The Reserve Bank of India vide notification dated January 14, 20251 ("FCA Amendment") has amended the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 20152 ("FCA Regulations") to introduce a new sub-regulation with respect to opening, holding and maintaining a foreign currency account outside India by exporters situated in India.
Pre-Amendment
Prior to the FCA Amendment, persons resident in India, being exporters could hold and maintain Foreign Currency Accounts ("FCAs") with banks outside India only after taking prior approval under the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 ("Export Regulations") and for receiving funds out of the following activities:
- Undertaking construction contracts or a carrying out turnkey projects outside India; or
- Exporting services or engineering goods from India on deferred payment terms.
Changes Brought by the FCA Amendment
The FCA Amendment introduces a new provision which allows Indian exporters to hold and maintain FCAs with banks situated outside India for realization of full export value and advance remittance received by the exporter towards export of any kind of goods or services.
Post the FCA Amendment, the option with exporters to open FCAs is not just limited to receiving payment for carrying out construction contracts or turnkey projects. The exporters can now receive advance payments (for goods/services to be exported) and deferred payments (for goods/services already exported) through their FCAs. The funds in these accounts can now also be used to pay for imports into India and can also be repatriated into India within one month from the date of receipt, after adjusting for forward commitments.
Further, unlike before, there is no explicit requirement for exporters to obtain prior approval under the Export Regulations for opening FCAs for the aforesaid purposes. However, for certain export transactions, as specified under Regulation 5C of the FCA Regulations, prior approval may still be required to be undertaken.
Conclusion
In conclusion, the FCA Amendment represents a significant liberalization of the foreign currency account framework for Indian exporters. By removing the previous restrictions that limited FCA holdings to specific scenarios like construction contracts and turnkey projects, the amendment provides exporters with greater flexibility in managing their international transactions.
Footnotes
1 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12767&Mode=0
2 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10444&Mode=0
Originally published 24 March, 2025
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