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.

(A) 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].

(B)

(i) 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.

(ii) 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.

(iii) 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]

(C) 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]