A Foreign Currency Account for residents allows eligible individuals in India to hold and transact in foreign currency, providing a way to manage their foreign earnings without converting them into Indian Rupees.
Resident Foreign Currency (RFC) Account
This is the primary type of foreign currency account available to residents.
Who can open an RFC Account?
A person who was previously a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) and has now become a permanent resident of India can open an RFC account.
The purpose of this account is to help these returning NRIs manage the foreign currency assets they have accumulated while living abroad.
Key Features of an RFC Account
- Account Type: It can be opened as a savings, current, or term deposit (fixed deposit) account.
- Currency: The account can be maintained in any freely convertible foreign currency, such as the US Dollar (USD), Euro (EUR), British Pound (GBP), etc.
- Source of Funds (Permissible Credits):
- Funds that were held in the person’s NRE or FCNR(B) accounts at the time of their return to India.
- Pension or other superannuation benefits received from an employer outside India.
- Usage of Funds (Permissible Debits):
- The funds can be used for any permissible current or capital account transaction. This includes making payments abroad for travel, medical expenses, or investments.
- The funds can also be freely converted into Indian Rupees at any time.
- Taxation: The interest earned on the funds in an RFC account is taxable in India.
Resident Foreign Currency (Domestic) Account – RFC(D)
This is a less common type of account that a resident individual can open.
- Purpose: It is used to credit any foreign exchange that is acquired by a resident individual from a non-resident as a gift, inheritance, or from honorariums or payments for services rendered.
- Key Feature: Unlike the RFC account, the balance in an RFC(D) account is not fully repatriable (cannot be freely sent abroad) and can only be used for specific permissible purposes.
In essence, these accounts provide a convenient way for eligible resident individuals to hold and manage their foreign currency assets within the Indian banking system, protecting them from currency conversion costs and exchange rate fluctuations.