Resident Foreign Currency Accounts (RFS Accounts)

 

Resident Foreign Currency Accounts (RFS Accounts)

 

A scheme known as 'Resident Foreign Currency Accounts (RFC accounts) Scheme' has been drawn up by Reserve Bank in pursuance of Government of India Notification No. F.10/22/90/NRI Cell dated 17th July 1992 and Reserve Bank Notifications Nos. FERA. 116, 117 and 118 /92-RB dated 7th September 1992 to enable eligible returning Indians to open and maintain foreign currency accounts with authorised dealers in India. Reserve Bank has also granted exemption from the prohibition imposed under Section 24 of FERA 1973 in respect of gift of foreign exchange held in India/abroad or of any property held abroad in certain cases referred to in its Notification No. FERA 165/95-RB dated 28th April 1995.

Opening of RFC Accounts

(ii)

RFC accounts may be maintained in the form of current, savings (without cheque  facility) or term deposit accounts and held singly or jointly only in the names of eligible persons

Note A -Persons who returned to India prior to 18th April 1992 after having been resident outside India for a continuous period of not less than one year are also eligible to open RFC accounts if (a) they are holding valid specific permission/licence from Reserve Bank as on 17th July 1992 to maintain foreign accounts or to hold other foreign currency assets abroad or (b) they are in receipt of pension or other monetary benefits from their overseas employers subsequent to their return to India even if they did not maintain foreign currency accounts or hold other foreign currency assets abroad

Note B - Persons holding RIFEE permits or Reconversion facility have been given option to continue those facilities or avail of RFC account facility (cf. paragraph 12.13). These options can be exercised at one stroke or in part amounts during the validity period of RIFEE permit or Reconversion facility. Accordingly, holders of RIFEE permit or Reconversion facility are also eligible to open RFC accounts

Under the scheme, persons of Indian nationality or origin, who, having been resident outside Inida  for a continuous period of not less than one year, have become persons resident in India on or after 18th April 1992 are eligible to open and maintain the accounts with authorised dealers in India in any freely convertible foreign currency. Authorised dealers may, on receipt of an application in fom RFC , open RFC accounts in the names of eligible persons. Persons who returned  to India after a short assignment of less than one year abroad desiring to have RFC accounts should apply through authorised dealers to Reserve Bank in from RFC. RFC accounts opened with the specific approval of Reserve Bank will be governed by the conditions stipulated by Reserve Bank while granting such approval.

Note: For arriving at the period of continuous stay abroad of not less than one year, short visits to India on personal grounds like meeting family members/relatives or on health grounds which do not indicate the person's intention to stay in India for an indefinite period may be ignored.

 

 

  • The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.
  • RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.

 

If the individual subsequently goes abroad to become an NRI, the balance in the RFC account can be converted to NRE/FCNR account. Interest income from RFC is exempt from income-tax till such time the Returning Indian maintain the status of Resident but Not Ordinarily Resident (NOR). Hence, if the Returning NRI had been non-resident for a continuous period of 2 years, he gets exemption from income-tax for subsequent 9 years.

Interest income on RFC deposits is taxable when the NRI loses RNOR (resident not ordinarily resident) status and becomes an ordinary resident.  The balances in NRE or FCNR account can be credited to RFC Account on the change of the status of the NRE or FCNR Account holder from a Non-Resident to a Resident. Under the current FEMA regulations the Non-Resident Indian is not required to satisfy a minimum period of stay of one year.  A person can maintain an RFC Account, once he becomes a resident for any length of time as long as he remains to be a resident. If his status changes once again from Resident to Non-Resident, the funds held in RFC account are allowed to be freely remitted abroad or credited to fresh NRE or FCNR account. However the current regulation under FEMA is silent about the above provision.

The treatment of deducting tax at source on interest on RFC Account is similar to Domestic Term Deposits. However it is possible for a person, whose status under the Income Tax Provision is Resident but not Ordinarily Resident to claim that the interest on Term deposits is not liable to tax under the provisions of Section 10 of the Income Tax Act, 1961. The individual should furnish Form 15AA if he does not require the bank to deduct tax at source.


FAQ – RFC Account

Who can open?
You can open an RFC account if you return to India permanently after residing abroad for a continuous period of one year or more. In order to calculate this continuous period, any short trips to India for personal visits would be ignored. Any authorised dealer or bank will help you open your account.

Currencies
You can open an RFC account in any freely convertible foreign currency. These are foreign currencies that can be exchanged easily with other currencies and are recognized by the international market.

Type and form of account
RFC accounts can be opened as savings or term deposit accounts and can be held singly or jointly in the names of those who are eligible. No loans are available against the RFC account.

Interest
Interest is credited quarterly and is taxable. However, if you are a Resident but not Ordinary Resident, then you will be able to avail of a tax exemption on the interest on RFC accounts for the two year period when you hold this status.

Currently RFC term deposit rates are in the range of 2.5-3.5% for terms over 1 year for the US dollar.  Interest rates vary by term and by currency.

Deposits and withdrawals
You can deposit funds from the following sources in your RFC account:
-Any balances brought from your overseas bank account including foreign exchange earnings through employment, business or vocation outside India taken up or commenced while you were resident outside India.
-Any foreign currency notes you bring from abroad; however, if the value of such notes exceeds $5,000 or the combined value of Travelers'


Cheques and notes exceed $ 10,000, then you have to submit a Currency Declaration Form (CDF) to the customs authorities on arrival in India.

You must produce the Currency Declaration Form for endorsement by the bank when you submit the money for opening/credit to an Account.
-Any foreign exchange that you get on sale of eligible assets abroad; eligible assets include bank accounts, overseas shares and securities, immoveable property and investment in business outside India
-Any income that you earn from your foreign assets such as dividends, interest
-You can transfer funds from your NRE or FCNR account into the RFC account once you become a resident Indian; in such cases, no penalty for premature withdrawal will be levied on your NRE or FCNR accounts
-Any person received from abroad

You can use funds in the RFC account for the following purposes:
-You can use RFC funds for any remittances or investment abroad; you can also use the funds for maintenance of dependents or any personal purposes abroad
-You can also use these funds for expenses and investments to be made in India; withdrawals can be made in rupees and are usually credited by the bank to the resident rupee bank savings account

RFC to NRE
If you decide to go abroad again for a long term, you can either remit the RFC balance abroad or transfer funds from your RFC account into an NRE or FCNR  account.

Nomination
You can nominate either a resident or a non resident for your RFC account. In case of death of the accountholder where the nominee is a resident, the balance in the RFC account will be paid to the nominee in Indian rupees. If the nominee is an NRI, such balance would be remitted abroad.

Documents needed for opening RFC account
The following documents are commonly needed:
-Photocopy of the pages containing passport details and personal details of all applicants
-Copy of valid visa and immigration stamps showing evidence of foreign stay for at least 1 year
-Your passport photograph
-RFC declaration form

Note: There is also an RFC (Domestic) account that can be opened by resident Indians. The features of the RFC (Domestic) account are slightly different from the one disscussed here

      8.    Foreign Currency Account

  • A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.
  • A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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