NON RESIDENT BUSINESS

Foreign Exchange Management Act (FEMA) 1999 was enacted with the objective of facilitating
external trade and payment and for promoting the orderly development & maintenance of
foreign exchange market. The Act came into force from1st June 2000.

o Authorised Bank
o Authorised Dealer
o Only external source of funds can be be credited to NRE/FCNR/RFC/EEFC accounts
o Residents cannot open Non-resident account and non- residents cannot open resident
accounts
o Non-resident Indians may be allowed to open joint account with Resident on Former or
survivor basis with close relatives as defined in the companies Act.
o Non- resident status should be continuously checked and ensured. When a resident
person becomes Non-resident, the existing resident account should be re-designated as
NRO account.
o For opening an account for the Pakistani/Bangladeshi nations, prior permission of the
RBI is to be obtained.
Deposits from Persons Resident outside India

The persons resident outside India may open following types of account in India.

 Non-Resident (External) Account – NRE a/c

 Non-Resident ordinary Rupee a/c – NRO a/c
 Foreign Currency (Non-Resident ) account – FCNR(B) a/c
 Escrow Accounts & Special Accounts in INR for acquisitions/transfer of
shares/convertible debentures.
Eligible funds for opening accounts

Non-Resident account can be opened by remittances from abroad in an approved manner or by

transfer from existing NRE/FCNR account or proceeds of personal cheques drawn on foreign
currency account and bank drafts payable in any permitted currency.

Funds representing dividend warrants may be credited to NRE/FCNR ACCOUNT only after
ensuring that the original investment by the Non-Residentaccou8nt holder was made to the
debit of NRI

Credits representing proceeds of foreign currency bank notes may be allowed provided these
are tendered to the ADs maintaining the Non Resident account in person by the account holder.
Foreign currency, travelers cheques issued in the name of third party cannot be credited to NRE
accounts

Currency Declaration Form(CDF) – If aggregate value of foreign currency brought into India by a
person in the form of currency notes/bank notes or travelers cheques exceed USD 10,000 or
equivalent, the same is required to be declared to the customs authorities on traveler’s arrival
on the Currency Declaration Form(CDF) as prescribed.

If value of foreign currency notes exceeds USD 10,000 or equivalent, the same also shall have
to be declared to the customs authorities on traveler’s arrival on the Currency Declaration
Form(CDF) as prescribed.

At the time of encashment/credit of foreign currency in non –resident account, the CDF is to be
endorsed. If the entire foreign exchange covered by CDF is encashed, the CDF should be
retained by the branch for the inspection.
Non Resident Accounts (NRO)

For the purpose putting through bonafie transactions in rupees as per FEMA rules.

 When residents go abroad with an indication to stay abroad, their resident account to
be re-designated as NRO accounts.
 The accounts of foreign nationals employed in India holding valid visas are eligible to
open resident account with an AD branch in India. At the time of returning to their
country, Foreign Nationals may be permitted to re-designate their resident accounts as
NRO accounts to enable them to collect their pending dues in India.
 NRO accounts may be opened and maintained in the form of Current, Savings, Recurring
or Fixed Deposit accounts.
 Accounts may be held jointly with any residents / non- residents.
 In addition to the proceeds of remittances received in any permitted currency from
outside India, legitimate dues in India of the account holder like rent, dividend, pension,
interest etc., can be credited in the account. Sale proceeds of assets including
immovable property acquired out of rupee/foreign currency funds or by way of
legacy/inheritance.
 Can be utilized for local payments in rupees including payments for investment subject
to compliance with the relevant regulations made by the RBI. Remittance outside India
of current income like rent, dividend, pension, interest etc. In India of the account
holder net of applicable taxes. Remittance up to USD one Million per financial year for
all bonafide purposes to the satisfaction of the Authorised Dealer bank.
 NRO accounts may be re-designated as resident rupee accounts on the return of the
account holder to India for taking up employment or for carrying business.
 Interest earned on balances in NROP accounts is subject to deduction of Income tax and
the surcharge as applicable at source.
 Loans to non- resident account holders may be granted in rupees against the security of
fixed deposits.
NON-RESIDENT (EXTERNAL) ACCOUNT(NRE)

NRIs who are persons of Indian Origin or Indian Nationality are permitted to open/maintain
these accounts.

Crew members of Indian nationality or Indian origin employed by foreign airline/shipping

companies if they are based at foreign ports and residing abroad in connection with their
employment.

The staff members of Indian Airlines/Shipping companies who are offshore staff of these
companies and are posted abroad for duty on short-term or long term basis.
 The accounts may be maintained in Savings, Current, Recurring or fixed deposit
account etc.
 On return to India for permanent residence, the account holder should inform the
bank.
 The initial deposit for opening the account may be received by remittance through
usual banking channels (DD/TT/cheques) either in Rupees or permitted foreign
currency from abroad.
 By transfer from his/her NRE/FCNR account.
 Min period for FD is 1 year; Max-usually 3 years it can go beyond that also. (In SBI
Max period is 10 years)
 Account can be opened with close resident relatives (as defined in the Companies Act)
on "former or survivor" basis.

 Account can be withdrawn for making local payments in Rupees.

 Interest earned on NRE accounts is exempt from Indian Income tax. Like wisebalance
held in such accounts are exempt from wealth tax.

 Rupee loan available against NRE Deposits.

NRE account holders can execute mandate or power of attorney in favour of a resident for
the purpose of operation of the account. However such mandate or power of attorney
holder shall have power only in respect of operations covering local disbursements. He
shall have no power to repatriate the funds in the account except to the extent of
repatriation for credit of account holder’s account held abroad.

Repatriation

Balances along with the interest accrued thereon can be repatriated outside India at any
time without reference to Reserve Bank
FOREIGN CURRENCY NON-RESIDENT DEPOSIT-BANKS SCHEME (FCNR B)

FCNR B was effective from 15th May 1993. Under the scheme, Banks bear the exchange rate
risk and deploy the amounts of deposits mobilized under the scheme for a variety of
purposes including for grant of pre-shipment credit to exporters.

Account holder is protected against fluctuations in Indian Rupee values vis-à-vis the
currency in which the account is denominated. The deposits can be accepted in the form of
term deposits.
 Tenor of Deposits (TDR / STDR)

o Minimum period of 1 year

o Maximum period of 5 years

 Tax Implications : Interest income is exempted from Indian income tax. However, on
relocation back to India, tax is payable subject to person’s tax status.

 Deposit is denominated in foreign currency and can be opened in

USD, GBP, EURO, CAD, JPY, or AUD

 Deposit can be opened either individually or jointly with other NRIs / PIOs

 Both principal and interest are payable in foreign currency. Hence, there is no exchange
loss on principal and interest
 Account types permissible:

o Term Deposit

o Special Term Deposit

 Funds deposited in the account can be by way of fresh remittance from overseas or
transfer from other NRE / FCNR (B) account or NRO account (subject to limit)

 Interest earned on FCNR (B) deposits is exempted from Indian Income tax

 Foreign currency loans and Rupee loan available against FCNR (B) deposits

 Account can be opened with close resident relatives on "former or survivor" basis

 Premature Withdrawals

o No interest is payable, if the deposit is withdrawn before one year

o If the deposit is withdrawn after completion of one year, interest will be paid at
the rate available on the date of deposit for the period deposit has remained
with the Bank.
e.g. if deposit is made for 3 years and is prematurely withdrawn after 2 years,
the rate applicable for the 2 to 3 years tenure at the time of making deposit shall
be applied without levying any penalty.

o Repatriation of funds will be freely permitted in any convertible currency.

Remittance from outside India for opening of or crediting to these accounts should be made in
any of the accepted currencies in which the account is desired to be opened/maintained.
Without prejudice to this, if the remittance is received in a currency other than the accepted
currency (including funds received in rupees by debit to the account of a non-resident bank), it
should be converted into the latter currency by the authorised dealer at the risk and cost of the
remitter and account should be opened/credited in accepted currency only.

When an account holder becomes a person resident in India, deposits may be allowed to
continue till maturity at the contracted rate of interest, if so desired by him. Except this
interest calculation, all other purpose, it will be deemed as resident deposits from the date of
his/her return till the date of maturity.
Interest Payment

Interest on FCNR balances, held in these accounts paid half yearly. Interest may be credited in
FCNR accounts itself or may be credited in separate account for conversion to INR or
remittance as per instructions of the depositor.