India: Foreign Exchange Management (Deposit) Regulations, 2016

Last Updated: 23 May 2016
Article by Singh & Associates

Most Read Contributor in India, September 2016

The Reserve bank of India released Notification No. FEMA 5 (R)/2016-RB, dated 01.04.2016, wherein it has notified the Foreign Exchange Management (Deposit) Regulations, 2016 in exercise of the powers conferred by clause (f ) of sub-section (3) of section 6, sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) and in supersession of Notification No. FEMA 5/2000-RB dated May 3, 2000, as amended from time to time.

RBI has notified these regulations in respect of deposits between a person resident in India and a person resident outside India.

Following are the major highlights of the new regulations:

1. These regulations mention that they shall come into force from the date of their publication in the official Gazette except sub-regulation (2) of regulation 7 is deemed to have come into force with effect from 21st January, 2016. These regulations were published in the Official Gazette of Government of India, dated 01.04.2016 [G.S.R. No. 389(E)].

2. Definitions: Some of the important definitions provided in these regulations are:

a. 'Authorized bank' means a bank including a co-operative bank (other than an authorized dealer) authorized by the Reserve Bank to maintain an account of a person resident outside India;

b. 'Deposit' includes deposit of money with a bank, company, proprietary concern, partnership firm, corporate body, trust or any other person;

c. 'Non-Resident Indian (NRI)' means a person resident outside India who is a citizen of India;

d. Authorised dealer, Foreign Currency Non- Resident (Bank) (FCNR (B)) account, Non- Resident External (NRE) account, Non-Resident Ordinary (NRO) account, Person of Indian Origin (PIO) etc. have also been defined.

3. As per the regulations, a person resident in India shall not accept any deposit from, or make any deposit with, a person resident outside India without prior permission from RBI.

4. Exemptions have been granted from applications of these regulations to the following:

a. Deposits held in rupee accounts maintained by foreign diplomatic missions and diplomatic personnel and their family members in India with an authorized dealer;

b. Deposits held by diplomatic missions and diplomatic personnel in special rupee accounts namely Diplomatic Bond Stores Account to facilitate purchases of bonded stocks from firms and companies who have been granted special facilities by customs authorities for import of stores into bond, subject to conditions provided in the regulations;

c. Deposits held in accounts maintained in foreign currency by diplomatic missions, diplomatic personnel and non-diplomatic staff, who are the nationals of the concerned foreign countries and hold official passport of foreign embassies in India subject to conditions provided in the regulations;

d. Deposits held in accounts maintained in rupees with an authorized dealer by persons resident in Nepal and Bhutan;

e. Deposits held in accounts maintained with an authorized dealer by any multilateral organization and its subsidiary/ affiliate bodies and officials in India of such multilateral organizations, of which India is a member nation.

5. As per the regulations, an authorized dealer in India may accept deposit:

a. under the Non-Resident (External) Account Scheme (NRE account), from a non-resident Indian;

b. under the Foreign Currency (Non-Resident) Account Banks Scheme (FCNR(B) account) from a non-resident Indian;

c. under the Non-Resident (Ordinary) Account Scheme (NRO account) from any person resident outside India;

6. Deposits under NRE and NRO Account Schemes may also be accepted by an authorized bank, subject to conditions prescribed by RBI.

7. Deposits under FCNR(B) Account Schemes may also be accepted by a Regional Rural Bank, subject to conditions prescribed by RBI.

8. Any person resident outside India having a business interest in India may open, hold and maintain with an authorized dealer in India, a Special Non- Resident Rupee Account (SNRR account).

9. Resident or non-resident acquirers may open, hold and maintain Escrow Account with Authorized Dealers in India subject to certain conditions.

10. A company registered under Companies Act, 2013 or a body corporate may accept deposits from a non-resident Indian or a person of Indian origin on non-repatriation basis, subject to certain terms and conditions.

11. An Indian company may also accept deposits by issue of Commercial Paper to a non-resident Indian or a person of Indian origin or a foreign portfolio investor registered with the Securities and Exchange Board of India subject to the certain conditions as prescribed.

12. A deposit made by an authorized dealer with its branch, head office or correspondent outside India, and a deposit made by a branch or correspondent outside India of an authorized dealer, and held in its books in India, shall be governed by the directions issued by the Reserve Bank in this regard from time to time.

13. A shipping or airline company incorporated outside India, may open, hold and maintain a Foreign Currency Account with an authorized dealer for meeting the local expenses in India of such airline or shipping company if the credits to such accounts are only by way of freight or passage fare collections in India or by inward remittances through banking channels from its office outside India.

14. An authorized dealer in India, may subject to the directions issued by the Reserve Bank, allow unincorporated joint ventures (UJV) of foreign companies/ entities, with Indian entities, executing a contract in India, to open and maintain noninterest bearing foreign currency account and a SNRR account for the purpose of undertaking transactions in the ordinary course of its business.

15. An authorized dealer in India, with the prior approval of Reserve Bank, may open an account expressed in foreign currency in the name of a person resident outside India for the purpose of adjustment of value of goods imported into India against the value of goods exported from India in terms of an arrangement voluntarily entered into by such person with a person resident in India.

16. Authorized dealers may provide nomination facility in respect of the deposits/ accounts in these regulations maintained by individual account holders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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