Your Guide to Bank Accounts under FEMA:
The Foreign Exchange Management Act (FEMA), 1999 is the law that controls how money moves in and out of India. It sets the rules for residents, Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and other foreign residents when they open or use bank accounts in India.
FEMA allows different types of bank accounts depending on a person’s residential status. Each account type has its own rule, what money can be deposited, what can be withdrawn, how the funds can be used, and whether the money can be freely taken outside India (repatriated).
In simple terms:
FEMA decides how your Indian bank account can receive money, how you can spend it, and whether it is taxable or fully repatriable.
These rules help India manage foreign exchange responsibly and ensure that all cross-border transactions stay compliant.
- Accounts for Persons Resident Outside India (PROI)
Any person resident outside India, including NRIs and OCIs, can open four primary types of accounts, each serving distinct purposes for managing Indian earnings, foreign earnings, and foreign currency deposits.
Account Type | Currency | Eligibility | Key Repatriability Status | Income Tax Status in India |
Non-Resident External (NRE) Account | Indian Rupees | NRIs and OCIs | Fully Repatriable | Exempt from income tax |
Non-Resident Ordinary (NRO) Account | Indian Rupees | Any Person Resident Outside India | Non-Repatriable (except for current income and up to USD 1 million/FY) | Taxable |
Foreign Currency Non-Resident (FCNR) Account | Freely Convertible Foreign Currency | NRIs and OCIs | Fully Repatriable | Exempt from income tax |
Special Non-resident Rupee (SNRR) Account | Indian Rupees | Any Person Resident Outside India with a business interest in India | Repatriable | Taxable (Note: Account is non-interest bearing) |
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Detailed Features of Non-Resident Accounts
- Non-Resident Ordinary Rupee Account Scheme (NRO Account)
This account is maintained in Indian Rupees and can be opened by any person resident outside India for entering into bonafide transactions in Indian Rupees.
- Credits: Permissible credits include the collection of any legitimate dues in India (e.g., rent, trade receivables) and proceeds of remittances received from outside India in any permitted currency. Sale proceeds of assets, including immovable property, acquired out of rupee/foreign currency funds or by way of legacy/inheritance, are also credited here.
- Repatriation Limit: Balances in an NRO account are remittable up to USD one million per financial year (April–March). However, current year income such as rent, dividend, pension, or interest can be remitted over and above the limit prescribed in the one-million-dollar scheme.
- Taxation: Income earned in this account is taxable in India.
- Conversion: When a non-resident returns to India, NRO accounts may be designated as resident accounts.
- Non-Resident External Rupee Account Scheme (NRE Account)
This bank account is maintained in Indian Rupees and can be opened by NRIs and OCIs.
- Source and Repatriation: Funds received from outside India through inward remittance are fully repatriable.
- Taxation: Income accruing in this account is exempt from income tax in India.
- Conversion: Upon the account holder’s return to India, NRE accounts should be designated as resident accounts or the funds held transferred to Resident Foreign Currency (RFC) accounts, at the option of the account holder.
- Foreign Currency (Non-resident) Account (FCNR Account)
The FCNR account is maintained in a freely convertible foreign currency.
- Structure: It is exclusively a Term Deposit Account for a period of not less than one year and not more than five years.
- Repatriation and Taxation: Like the NRE account, funds are fully repatriable, and the income from the account is not taxable in India.
- Conversion: On a change in residential status to resident, FCNR deposits may be allowed to continue until maturity or converted into resident rupee deposit accounts or RFC accounts, at the depositor’s option.
- Special Non-resident Rupee Account (SNRR Account)
This account can be opened by any person resident outside India who has a business interest in India.
- Nature: This is a non-interest bearing account maintained in Indian Rupees.
- Purpose: It is used for specialized transactions in rupees which are in conformity with FEMA provisions. Specified transactions include External Commercial Borrowings (ECB) in INR, Trade Credits in INR, Trade (Export/Import) Invoicing in INR, and Foreign investments.
- Transfers: The transfer from NRO account to SNRR account is prohibited.
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II. Foreign Currency Accounts for Resident Individuals
While residents primarily use standard rupee accounts, FEMA permits three specific foreign currency accounts for managing foreign exchange earned or acquired by individuals in India.
Account Type | Account Holder | Currency | Interest Status | Primary Purpose/Source of Funds |
Exchange Earners Foreign Currency (EEFC) Account | Exchange Earners (Resident Person) | Foreign Currency | Non-Interest Earning | Retaining proceeds from exports, professional fees, or similar earnings for imports/payments. |
Resident Foreign Currency (RFC) Account | Resident Individual | Foreign Currency | De-regulated Interest | Retaining foreign exchange from superannuation benefits, conversion of NRE/FCNR balances upon return to India. |
Resident Foreign Currency (Domestic) [RFC(D)] Account | Resident Individual | Foreign Currency | Non-Interest Earning | Retaining foreign exchange acquired as currency notes, bank notes, and traveller’s cheques from overseas sources. |
Detailed Features of Resident Accounts
A. Exchange Earners Foreign Currency (EEFC) Account
This account is intended for exchange earners to handle foreign exchange receipts and payments related to trade.
- Type: It is a Current account only and is non-interest earning.
- Credits: Can be credited with 100% of foreign exchange received on account of export transactions, professional earnings, or similar income received by a professional in an individual capacity.
- Debits: Permitted debits include payments for any permissible current or capital account transaction, cost of goods purchased, and customs duty.
B. Resident Foreign Currency (RFC) Account
A resident individual can open this account to hold foreign exchange received from specific sources.
- Source of Funds: Key credits include foreign exchange received as superannuation/other monetary benefits from an overseas employer, or funds converted from NRE/FCNR(B) accounts upon a change in residential status from non-resident to resident.
- Operation: There are no restrictions on utilization in or outside India.
C. Resident Foreign Currency (Domestic) [RFC(D)] Account
This account is specifically for retaining physical foreign exchange acquired during foreign travel.
- Source of Funds: It is used to retain foreign exchange acquired in the form of currency notes, bank notes and traveller’s cheques from overseas sources.
• Type: It is a Current account only and is non-interest earning.
III. Other Specialized Accounts for Entities
FEMA permits other specific foreign currency accounts for specialized business purposes:
- Diamond Dollar Account (DDA) Scheme: This scheme allows eligible firms and companies dealing in rough, cut, and polished diamonds to open a non-interest-bearing current account. This account is used for the realization of export proceeds and making payments for purchases of diamonds.
- SEZ Unit Accounts: A unit located in a Special Economic Zone (SEZ) may open and maintain a foreign currency account with an authorized dealer in India to credit all foreign exchange funds received by the unit for bona fide trade transactions.
- Foreign Currency Account for Project Offices: Project Offices of foreign companies established in India can open non-interest bearing foreign currency accounts for projects where the contract specifically provides for payment in foreign currency. These accounts must be closed at the completion of the project.
- Temporary Accounts for Event Organizers: Organizers of international Seminars, Conferences, Conventions, etc., can open temporary foreign currency accounts to handle inward remittances such as registration fees, grants, and donations from abroad.
- Accounts for FDI Recipients: An Indian company receiving foreign investment under the Foreign Direct Investment (FDI) route may open a foreign currency account if it has impending foreign currency expenditure, provided the account is closed immediately after requirements are completed or within six months from the opening date, whichever is earlier.
- Accounts for Agents of Foreign Companies: Indian agents of shipping or airline companies incorporated outside India may maintain foreign currency accounts in India to meet the local expenses of the overseas company. Ship-manning/crew managing agencies can also maintain non-interest-bearing foreign currency accounts for transactions in the ordinary course of their business, credited only by inward remittances from the overseas principal.
