CHAPTER 13
RUPEE ACCOUNTS OF
NON-RESIDENTS OTHER THAN BANKS
Introduction
Accounts of Certain Non-residents Treated as Resident Accounts
Domestic Credit Cards
PART
A - Section I - ORDINARY NON-RESIDENT RUPEE (NRO) ACCOUNTS
Opening of NRO Accounts
Joint Accounts with Residents
Change of Status from
Resident to Non-resident
Change of Status from
Non-resident to Resident
Types of Accounts
Operations on the Accounts
Form A4
Authorised Dealer's Responsibilities regarding Non-resident Accounts
Remittance of Balances
Grant of
Loans/Overdrafts to Account holders
Grant of loans/overdrafts to third parties against security of NRO deposits
Temporary Overdrawings
Continuance of Loans/Overdrafts to Residents who become Non-residents
Transfer of Funds to
Non-resident Nominees
Part A –Section II
General
Change of Status from
Resident to Non-resident
Joint Account with Residents
Types of Accounts
Operations on the Accounts
PART
B - NON-RESIDENT (EXTERNAL) RUPEE ACCOUNTS (NRE Accounts)
PART C
- NON-RESIDENT(NON-REPATRIABLE) RUPEE DEPOSIT SCHEME
PART D - BLOCKED ACCOUNTS
RUPEE ACCOUNTS OF NON-RESIDENTS OTHER THAN BANKS
Introduction
13.1 Under Section 9(1) of FERA 1973, no person in India can,
without general permission or special exemption granted by Reserve Bank, make
any payment to or place any sum to the credit of any person resident outside
India. Similarly, permission of Reserve Bank is required for making any payment
to or for placing any sum to the credit of any person by order or on behalf of
any person resident outside India. Opening of accounts in the names of
non-residents in India and operations on those accounts, therefore, require
general or special permission of Reserve Bank. This Chapter sets out the
regulations relating to the opening of and operations on non-resident rupee
accounts maintained by authorised dealers. Regulations governing maintenance of
and operations on non-resident rupee accounts by authorised
co-operative/commercial banks have been given separately in Memorandum ABM.
Accounts of Certain Non-residents Treated as Resident Accounts
13.2 Although the undernoted categories of persons, firms,
companies, etc. are treated as resident outside India under FERA 1973, by virtue
of Reserve Bank Notification No. FERA.7/74-RB dated 1st January 1974 their rupee
accounts with authorised dealers in India are regarded as resident accounts and
such accounts may be opened and operated upon freely provided QA 22 formalities
are complied with (See Part B of Chapter 11).
- Indians, Nepalese or Bhutanese resident in Nepal or Bhutan.
- 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.
- Offices and branches situated in Nepal or Bhutan of any business carried
on as a partnership firm or otherwise by Indians, Nepalese or Bhutanese.
Domestic Credit Cards
13.3 Banks and their subsidiaries in India may freely issue credit cards valid
in India, Nepal and Bhutan to non-residents of Indian nationality/origin. Claims
arising from use of such cards may be settled in rupees by debit to accounts
maintained with authorised dealers in India by the account holder or by inward
remittance from abroad. Under no circumstances remittance from India will be
allowed in settlement of bills in the event of these cards being used in other
countries.
PART A - Section I - ORDINARY NON-RESIDENT RUPEE (NRO) ACCOUNTS
Opening of NRO Accounts
13A.1 Authorised 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, inter alia, 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, authorised
dealers need not verify the particulars of approvals for
investments/disinvestments while permitting individual credits/debits to the
account.
NOTES:
A. Opening of and operations on the accounts of
individuals/entities of Pakistani/Bangladesh nationality/ownership require
approval of Reserve Bank.
B. Post Offices have been authorised 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 authorised dealers.
Joint Accounts with Residents
13A.2 Accounts of non-residents may be held jointly with
residents.
Change of Status from Resident to Non-resident
13A.3 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
13A.4 NRO accounts may be re-designated as resident accounts
on the return of the account holder to India, provided authorised 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
13A.5 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
13A.6 The undernoted credit and debit transactions may be
allowed in the accounts by authorised dealers.
Credits:
- 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.
- Legitimate dues in rupees of the account holder in India.
Debits:
All local payments in rupees (See paragraph 13A.1 for instructions relating to
debits or investments).
Form A4
13A.7 While form A4 should be completed in respect of operations on the account
where the credit transactions are for Rs.1,00,000/- and above (except interest
earned on funds in the account or on deposits held by the account holder), in
respect of debit transactions, form A4 should be completed only if the
transaction relates to investment in shares/securities/commercial paper of
Indian companies or for purchase of immovable property in India, and the amount
involved is Rs.1,00,000/- or more. Forms A4 need not be forwarded to Reserve
Bank but should be retained with authorised 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, authorised 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.
Authorised Dealer's Responsibilities regarding Non-resident Accounts
13A.8 Authorised 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 authorised dealer. Any other
transactions of suspicious nature should also be reported to Reserve Bank.
Remittance of Balances
13A.9 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, authorised 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.
Note:
See paragraph 10C.24A regarding repatriation of income/interest earned during
the financial year 1994-95 and onwards.
Grant of Loans/Overdrafts to Account holders
13A.10 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
13A.10A Authorised 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.
- 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.
- The funds held in NRO accounts of the lender should be his own funds and
not borrowed funds.
- 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 authorised 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 (a) above. Authorised 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
13A.11 Authorised 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, Authorised dealers may exercise their own
discretion/commercial judgement while allowing ovedraft under this provision.
Continuance of Loans/Overdrafts to Residents who become Non-residents
13A.12 In case of persons who had availed of loan or overdraft
facilities while resident in India and who subsequently become non-resident,
authorised dealers may allow continuance of the loan/overdraft facilities
granted to them subject, inter alia, to the following conditions:
- The borrower is an Indian citizen or a person of Indian origin.
- 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.
- 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.
- 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-redsident (External) FCNR/NRNR 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.
- In case a person of Indian nationality/origin resident in India who had
granted loan to another resident subsequently becomes a non-resident, the
repayment of the loan by the resident borrower should be made by credit to
the NRO account of the lender maintained with a bank in India.
Before according their approval, authorised dealers should obtain from such
borrowers an application stating, inter alia, (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
13A.13 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 and shall not be allowed to be remitted outside India.
Part A –Section II
Non-Resident (Special) Rupee (NRSR) Account Scheme
General
13A.14 The facility of maintaining Non-Resident (Special) Rupee (NRSR) Account
is extended to non resident individuals of Indian nationality and persons of
Indian origin. These accounts will carry the same facilities and restrictions as
are applicable to domestic accounts of residents in respect of repatriation of
funds held in the account and/or income accrued thereon with an exception of
investment in shares / securities and immovable property in India, which will be
governed by the extant exchange control regulations applicable on such
investments.
13A.15 For opening an NRSR account, the account holders should submit an
application in Form NRSR together with the undertaking therein duly signed to an
authorised dealer. After these formalities are completed it is the
responsibility of the accountholder/s to ensure that all operations in the
account including investments/disinvestments are covered either by the general
or special permission of Reserve Bank. Once this undertaking has been obtained,
authorised dealers need not verify the source of credits and purpose of debits
or the particulars of approvals for investments/disinvestments while permitting
individual credits/debits to the account.
NOTE: Opening of and operations on the accounts of individuals of
Pakistani/Bangladeshi/Sri Lankan nationality require approval of Reserve Bank.
Change of Status from Resident to Non-resident
13A.16 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. He will
have the option of designating his account as Non-Resident Ordinary (NRO)
account or Non-Resident (Special) Rupee (NRSR) account.
Joint Account with Residents
13A.17 Non-residents may hold accounts jointly with residents.
Types of Accounts
13A.18 NRSR 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
NRSR accounts.
Operations on the Accounts
13A.19 The operations on Non-Resident (Special) Rupee accounts may be allowed
freely as in the case of domestic accounts maintained by resident individuals.
Interest Rates
13A.20 The Non-Resident (Special) Rupee accounts are subject to same interest
rate discipline as applicable to resident accounts.
Inland movement of funds
13A.21 The account holders are permitted to freely transfer funds from
NRO/NRE/FCNR accounts to NRSR accounts. However, under no circumstances funds
held in NRSR account, irrespective of their source, should be transferred to
NRO/NRE/FCNR account.
Nomination Facility
13A.22 Like any other account held by residents the NRSR accountholders can
freely nominate residents and/or non-residents. However, a non-resident nominee
will not be entitled to any remittance facility out of funds held in NRSR
account of the deceased person.
Form A4
13A.23 Irrespective of amount involved Form A4 need not be completed in respect
of debits and credits to NRSR accounts.
PART B - NON-RESIDENT (EXTERNAL) RUPEE ACCOUNTS (NRE Accounts)
General
13B.1 NRE accounts are opened and maintained in terms of
Non-Resident (External) Accounts Rules, 1970. Government Notification
No.1/9/EC/69 dated 10th February 1970 contains the Rules (see Appendix II in
Volume II). 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
13B.2 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
13B.3 In terms of Clause 4(ii) of Section 10 of Income-tax
Act, 1961, 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 in terms of Section 6(ii) of Wealth-tax Act, 1957. Gifts
made to close relatives in India from out of balances in such accounts are also
free of Gift tax.
NOTE:
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
13B.4
- Authorised 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, authorised dealer should obtain an undertaking from the account
holder that he would intimate the authorised 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.
- Authorised 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%,
authorised 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.
NOTE:
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
13B.5 Accounts may be opened in the name of any eligible NRI
during his temporary visit to India against tender of foreign currency
travellers cheques issued in his own name or notes and coins tendered, provided
the authorised 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 (See paragraph 7D.5). Authorised 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
13B.6
- 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, authorised 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
13B.7 Authorised 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
authorised 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)
13B.8 Funds held in NRE accounts (other than those in the
names of persons resident in the erstwhile bilateral group countries) 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
13B.9
- Authorised 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.
- Authorised 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:
- 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.
- 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.
- The loan amount shall be disbursed to the investee firm/company on
behalf of the NRI account holder.
- Investment made out of the loan shall not be allowed to be
repatriated outside India at any time in future. (For repatriation of
income earned please see paragraph 10C.24A).
- 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.
- Requirements regarding margin, interest rate etc. as stipulated by
Reserve Bank from time to time are complied with.
- Authorised 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:
- 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.
- 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.
- 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.
- The sale proceeds of the house/flat, if sold, will not be allowed to
be repatriated outside India. (For repatriation of income earned by way
of rent please see paragraph 10C.24A).
- Requirements regarding margin, interest rate, etc. as stipulated by
Reserve Bank from time to time are complied with.
- Acquisition of the property by foreign citizens of Indian origin
will be subject to Reserve Bank's approval under Section 31 of FERA,
1973.
NOTE:
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
13B.10 Authorised dealers may grant any type of fund based
and/or non-fund based facilities to resident individuals/firms/companies in
India against the collateral of fixed deposits held in NRE accounts subject to
the following conditions:-
- 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.
- 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 authorised 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.
- Regulations relating to margin, interest rate, purpose of loan, etc., as
stipulated by Reserve Bank from time to time should be complied with.
- The loan should be utilised for personal purposes or for carrying on
business activities other than agricultural/plantation activities.
-
- 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.
- 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.
- 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.
Authorised 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
13B.11
Authorised 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. Authorised 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
13B.12
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 authorised 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
13B.13
In respect of the liabilities representing amounts received under NRE
accounts, authorised dealers are required to comply with CRR/SLR
requirements as laid down by Reserve Bank from time to time.
Rates of Interest
13B.14
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
13B.15
- 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, except where it is otherwise
provided in this Manual.
- 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
13B.16
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. Authorised 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:
- Application in form LEG is submitted by the nominee(s);
- 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;
- 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;
- All the legal heirs are non-residents. A signed declaration to the
effect duly witnessed may be submitted by the nominee to the authorised
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, authorised 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
authorised dealer in form LEG supported by documents indicated therein
together with the legal representation issued by an Indian Court.
Permitted Types of Accounts
13B.17
Authorised 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
13B.18
In order to facilitate easy identification and quicker processing of
cheques drawn on
NRE accounts, authorised 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 constituents
holding NRE accounts with them.
Transfer of Funds from One Account to Another
13B.19
- Transfer of NRE accounts from one branch of authorised dealer to another
branch of same authorised dealer may be freely made. Occasionally, NRE
account
holders may wish to transfer funds from accounts held with one
authorised dealer to another authorised dealer at the same centre or at
another centre for opening new NRE accounts or for funding NRE accounts.
Authorised dealers may open (or credit) NRE accounts with funds
transferred from other authorised dealers in this manner provided :
- account is opened (or held) in the name of the same account holder/s;
and
- a certificate, issued by the authorised 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.
- Authorised dealers may allow transfer of funds between NRE accounts of
different persons held with themselves or different authorised 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
authorised dealers, the authorised dealer transferring the funds should
issue a certificate confirming the non-resident status of the
transferor.
Temporary Overdrawings
13B.20
Authorised 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, authorised dealers may exercise
their own descretion/commercial judgement while allowing overdraft under
this provision.
Form A4
13B.21
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
authorised 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 approval. However, in all cases where form A4 is required
to be filled in/approved, the duly filled in/approved forms should be
retained with authorised dealers for scrutiny at the time of
audit/inspection.
NOTE:
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
13B.22
Undernoted credit transactions may be allowed in NRE accounts by
authorised 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.
NOTE:
Funds remitted from abroad in fulfilment of an undertaking given by the
account holder should not be credited to the account.
- Proceeds of remittances to India in freely convertible foreign currency
in an approved manner from abroad. (Report on form A4 should be
submitted).
- 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 authorised 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. See Guide to
authorised dealers for compilation of R Returns regarding submission of
form A2 with R Return for certain transactions).
- Proceeds of foreign currency/bank notes tendered by account holder
during his temporary visits to India, provided these are tendered to the
authorised dealer in person by the account holder himself and the
authorised dealer is satisfied that account holder is still normally
resident outside India (Report on form A4 should be submitted).
NOTES :
A.
(Purchases of travellers cheques/ currency notes/bank notes made in
terms of (b) and (c) above should be endorsed on the reverse of Currency
Declaration Form (CDF), wherever applicable (See paragraph 3E.3). A
photocopy of CDF should be kept on record by the authorised dealer.
B.
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.
C.
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.
- Transfers from other NRE accounts of same/other persons [See paragraph
13B.19]. Report on form A4 should be submitted.
- Interest accruing on the deposit account.
- 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).
- 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).
NOTE:
While crediting interest/dividend on securities/units or maturity/sale
proceeds thereof in terms of (f) and (g) above, authorised 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.
- 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).
- 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).
- 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 authorised 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
authorised 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).
A.D.(M.A. Series) Circular No.5
Debits
13B.23
Undernoted debit transactions may be allowed in NRE accounts.
- Local disbursements;
- Remittances abroad;
- Transfer to NRE/FCNR accounts of the same account holder;
- Transfer to NRE accounts of persons other than the account holder for
any purpose [see paragraph 13B.19(ii))];
- 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).
- Any other transaction if covered under general or special permission
granted by Reserve Bank.
NRE Accounts of Persons resident in the
Erstwhile Bilateral Group countries
13B.24
Repatriation of balances abroad from NRE accounts of persons resident in
the erstwhile Bilateral Group countries will require specific permission
from Reserve Bank.
Statement of Operations on NRE Accounts
13B.25
A monthly statement in form STAT 8 for the bank as a whole may be 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.
PART C - NON-RESIDENT(NON-REPATRIABLE) RUPEE DEPOSIT SCHEME
Objective
13C.1 With a view to providing wider options to persons of
Indian nationality/origin residing abroad (NRIs) and overseas corporate bodies
predominantly owned by NRIs (OCBs) and to provide a facility to other
non-resident individuals/entities for making investments in India Non-resident
(Non-repatriable) Rupee Deposit Scheme (NRNR) has been formulated. The scheme
has been in operation with effect from 15th June 1992.
Opening of Accounts
13C.2 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 authorised 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. No penal interest
is chargeable for premature withdrawal of NRE/FCNR deposits for the purpose of
making investment in the Scheme. Balances held in the accounts will not be
allowed to be remitted abroad under any circumstances.
NOTE:
Premature withdrawal of NRE/FCNR deposits for the purpose of opening NRNR Rupee
Deposit accounts with a different authorised dealer will attract penalty as per
the directions issued by Reserve Bank from time to time.
Joint Holding
13C.3 The deposit can be held by a non-resident jointly with a
resident.
Period of Deposit
13C.4 The deposit may be held for periods ranging from 6
months to 3 years.
Rate of Interest
13C.5 These deposits, and advances against the deposits, would
not be subject to interest rate regulations and as such banks will be free to
determine the deposit and lending rates under this Scheme.
Renewal of Deposit
13C.6 The principal amount of the deposit together with the
interest accrued thereon from 1st October 1994 will be allowed to be renewed for
a further period ranging from 6 months to 3 years. The deposit accounts opened
on or after 1st October 1994 may be renewed together with the interest accrued
thereon, if desired by the account holder. The deposit account can also be
shifted from one bank to another. If, however, the deposit is withdrawn or
invested in other schemes, the proceeds thereof will not be eligible for
investment under this scheme. A monthly statement in form STAT 9 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.
Repatriability
13C.6A. Interest accrued on the deposit for the period from
1st October 1994 is repatriable.
Gift
13C.7 In the case of individual deposit holders the amount of
the deposit can be gifted to a non-resident or to a close relative in India or
to any Charitable Trust in India recognised under the Indian Income Tax Act
1961.
Reserve Requirements
13C.8. In respect of liabilities representing amounts received
under the scheme authorised dealers are required to comply with CRR/SLR
requirements as laid down by Reserve Bank from time to time.
Applicability of Priority Sector Lending Stipulations
13C.9. Advance outstanding against these deposits would not be
considered as part of net bank credit for purpose of determining priority sector
lending.
Tax Benefits
13C.10.
- Income from the deposits will be free from Indian Income Tax in terms of
Section 10(15)(i) of the Income-tax Act 1961 read with Government
Notification No. S.O.653(E) dated August 31 1992.
- The deposit will also be exempt from Gift Tax for one-time gifting, in
the case of NRIs only.
- Exemption from Income-Tax will not be available to resident donee and
those residents, who being joint holders, become owners of the deposit as
survivor of the non-resident depositor.
Loans against Deposits
13C.11. Authorised dealers can grant loans/overdrafts in India
against the security of these deposits without any limit for purposes other than
investments. The margin and rate of interest for loans may be decided by the
lending bank. Repayment of loans can be by way of further remittance in a freely
convertible foreign currency, or by debit to NRE/FCNR/NRO account of the
depositor, or by adjustment against maturity proceeds of the deposit
Premature Withdrawal
13C.12 Authorised dealers may allow premature withdrawal of
the deposit on payment of penalty prescribed as per their discretion.
Nomination
13C.13. Nomination by the account holder in favour of a
non-resident can be registered by the authorised dealer on condition that the
amount standing to the credit of the depositor in the event of his death will be
paid to the non-resident nominee only in Indian rupees and will not be allowed
to be remitted abroad under any circumstances.
PART D - BLOCKED ACCOUNTS
Opening and Designation of Blocked Accounts
13D.1 Section 10 of FERA 1973 confers powers on Reserve Bank
to 'block' accounts in India of any person, whether an individual, firm or
company resident outside India and to direct that payment of any sums due to
that person shall be made to such blocked account. A blocked account means an
account opened as a blocked account at any branch or office in India of a bank
authorised in this behalf by Reserve Bank or an account blocked by order of the
Reserve Bank. All authorised dealers are permitted to maintain blocked accounts
subject to the conditions laid down herein. In certain cases, banks other than
authorised dealers may also be authorised by Reserve Bank to maintain blocked
accounts. No blocked account may be opened by an authorised dealer or an
existing 'free' account blocked, except under directions from Reserve Bank. A
blocked account may not be opened in the name of a resident of India, except
jointly with a non-resident.
Payments to Blocked Accounts
13D.2 Section 10(1)(b) of FERA 1973 provides that where
Reserve Bank has directed that any payment due to a non-resident be made to a
blocked account in his name with a bank in India,the crediting of the dues to
the blocked account shall, to the extent of the sum credited, be a good
discharge to the person making the payment. It is, however, essential that the
blocked accounts are opened in the names of actual non-resident beneficiaries
and that the amounts are held by banks to their order. Unless this is done, the
person making the payment will not obtain the legal discharge available under
the above provision.
Amounts payable to Blocked Accounts
13D.3 Payments in discharge of liabilities to non-residents,
remittance of which outside India cannot be approved by Reserve Bank under
current Exchange Control regulations, notwithstanding that they may have arisen
legitimately and lawfully, will only be allowed to be made to blocked accounts.
For instance, any payments to a person resident in a foreign country to which
remittance facilities are not at all permissible under the regulations will be
permitted to be made only into a blocked account in the name of the beneficiary.
Procedure for Payments to Blocked Accounts
13D.4 Where the Reserve Bank directs that a payment be made to
a blocked account only, it will be the responsibility of the banker to whom the
direction is issued, to ensure that funds in question are immediately
immobilized and are in fact disbursed only to the credit of a blocked account in
the name of the non-resident concerned with a bank authorised to maintain
blocked accounts. The banker with whom the non-resident maintains or has
arranged to open a blocked account in his name should first obtain Reserve
Bank's approval on form A4 for credit of the amount and confirm to the paying
banker the fact of his having obtained such approval to enable the latter to
disburse the amount.
Operations on Blocked Accounts
13D.5 Reserve Bank will issue special directions regarding
operations on individual blocked accounts at the time of authorizing opening of
such blocked accounts. Such balances will not ordinarily be allowed to be
invested in India.
Form A4
13D.6 Form A4 should be completed in respect of all operations
on blocked accounts, irrespective of whether the operations are made by
authorised dealers in terms of Reserve Bank's special directions, if any, or
require Reserve Bank's specific approval. The words 'BLOCKED ACCOUNT' must be
prominently written in red ink at the top of every form A4 completed in respect
of a debit or credit to a blocked account. Where forms are completed for purpose
of obtaining Reserve Bank's specific approval, they should be sent to Reserve
Bank in duplicate and the debit or credit entry made only after one copy of the
form has been returned by Reserve Bank duly approved. Such approved forms A4 as
well as forms A4 completed as reports for transactions made in terms of Reserve
Bank's special directions, if any, should be submitted to Reserve Bank.
Deblocking of Accounts
13D.7 No blocked account should be deblocked by an authorised
dealer except under specific direction from Reserve Bank.