CHAPTER 12
BANK
ACCOUNTS AND OTHER ASSETS OVERSEAS OF RESIDENTS
Introduction
Acquisition/Surrender of Foreign Exchange by Residents
Foreign Currency Accounts Abroad
Accounts of persons
temporarily out of India
Permission for
opening New Accounts in certain cases
Accounts abroad of
Indian Firms, Companies, etc.
Acquisition,
Holding and Disposal of Foreign Securities
Acquisition of Foreign Currency Shares by Employees of India
Acquisition of Foreign Currency Shares of Overseas Joint Ventures/Wholly Owned
Subsidiaries by employees of Indian Promoter Company engaged in the field of
software
Import and Export of Foreign
Securities
Acquisition, Holding etc. of Immovable Property outside India
Declaration of
Existing Properties to Reserve Bank
Sale/Transfer of Immovable
Properties
Loans
against Foreign Currency Balances/Foreign Securities
Special
Facility and RIFEE Scheme to Returning Indians
BANK ACCOUNTS AND OTHER ASSETS OVERSEAS OF RESIDENTS
Introduction
12.1 The opening, maintenance of and operations on accounts
expressed in foreign currencies abroad as also acquisition, holding and disposal
of foreign securities or immovable properties abroad by residents of India are
subject to regulation by Reserve Bank. This Chapter outlines the regulations
governing the opening and maintenance of foreign currency accounts and holding
of foreign securities or immovable properties abroad by residents of India. It
also deals with certain exemptions from the restrictions imposed by FERA 1973
granted to persons who have returned to India after a specified period in regard
to their foreign currency assets abroad. The control and supervision over
overseas bank accounts and other assets is centralised in the Central Office of
Reserve Bank at Mumbai and all correspondence relating to these matters should
be addressed to the Chief General Manager, Exchange Control Department (Foreign
Accounts Section), Reserve Bank of India, Central Office, Mumbai-400 001.
Acquisition/Surrender of Foreign Exchange by Residents
12.2
- Section 14 of FERA 1973 authorises the Central Government to order, by
notification in the Official Gazette, persons in or resident in India to
surrender foreign exchange owned or held by them to Reserve Bank or to such
person as the Reserve Bank may authorise, at the prevailing rate of
exchange. In terms of its Notification GSR 679E No. F.10/22/90/NRI Cell
dated 17th July 1992, the Central Government has directed that every person
in or resident in India, who owns or holds any foreign exchange expressed in
any currency other than the currency of Nepal or Bhutan, should sell that
foreign exchange to an authorised dealer within three months from the date
of acquisition thereof, against payment in rupees at the current rate of
exchange, except in the following cases -
- Foreign exchange held by authorised dealers.
- Foreign exchange acquired or held by persons for business or other purpose
within the scope of authorisation granted by Reserve Bank.
- Foreign exchange and any income thereon acquired by persons lawfully i.e.
without contravention of the provisions of FERA 1973 while they were
resident outside India for a continuous period of not less than one year.
- Foreign exchange and any income thereon earned by persons through
employment, business or vocation outside India taken up or commenced while
they were resident outside India and such stay outside India was for a
continuous period of not less than one year.
- Foreign exchange acquired or received before 8th July 1947 and held outside
India with the general or special permission of Reserve Bank.
- Foreign exchange received by way of gift from persons referred to in items
(c), (d) and (e) above and provided the resident donee is his relative i.e.
husband, wife, brother or sister or any lineal ascendant or descendant of
that individual and that tax, if any, payable thereon has been paid in
India.
- Foreign exchange received by way of inheritance from persons referred to in
items (c), (d) and (e) above out of the funds covered by exemption and
provided tax, if any, payable thereon has been paid in India.
- Foreign exchange held in the form of foreign coins.
- Foreign currency/ies held for numismatic purposes up to a total value of
U.S.$ 500.
- Foreign currency/ies held for personal purposes upto a total value of U.S.$
2000 inclusive of foreign currency held for numismatic purpose or its
equivalent.
- By its Notifications No. FERA. 47/77-RB and No. FERA.48/77-RB both dated
24th November 1977 issued under Sections 8 and 9 of FERA 1973 respectively,
Reserve Bank has made it obligatory for any person acquiring foreign
exchange by way of income on assets held outside India, inheritance,
settlement, gift (other than those covered by exemptions granted by Central
Government as stated above) or remuneration for services or by way of
payments made on behalf of persons resident outside India, to offer it for
sale to an authorised dealer within seven days from the date of receipt if
the foreign exchange is received in India. In all other cases, foreign
exchange will have to be offered for sale to an authorised dealer within
three months from the date of acquisition. If, however, in the meantime,
such foreign exchange is brought or sent to India, it will have to be
offered for sale within seven days from the date on which it is brought to
or received in India.
NOTE:
In the case of residents who receive foreign exchange by way of gift or
remuneration or payment for services rendered outside India during their
temporary visits abroad, the obligation for repatriation and surrender of
the foreign exchange to authorised dealers in India will arise in respect of
unspent foreign exchange brought by them at the time of their return to
India.
Foreign Currency Accounts Abroad
12.3
Section 8(1) of FERA 1973, read with the 'Explanation' thereunder prohibits
any person resident in India other than an authorised dealer from depositing
money into a foreign
currency account abroad without general or special permission of Reserve
Bank. No person in or resident in India can, therefore, open an account
expressed in foreign currency abroad without prior approval of Reserve Bank.
Reserve Bank has, however, granted general permission to persons in or
resident in India to maintain and operate on foreign currency accounts
abroad in certain cases as explained below.
- Accounts of persons temporarily out of India
Indian nationals who proceed abroad for purposes such as business, medical
treatment, higher studies, training, etc. continue to be treated as
residents in India even during their absence from India. In order to
facilitate their opening foreign currency accounts and operating them during
their stay abroad for purposes connected with their visits, Reserve Bank has
granted general permission to such persons to open foreign currency accounts
with banks abroad and operate them during their stay outside India, provided
deposits into the accounts are made only out of (a) foreign exchange
obtained from an authorised dealer or money-changer in India or (b) foreign
exchange received outside India by way of scholarship or stipend, or by way
of salary or payment for services not arising from any business in India 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.
[cf. Reserve Bank Notifications No.FERA 47/77-RB dated 24th November 1977
and FERA 134/93-RB dated26th April 1993].
-
- Accounts of persons coming or returning to India
from abroad for employment, business, settlement, etc.
Reserve Bank has granted general permission to persons who have come or
returned to India after a minimum continuous stay of one year abroad as
persons resident outside India (hereafter referred to as 'such persons') in
regard to the maintenance of and operations on foreign currency accounts
with banks abroad, provided the funds held in the bank accounts were
acquired by such persons otherwise than in contravention of the provisions
of FERA 1973, while they were resident outside India. 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.
- Accounts of residents held since prior to 8th July 1947
Residents maintaining foreign currency balances abroad which were acquired
by them prior to 8th July 1947 were required to obtain permission of Reserve
Bank for continuing to hold these balances abroad and submit annual returns
of such foreign exchange held and repatriate to India the incomes earned on
these balances. Such persons have now been granted general permission by
Reserve Bank in regard to maintenance of and operations on their foreign
currency accounts with banks abroad, provided they hold the necessary
permission (or licence) issued by Reserve Bank. The general permission also
applies to all interest incomes earned on the foreign currency balances.
Such persons need not, therefore, submit annual returns in respect of the
funds held in the accounts to Reserve Bank or repatriate the interest
incomes earned on such accounts as stipulated in the respective
permission/licence issued by Reserve Bank.
- Accounts abroad maintained out of funds received by way of
gift or inheritance from funds held abroad by persons referred
to in category (i) and (ii) above
Residents who may acquire foreign currency funds by way of gift or
inheritance from the persons referred to in category (i) and (ii) above out
of the funds covered by the exemption granted by Reserve Bank have also been
granted general permission for maintenance of and operation on the foreign
currency accounts with banks abroad, provided in the case of gift, the
receipient 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. As a result, such foreign currency funds
received by residents or any incomes earned thereon subsequently would also
be covered by the general permission and hence need not be declared to
Reserve Bank.
[cf. Reserve Bank Notification No.FERA.116/92-RB dated 7th 1992]
- Payments out of foreign currency accounts
Reserve Bank has granted general permission to persons in or resident in
India for making any payments to persons resident outside India out of funds
held in bank accounts covered by the exemptions referred to in (B) above.
Hence, there will be no restrictions on the utilisation of the balances in
the said accounts for any bona fide payments in foreign currency. This
includes payments for making further investments in shares/securities or
immovable properties etc. abroad provided the cost of such investments
and/or any subsequent payments required therefor, are met exclusively out of
the foreign currency funds held in accordance with the provisions in (B)
above.
[cf. Reserve Bank Notification No.FERA.117/92-RB dated 7th September 1992
issued under Section 9(1) of FERA 1973]
Permission for opening New Accounts in certain cases
12.4
Persons of Indian nationality/origin returning to India for permanent
settlement and satisfying the requirements laid down in category (i)
paragraph 12.3(B) 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
authorised dealer in India (see Part E of Chapter 14). However, persons who
do not satisfy the conditions laid down in paragraph 12.3(B) 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 manner laid down
in paragraph 12.2. 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 authorised dealer in India (See paragraph 14E.2).
Accounts abroad of Indian Firms, Companies, etc.
12.5
- 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.
- Regulations governing opening of foreign currency accounts abroad by other
Indian firms/companies for specific purposes such as for retention of
foreign currency subscriptions or proceeds of foreign currency loans raised
abroad for financing imports, etc. have been laid down in the respective
chapters.
Acquisition, Holding and Disposal of Foreign Securities
12.6
- Under Section 19(1)(e) of FERA 1973, no person shall, except with the
general or
special permission of Reserve Bank, acquire, hold or dispose of any foreign
security i.e. any security issued outside India or expressed to be payable in any currency
other than Indian rupee or elsewhere than in India. By its Notification No.
FERA.118/92-RB dated 7th September 1992, Reserve Bank has granted general
permission to persons resident in India to acquire, hold or dispose of any
foreign security in the following cases:
- 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.
- Where it is held since prior to 8th July 1947 and for which the
permission/licence of Reserve Bank was obtained.
- Where it is acquired by way of gift or inheritance from persons referred to
in category (A) and (B) 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 in terms of general exemption
granted by Reserve Bank, vide paragraph 12.3(B) above.
- Persons satisfying the conditions for the general permission referred to in
sub-
paragraph (i) above 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 (A) of sub-paragraph (i) above, the income
or sale/maturity proceeds of securities can also be credited to their RFC
accounts with an authorised dealer in India (see paragraph 14E.4).
- Persons resident in India who are not covered by the general permission
referred to
in sub-paragraph (i) 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 (i) 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.
- Indian software companies are allowed to offer ADR/GDR linked stock
option schemes to their non-resident/resident permanent employees (including
Indian and overseas working directors). The scheme is outlined in the
Annexure to the Chapter 12. Indian software companies desiring to offer
ADR/GDR linked stock option schemes for their resident employees should
approach the concerned Regional Office of Reserve Bank on behalf of their
resident employees, for necessary permission, with relevant documents such
as certificates from a Chartered Accountant that the company is engaged in
manufacturing and/or production of software and its turnover from software
activities is not less than 80 per cent of the total turnover, together with
certified copies of approval of Ministry of Finance, Department of Economic
Affairs, Government of India for issue of ADR/GDR, special resolution passed
by the Board of Directors and a list of eligible employees. On exercise of
the option each resident employee will be permitted to remit upto U.S.$
50,000 in a block of 5 years to acquire the ADRs/GDRs. As the non-resident
employees would normally be required to pay the cost of acquisition of the
ADR/GDR issues out of their own resources abroad, no remittance of funds
from India should be involved. However, non-resident Indian employees would
be required to approach Reserve Bank on their return to India for issue of a
licence for holding the ADRs/GDRs acquired during their stay abroad, if
their continuous stay abroad before return to India is less than one year.
Acquisition of Foreign Currency Shares by Employees of
Indian Offices/Branches/Subsidiaries/Joint Ventures in
India of Foreign Companies
12.7
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.
Annexure - A.D.(M.A. Series) Circular No.25
Acquisition of Foreign Currency Shares of Overseas
Joint Ventures/Wholly Owned Subsidiaries by employees
of Indian Promoter Company engaged in the field of software
12.7A Reserve Bank may consider applications from Indian companies, for
remittance towards acquisition of the shares of the overseas joint
ventures/wholly owned subsidiaries in the software field by the employees of
the Indian promoter company provided (a) the remittance does not exceed
U.S.$ 10,000 or its equivalent per employee in a block of five years and (b)
the shares so allotted to Indian employees do not exceed 5% of the paid-up
capital of the overseas concern and (c) after allotment of shares of the
overseas concern to the employees of the Indian promotor company, the shares
held by the Indian promoter company, together with the aggregate number of
shares so allotted to such employees, is not less than the percentage of
shares held by Indian promoter company prior to such allotment of shares
under the Employees Stock Option Scheme.
The applications for this purpose should be made by the Indian promoter
company to the concerned Regional Office of Reserve Bank together with
relevant documents such as the names and addresses of Indian employees, name
and address of the overseas concern, total number and face value of foreign
currency shares to be allotted to each employee, certified copies of the
overseas concern's latest audited balance sheet and resolution passed by its
Board of Directors in support of offer of shares to the employees of its
parent Indian company.
Import and Export of Foreign Securities
12.8
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 authorised dealer for the
necessary export permit. Permission for export of foreign securities will be
granted, provided the authorised 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. These
restrictions however do not apply to persons holding securities covered
under the general permission referred to in paragraph 12.6(i).
Acquisition, Holding etc. of Immovable
Property outside India
12.9
- In terms of Section 25 of FERA 1973, Indian nationals resident in India and
firms/companies registered/incorporated in India are required to obtain
permission of
Reserve Bank to acquire, hold, transfer or dispose of by sale, mortgage,
lease, gift, settlement or otherwise, any immovable property situate outside
India.
NOTES:
A.
These restrictions do not apply to immovable property taken or given on
lease for a period not exceeding five years.
B.
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.
- By its Notification No. FERA.120/92-RB dated 7th September 1992 issued under
Section 25 of FERA 1973, Reserve Bank has granted general permission to
Indian nationals to acquire/hold immovable property outside India to the
following categories of persons-
- Persons returning to India after a minimum continuous stay of one year
abroad as persons resident outside India, provided the property has been
purchased out of foreign exchange lawfully acquired by them while resident
outside India or earned through employment, business or vocation taken up or
commenced while resident outside India.
- Persons holding the property since prior to 8th July 1947 and for which
permission/ licence of Reserve Bank was obtained.
- Persons acquiring the property by way of gift or inheritance from persons
referred to in category (A) or (B) 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 ascedant 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
in terms of general permission granted by Reserve Bank, vide paragraph
12.3(B). Income on such properties can also be credited to their foreign
currency accounts abroad. In the case of persons referred to in category (A)
above, the income can also be credited to their RFC accounts maintained with
an authorised dealer in India (see paragraph 14E.7).
- 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.
NOTE:
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.
Declaration of Existing Properties to Reserve Bank
12.10
Persons and firms/companies referred to in paragraph 12.9 holding immovable
properties outside India as on 1st January 1974 were required to declare to
Reserve Bank full
particulars of the properties held by them. Permission in the form of
holding licences has been granted to those who had declared their properties
to Reserve Bank.
Sale/Transfer of Immovable Properties
12.11
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 authorised 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 [Also see paragraph 12.9(ii) in regard to sale/transfer of
properties held abroad by persons eligible for general exemption].
Loans against Foreign Currency
Balances/Foreign Securities
12.12
Authorised 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.
Special Facility and RIFEE Scheme to Returning Indians
12.13
Non-residents of Indian nationality/origin returning to India for permanent
settlement (Returning Indians) were granted foreign exchange entitlements in
the form of RIFEE permits under the
Returning Indians Foreign Exchange Entitlement Scheme (RIFEE Scheme) up to
50% of the foreign exchange repatriated by them to India at the time of
their return to India. RIFEE permit holders could avail of foreign exchange
entitlements for certain specified purposes for themselves or their
dependants for a period of 15 years reckoned from the date of their return
to India. Persons returning to India for exploratory purpose were eligible
for a Special facility under which they were granted exemption from the
requirement of surrender of foreign currency balances held abroad or
Reconversion facility in respect of foreign currency balances repatriated to
India, provided they decided to go back within a period of five years or any
extended period. With the introduction of RFC accounts facility, the RIFEE
Scheme was withdrawn effective 22nd February 1992. Similarly, in view of the
general permission granted to Returning Indians in regard to their foreign
assets [cf. paragraph 12.3(B) and 12.6(i)(A)], the Special facility and
Reconversion facility were withdrawn since 22nd February 1992. The RIFEE
permit holders and those who were granted Reconversion facility have been
given option to continue the existing facility or avail themselves of new
RFC accounts facility. These options were permitted to be exercised at one
stroke or in part amounts during the validity period of RIFEE permit or
Reconversion facility. Persons who were granted the Special facility would
now be automatically covered by the general permission referred to above.
A.D.(M.A. Series) Circular No.46 - Slip 4