Exchange Earnings, Foreign Currency Account
Foreign Exchange Earnings, Foreign Currency Account
If you are a foreign exchange earner and also have payment liability in foreign exchange. In that case, you can open an Exchange Earners’ Foreign Currency Account (EEFC) to reduce foreign exchange transaction costs.
What is an EEFC account?
EEFC is a foreign currency account maintained with an Authorised Dealer Category – I bank (bank dealing in foreign exchange).
The key purpose of the account is to reduce foreign currency transaction costs. (mainly bid-ask spread and forex conversion commission). EEFC account helps the foreign exchange-earners (including exporters), to credit their foreign exchange earnings/receipts to the account so that they do not have to convert foreign exchange receipts into Rupees and back to foreign currency if they have payments in foreign exchange in the same or succeeding month.
Who can open an EEFC account?
EEFC account can be opened by Individuals as well as companies but they should be resident in India. SEZ units cannot open an EEFC account.
What will the form of account?
The account can be opened only in the form of a current account. The Account will be non-interest bearing. It cannot be opened in form of a savings account. The checkbook facility is available for the operations of the EEFC account.
Whether forex balance held in the EEFC account can be hedged?
Yes. It can be hedged to avoid foreign currency fluctuation risks. The hedged amount needs to remain earmarked for delivery. Further, the hedge can be rolled over but cannot be canceled.
Whether EEFC account can be opened in a joint name?
Resident individuals can include ‘resident close relatives’ (members of HUF, husband, and wife) as a joint holder in their EEFC bank accounts on a former or survivor basis (the joint holder can operate the account only in case of death of the first holder).
Whether an account holder can avail of banking facilities against the balances held in an EEFC account?
No. No fund-based / non-fund based facilities are allowed to be availed against the security of balances held in EEFC accounts.
How long the funds can be retained in the EEFC account?
The total amount accrued/credited in the EEFC account during a month should be utilized before the end of the succeeding month. If not, the remaining amount needs to be converted into INR latest by the last day of the succeeding month.
Example: Total funds credited in EEFC account during Aug 2018 should be converted into Rupees on or before 30th Sep 2018 after adjusting for utilized amount during the period.
Rationale: The EEFC account facility is mainly for foreign exchange-earners to save forex transaction costs (mainly bid-ask spread and forex dealer commission) for converting forex into INR and against converting INR into Forex if they have subsequent forex payment liability till the end of the succeeding month. This facility is not for enabling the forex earners to keep assets in foreign currency.
Can you withdraw funds in the EEFC account in INR?
Yes. It is allowed but once the amount is withdrawn in INR, it cannot be converted again into foreign currency and re-credit to the EEFC account. Otherwise, the purpose of the EEFC account will get defeated.
What types of credits are allowed into the EEFC account?
- Inward remittance received through normal – Yes
- Advance or Collection received by an exporter towards export of goods/services
- Payments received in foreign exchange by a 100% EOU or unit in EPZ/STP/EHTP for the supply of goods to similar such units or to a unit in the Domestic Tariff Area
- Professional earnings (eg. directors fee, consultancy fee, lecture fee, honorarium, etc) received by a professional by rendering services in his individual capacity;
- The Credit of unutilized forex earlier withdrawn from the EEFC account
- Repayment of trade-related loans granted by an exporter holding an EEFC account
- Disinvestment proceeds received on the conversion of shares into ADR/GDR under the sponsored approval by FIPB of GoI.
What types of credits are not allowed into the EEFC account?
- Foreign currency loans raised
- Funds received for meeting specific obligations by the account holder (Eg. Equity Investment from a non-resident investor).
What types of debits are allowed into the EEFC account?
- Payments outside India towards a permissible current account transaction and permissible capital account transaction
- Payments for the cost of goods purchased from 100% EOU or units in EPZ/STP/EHTP
- Payments of custom duty
- Trade-related Loans by an exporter to his client located outside India
- Payments to a person resident in India in foreign exchange towards the supply of goods or services
- Exporters can repay INR / foreign currency packing credit advances (PCFC), to the extent exports have actually taken place.
What happens if a resident’s status changes to a non-resident?
EEFC account can be opened by resident individuals. However, after opening the EEFC account, the status of the resident changes to a non-resident, then EEFC Balances may be credited to NRE/ FCNR(B) accounts.
Can INR claims received from ECGC / Insurance companies be credited to EEFC?
The exporter may receive insurance claims from Export Credit Guarantee Corporation (ECGC) / other insurance companies in INR towards non-payment or any other risks related to exports. If such claims are settled in INR, then that proceeds should not be treated as the export realization in foreign exchange and hence such claim received cannot be credited to the EEFC account.