Module: | MODULE A: INTERNATIONAL BANKING
Q37: Consider the following statements regarding the interaction between the Liberalised Remittance Scheme and the Resident Foreign Currency account framework:
Statement 1: A returning Indian who was previously a non-resident can maintain their foreign earnings in a Resident Foreign Currency account without any pressure to convert it to Indian Rupees.
Statement 2: Funds held in a Resident Foreign Currency account are completely exempt from the 250,000 US Dollars annual limit when the account holder decides to remit them abroad for an investment.
Statement 3: A resident individual who has never lived abroad can actively fund a Resident Foreign Currency account by depositing their monthly domestic Indian Rupee salary into it to bypass tax tracking.
Which of the statements given above are correct?
Statement 2: Funds held in a Resident Foreign Currency account are completely exempt from the 250,000 US Dollars annual limit when the account holder decides to remit them abroad for an investment.
Statement 3: A resident individual who has never lived abroad can actively fund a Resident Foreign Currency account by depositing their monthly domestic Indian Rupee salary into it to bypass tax tracking.
Which of the statements given above are correct?
✅ Correct Answer: A
The correct answer is A. Statements 1 and 2 are correct, while Statement 3 is incorrect.
The foreign exchange regulations provide specific safe harbors for Indians returning home after living overseas.
Structurally, a returning non-resident is permitted to open a Resident Foreign Currency account to park their accumulated overseas wealth, pensions, and foreign capital gains.
The central bank allows them to hold this balance in freely convertible foreign currency without any mandatory conversion to Indian Rupees, making Statement 1 accurate.
Crucially, because these funds were earned outside India when the individual was a non-resident, any subsequent remittance from this specific account back to a foreign country is fully exempt from the 250,000 US Dollars annual limit.
Statement 2 accurately reflects this capital freedom.
Statement 3 is legally incorrect.
A Resident Foreign Currency account cannot be funded by domestic Indian Rupee earnings or salaries.
It is strictly meant for legitimate foreign exchange receipts.
Attempting to deposit domestic income into such an account to bypass the standard remittance limits or tax tracking is a severe violation of the law.
The foreign exchange regulations provide specific safe harbors for Indians returning home after living overseas.
Structurally, a returning non-resident is permitted to open a Resident Foreign Currency account to park their accumulated overseas wealth, pensions, and foreign capital gains.
The central bank allows them to hold this balance in freely convertible foreign currency without any mandatory conversion to Indian Rupees, making Statement 1 accurate.
Crucially, because these funds were earned outside India when the individual was a non-resident, any subsequent remittance from this specific account back to a foreign country is fully exempt from the 250,000 US Dollars annual limit.
Statement 2 accurately reflects this capital freedom.
Statement 3 is legally incorrect.
A Resident Foreign Currency account cannot be funded by domestic Indian Rupee earnings or salaries.
It is strictly meant for legitimate foreign exchange receipts.
Attempting to deposit domestic income into such an account to bypass the standard remittance limits or tax tracking is a severe violation of the law.