(B) account has to be opened with the latter, at no extra cost to remitter.

 

Manner of Payment of Interest

 

1. Interest on balances held in FCNR (B) accounts may be paid half-yearly or on an annual basis as desired by the depositor.

 

2. Interest may be credited to a new FCNR (B) account or an existing/new NRE/NRO account in the name of the account holder, at his option.

 

Loans/overdrafts against FCNR(B) deposits

 

In case of loans/overdrafts against FCNR (B) deposits, the margin requirement shall be calculated on the rupee equivalent of the deposits at the prevailing notional rate of exchange for the relative currency.

 


Transfer of Funds held in FCNR(B) Accounts

 

Authorized dealers may allow transfer of funds held in FCNR(B) accounts of different persons maintained with themselves or with other authorized dealers for any purpose subject to the following conditions:

 

1. Authorized dealers should levy penalty if such transfer involves premature withdrawal of FCNR (B) deposits.

 

2. Where the transfer of funds is by way of gift, it may be allowed after obtaining an undertaking from the transferee/transferee's bank that gift tax, if any, payable on the transfer of funds will be paid to the Income-tax authorities in India.

 

3. In case of transfer of funds held in the FCNR (B) accounts held with different authorized dealers, the authorized dealer transferring the funds should issue a certificate confirming the nonresident status of the transferor and repatriable nature of funds.

 

FCNR(B) Deposits of NRIs on Return to India

 

The FCNR (B) deposits of persons of Indian nationality/origin who return to India for permanent settlement may be allowed to be continued till maturity at the contracted rate of interest, if desired. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR(B) deposits, for all other purposes such deposits would be treated as resident deposits from the date of return of the accountholder to India. In case the FCNR(B) deposits are withdrawn before maturity, the directions issued in this regard by Reserve Bank including directions, if any, about levy of penalty would be applicable. Authorized dealers should convert the FCNR (B) deposits on maturity into resident rupee deposits accounts or RFC account (if eligible), at the option of the accountholder and interest on the new deposit (rupee account or RFC account) would be payable at the relevant rate applicable for such a deposit.

 

Statement of Inflow, Outflow and Outstanding Deposits under FCNR Accounts (Banks) Scheme

 

Authorized dealers should submit a monthly statement for the bank as a whole, in form STAT 5 showing the inflow, outflow and outstanding deposits under the Foreign Currency (Non-Resident) Accounts (Banks) Scheme during the month, so as to reach the Reserve Bank before the 10th day of the month following that to which it relates.

 

Resident foreign currency (RFC) accounts

 

Opening of RFC Accounts

 

Under the scheme, persons of Indian nationality or origin, who, having been resident outside India for a continuous period of not less than one year, have become persons resident in India on or after 18th April 1992 are eligible to open and maintain the accounts with authorized dealers in India in any freely convertible foreign currency. Authorized dealers may, on receipt of an application in Form RFC, open RFC accounts in the names of eligible persons. Persons who return to India after a short assignment of less than one year abroad desiring to have RFC accounts should apply through authorized dealers to Reserve Bank in form RFC. RFC accounts opened with the specific approval of Reserve Bank will be governed by the conditions stipulated by Reserve Bank while granting such approval.

 

For arriving at the period of continuous stay abroad of not less than one year, short visits to India on personal grounds like meeting family members/relatives or on health grounds which do not indicate the person's intention to stay in India for an indefinite period may be ignored.

 

RFC accounts may be maintained in the form of current, savings (without cheque facility) or term deposit accounts and held singly or jointly only in the names of eligible persons.

 

Explanation: For the purpose of this Scheme -

 

A person (not being a citizen of Pakistan or Bangladesh) shall be deemed to be of Indian origin, if,

 

i) he at any time held an Indian passport, or

 

ii) he or either of his parents or any of his grand parents was a citizen of India, or

 

iii)that person is the spouse of an Indian citizen or of a person of Indian origin (not being a citizen of Pakistan or Bangladesh).

 

Eligible Assets

 

Assets acquired or held otherwise than in contravention of the Act by an eligible person, while he was resident outside India (non-resident), in the form of deposits in banks outside India, investments in foreign currency shares or securities or immovable properties situated outside India or investments in business etc. outside India and include foreign exchange earnings through employment, business or vocation outside India taken up or commenced by such person while he was resident outside India.

 

Credits

 

The following credits may be allowed in RFC Accounts by authorized dealers :-

 

A. Remittance in convertible foreign currency from outside India through normal banking channels representing: -

 

(i)Funds in bank accounts outside India forming part of eligible assets held by the eligible person.

(ii) Income such as dividend, interest, profit, rent, etc. earned on eligible assets held by the eligible person.

 

(iii) Sale proceeds of eligible assets.

 

B. Pension or other monetary benefits received from outside India in convertible foreign currency, through normal banking channels, arising out of employment taken up outside India by the eligible person prior to his returning to India.

 

C. Interest earned on RFC account.

 

D. Foreign currency notes/travellers cheques brought into India by the eligible person, provided that where the amount tendered exceeds US$ 10,000 or its equivalent or where the value of foreign currency/bank notes exceeds US$ 2500 or its equivalent they have been declared on the Currency Declaration Form (CDF)

 

E. Transfers from other RFC accounts of the account holder.

 

F. Balances in any NRE/FCNR Account in the name of the eligible person standing to his credit at the time of his arrival in India. No penalty would be payable for premature withdrawal of NRE/FCNR deposits in such cases.

 

G. Unspent foreign exchange surrendered by the RFC accountholders provided authorized dealer is satisfied that the concerned foreign exchange/currency had in fact been released for travel etc. abroad by debit to the same RFC accounts and the amount of foreign exchange/currency is surrendered within the stipulated period as required under the Exchange Control regulations.

 

Debits

 

The funds in the RFC account may be allowed to be freely utilised by the account holder for any bona fide remittance outside India through normal banking channels including for investments abroad provided the cost of such investments and/or any subsequent payments required therefor are met out of RFC account.

 

Withdrawals/payments from such accounts, other than for remittances outside India, or for payments in foreign currency authorized to be made in India by Reserve Bank, shall be permitted by the authorized dealer only in equivalent Indian rupees.

 

Rate of Interest

 

Rate of interest payable on the funds held in RFC accounts may be decided by authorised dealers on the basis of market rates. No interest shall be payable on balances held in the form of current accounts.

 

Nomination Facility

 

RFC accounts shall have the nomination facility as in the case of resident rupee accounts. On the death of a RFC account holder, the balance in the account may be repatriated to nominees to the extent of his/their entitlement, if on the date of death of the account holder such nominees are resident outside India. To the extent any nominee is a person resident in India on the date of the death of account holder, the amount may be paid to him in equivalent Indian rupees.

 

Reserve Requirements

 

Funds held in RFC accounts are exempt from CRR/SLR requirements.

 

Loans/Overdrafts against the Deposits

 

No loan/overdraft shall be granted by authorized dealers against balances in RFC accounts.

 

Transfer of Balances on becoming Non-resident

 

Funds held in RFC account may be freely remitted abroad or credited to fresh NRE/FCNR accounts in the event of the account holder becoming non-resident by virtue of his going abroad for employment, etc. A monthly statement in form STAT 10 for the bank as a whole may be forwarded to the Chief General Manager, Exchange Control Department (Central Statistical Division), Reserve Bank of India, Central Office, Mumbai 400 001 so as to reach him by 10th of the month following the month to which it relates.

 

Other foreign currency accounts

 

I. Escrow Accounts

 

Under a Counter trade proposal involving adjustment of value of goods imported into India against value of exports from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party, there is need for an Escrow Account to be opened with a bank in India. Proposals for opening such accounts designated in a foreign currency will be considered by Reserve Bank. Application for permission for opening such an account in the name of the overseas party should be made by the overseas exporter/organisation through the authorized dealer with whom the account is proposed to be opened to the concerned office of Reserve Bank.

 


II. Foreign Currency Accounts by Exporters

 

Authorized dealers may open foreign currency accounts in the names of airline/shipping companies or their agents in India for crediting freight collections from local exporters/importers. Withdrawal of funds from such accounts may be permitted for meeting local expenses of the concerned airline/shipping company, payment of taxes, etc. or for making remittances abroad towards surplus passage/ freight collections, operating expenses, etc. to the extent permitted by Reserve Bank.

 

III. Foreign Currency Accounts of Overseas Companies executing Projects in India

 

Overseas companies executing projects in India will be permitted, on application, to open foreign currency accounts with authorized dealers in India for meeting local expenses in connection with the projects in India. Applications for the purpose should be submitted to Reserve Bank, through an authorized dealer, with full details and copies of the approvals obtained from Government of India/Reserve Bank for the concerned project.

 

IV. Foreign Currency Accounts of Overseas Buyers

 

Reserve Bank may consider applications from overseas buyers for opening foreign currency accounts with authorized dealers in India provided they are funded by remittances in any permitted currency from abroad for making payments to Indian exporters. Authorized dealers should refer such requests to Reserve Bank with full particulars viz., name and address of the overseas party, sources of credits and the purpose of opening the account, etc

 

MISCELLANEOUS PROVISION

 

Restrictions on import and export of certain currencies and bullion

 

FERA has imposed restrictions on the import and export of foreign currencies and bullion. The Central Government may by notification in the official gazette order that, subject to such exemptions which may be specified in the notification, no person can, except with the general or special permission of the Reserve Bank of India and on payment of the prescribed fees bring or send into India any foreign exchange or Indian currency.

 

The bringing or sending into any port or place in India of any such article intended to be taken out of India without being taken out from the ship or from the conveyance will be deemed to be bringing or sending into India of that article.

 

No person can, except with the general or special permission of the Reserve Bank or the written order of a person authorized in this behalf by the Reserve Bank of India, take or send out of India, any Indian currency or foreign currency other than any foreign exchange obtained by him from an authorized dealer or from a money changer.

 

The RBI has issued notifications from time to time for granting permissions for such purposes. Where so permitted by the RBI, permission need not be sought for undertaking such transactions. Let us discuss some of the more important permissions : -

 

I. Notification no FERA 36/76-RB dated 10/5/76 as amended upto 26/4/93 vide notification no 142-1993 dated 26/4/93

 

The Reserve bank is pleased :-

 

(i) to permit authorized dealer to send out of India foreign currency in the form of coins, currency notes, cheques, drafts or bills of exchange which have been acquired in the normal course of business and within the terms of authorisation.

 

(ii) to permit any person maintaining an account according the provisions of the notification of the Reserve Bank no FERA 116/19/92-RB dated 7th September, 1992 to take or send outside India cheques or drafts drawn on such account.

 

II. Notification no 80/89-RB dated 9/8/89 as amended by notification no 157/94-RB dated 24/2/94

 

The Reserve Bank is pleased :-

 

1) To permit any person resident in India take outside (other than to Nepal) currency notes of the Government of India and Reserve bank of India notes upto amount not exceeding Rs 1000 per person at any one time.

 

2) To permit any person to take or send out of India to Nepal currency notes of the Government of India and Reserve Bank of India notes (other than notes of denomination of above rupees Rs 1000 and Indian coins and other notes or coins which are the currency of Nepal

 

3) To permit currency in safes of vessels or aircraft which have been brought into India or which has been taken on board of a vessel or aircraft with the permission of the Reserve bank to be taken out of India.

 

4) To permit any person in India but not resident therein to take out of India any amount of foreign exchange not exceeding amount brought in by him in foreign exchange provided that he had made on arrival in India a declaration to the Customs authorities in such form as may be specified by the Reserve Bank in this behalf of the amount of foreign exchange brought by him.

 

5) To permit any person in or resident in India to take out of India any foreign currency or currencies equivalent to US Dollar 2000 held by such person in terms of item (a) to the proviso to the Central Government notification no 178/97-RB dated 22nd July, 1979.

 

III. Notification no FERA 81/89 dated 9/8/89 as amended upto 5/6/95

 

The Reserve Bank of India is pleased to: -

 

1) To permit any person to send into India without any limit foreign exchange in any form other than currency notes, bank notes and travellerís cheques

 

2) To permit in India to bring into India from Nepal currency notes of the Government of India and Reserve Bank of India notes (other than notes of domination of rupees 100).

 

3) To permit any person who is resident in India and had gone out of India on a temporary visit to bring in India at the time of return from any place outside India other than Nepal the currency notes of Government of India and Reserve Bank of India notes upto an amount not exceeding not Rs 1000 which he had taken out while leaving India for temporary visit.

 

4) To permit any person to bring into India from any place outside India without limit foreign exchange (other than unissued notes ) provided that such person makes on arrival in India, a declaration to the custom authority in such form as may be prescribed by the Reserve bank in this behalf of the particulars of such foreign exchange brought in by him. However, it is not necessary to make such declaration if the aggregate value of foreign exchange brought in by such person in form of currency notes, bank notes or travellerís cheques at any one point of time does not exceed US $10000 or its equivalent.

 

 Acquisition by Central government of Foreign Exchange

 

The Central government may by notification in the official gazette, order any person in or resident in India: -

 

1. Who owns such foreign exchange in India as may be specified in the notification to offer it or cause it to be offered for sale to RBI or to such person as the RBI may authorise for such purpose at such price that the Central Government may fix. However, such price cannot be less than the price calculated at the rate of exchange for time being authorized by the Reserve Bank of India.

 

2. Who is entitled to assign any rights to receive such foreign exchange as may be specified in the notification to transfer that right to the Reserve bank on behalf of the Central Government on payment of such conservation thereof as the Central govenrment may fix having regard to the rate for the time being authorized by the RBI for conversion into Indian currency of the foreign currency in which such foreign exchange is expressed.

 

The Central Government may by notification or by a separate order exempt any person or class of persons from the operation of order made in the said notification.

 

The above provisions will not apply to foreign exchange acquired by a person from an authorized dealer or from a money changer and retained by him with the permission of the Reserve Bank of India for any purpose.

 

The Central Government has issued Notification no 10/22/19 NRI cell dated 14th July, 1992 for this purpose. The Central Government has ordered every person in or resident in India who owns or holds who may thereafter own or hold any foreign exchange, whether in India or abroad, expressed in any currency other than currency of Nepal or Bhutan shall before the expiry of three months from the date of his so owning or holding, offer the same or cause it to be offered to sale to any authorized dealer against the payment in Rupees at the rate or rates for the time being authorized by the Reserve Bank.

 

This above order does not apply to: -

 

1) Foreign exchange held by an authorized dealer within the scope of its authority

 

2) Persons authorized by the Reserve Bank to hold such foreign exchange for business or other purposes within the scope of the authorisation in their favour

 

3) Foreign exchange held in India in accordance with any scheme approved by the Reserve Bank in this behalf or outside India and income thereon if such foreign exchange was acquired by a person: -

 

(i) without contravention of the provisions of FERA while he was resident outside India ; or

 

(ii) through the employment or business or vocation outside India taken up or commenced while such person was resident outside India

 

provided that in either case such person has been resident outside India for the continuous period of not less than one year

 

4) Any sum held in any account in a foreign currency not been a sum expressed in pounds sterling held on or before 8th July, 1947 if such account is maintain in pursuance of the general or special permission of the Reserve Bank.

 

5) Foreign Exchange acquired or received in pursuance of permission granted by the Reserve Bank under Section 8 or as the case may be under the Section 9 of the said Act if person who acquiring or receiving such foreign exchange complies with condition subject to which the permission has been granted.

 

6) Holding in India of foreign currency in form of travelerís cheques, currency notes, bank notes and coins by the foreign citizens in or resident in India but not permanently resident in India.

 

7) Foreign exchange in form of foreign coins

8) Foreign exchange or currencies upto total value of equivalent upto US Dollar 2000 held or acquired for numismatic purposes

 

9) Foreign currencies or currencies upto the value of equivalent upto US Dollar 2000 inclusive of the currency or currencies held or acquired for numismatic purposes as per item 8 above by a person resident in India for personal purposes.

 

10) Foreign exchange acquired or received before 8th July, 1947 or any income arising or accruing thereon which is held outside India by an person resident in India with general or special permission of the Reserve Bank.

 

11) Foreign exchange including any income arising therefrom held outside India by a person resident in India acquired by the way of gift or inheritance from a person referred to in clause 3 or clause 10 as the case may be and any tax in respect of such gift or inheritance has been paid in India.

 

Duty of the person entitled to receive any foreign exchange

 

FERA imposes certain obligations on persons who are entitled to received foreign exchange. These are briefly discussed below.

 

No person who has the right to receive any foreign exchange or to receive from any person resident outside India a payment in Rupees can, except with general or special permission of the Reserve Bank, do or refrain from doing anything or take or refrain from taking any action which has any effect of :-

 

1) Delaying the receipt by him of the whole or any part of the foreign exchange ; or

 

2) Cancellation of the right to receive whole or part of the foreign exchange.

 

If such a person fails to comply with the above requirements, the Reserve bank may give him such directions as appear to be expedient for the purpose of securing the receipt of foreign exchange.

 

Restriction on settlement

 

FERA imposes restrictions on making settlements by way of trust or otherwise involving any person resident outside India or involving foreign exchange. No person resident in India can except with the general or special permission of Reserve Bank, settle or make a gift of property so that a person who at the time of the settlement or making of gift is resident outside India will have interest in property or will exercise power for payment in favor of the person who at time of exercise of power is resident outside India. However, RBI may notify territories outside India where such provisions do not apply.

 

Any settlement or gift made or any power exercised per the above provisions without permission of Reserve Bank shall not invalid merely on ground that RBI permission has not been obtained.

 

Notification no 119/92 dated 7th September, 1992 permits settlement or gift of foreign exchange held in India or abroad by a person who has been resident outside India for a continuous period for not less than one year.

 

Certain provision as to guarantee in respect of debt or certain obligation

 

Except with general or special permission of the Central Government or Reserve Bank, no person resident in India can give a guarantee in respect of debt or certain obligations or liability in respect of following: -

1) Person resident in India and due or owing to a person outside India

 

2) Person resident outside India

 

Notification No 132/1993 dated 26th April, 1993 permits authorized dealers to give guarantees in respect of such persons, subject to such conditions as may be imposed. Such guarantees may be in respect of debt or any other obligation or for export or import from India. A firm or company in India has been permitted to give a guarantee to an Income tax officer for respect taxes due by foreign employees. Shipping agents have been permitted to guarantee certain debts or other obligations of foreign principals in the favour of the authorities constituted under Income tax act, Customs tax act, Major Port Trust Act, or any other central or state legislation.

 

 

URL:http://www.indianrailways.gov.in/RPF/Files/law/BareActs/FERA.doc#a

 


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