March 19, 2005

To
All Authorised Dealers in Foreign Exchange

Madam/Sirs,

As you are aware, acceptance of deposits by an authorised dealer/authorised bank from persons resident outside India are regulated in terms of sub-sections (1) and (2) of section 6 of the Foreign Exchange Management Act, 1999 read with FEMA Notification No.5/2000 RB dated May 3, 2000 as amended from time to time.

2. This Master Circular consolidates the existing instructions on the subject of "Non-Resident Ordinary Rupee (NRO) Account" at one place. The list of underlying circulars/notifications is set out in the annex.

3. As recommended by the Committee on Procedures and Performance Audit on Public Services (CPPAPS) (Chairman: Shri S. S. Tarapore) set up by the Reserve Bank, this Master Circular is being issued with a sunset clause and as such will stand withdrawn on July 1, 2005 and be replaced by an updated Master Circular on the subject.

Yours faithfully,

F. R. Joseph
Chief General Manager

List of circulars, which have been consolidated in this Master Circular on NRO account

NRO accounts may be opened/maintained in the form of current, savings, recurring or fixed deposit accounts. Rate of interest applicable to these accounts and guidelines for opening, operating and maintenance of such accounts shall be in accordance with directives/instructions issued by Reserve Bank (DBOD) from time to time.

The accounts may be held jointly with residents and/or with non-residents.

NRIs/PIO may remit through an Authorised Dealer, an amount not exceeding USD One million per calendar year, out of balances held in the NRO account representing the sale proceeds of assets (a) acquired in India out of rupee/foreign currency funds or (b) by way of inheritance legacy from a person who was resident in India subject to conditions outlined below:

NRI/PIO may remit sale proceeds of immovable property purchased by him as a resident or out of Rupee funds as NRI/PIO provided such a property was held by him for a period of not less than ten years. If such a property is sold after being held of less than ten years, remittance can be made, if the sale proceeds were held for the balance period in NRO account (Savings/Term Deposit) or in any other eligible investment to the satisfaction of the authorised dealer.

For remittance of sale proceeds of financial assets there is no lock-in-period.

For remittance of sale proceeds of assets, both financial and immovable property acquired by way of inheritance/legacy from a person who was resident in India there is no lock-in-period. NRI/PIO may submit to the satisfaction of Authorised Dealer documentary evidence in support of inheritance/legacy.

A citizen of a foreign state not being a citizen of Pakistan, Bangladesh, Nepal or Bhutan who

may remit an amount up to USD One million, per calendar year on production of documentary evidence in support of acquisition, inheritance or legacy of assets to the authorised dealer.

(a) The facility of remittance of sale proceeds of immovable property to a citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan is not available.

(b) The facility of remittance of sale proceeds of other financial assets is not available to a citizen of Pakistan, Bangladesh, Nepal and Bhutan.

NRO account (current/savings) can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. The balance in the NRO account may be converted by the authorized dealer into foreign currency for payment to the account holder at the time of his departure from India provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.

(a) Loans to non-resident account holders and to third parties may be granted in Rupees by authorised dealers against the security of fixed deposits subject to the following terms and conditions:

(b) Authorised dealer/bank may permit overdraft in the account of the account holder subject to his commercial judgement and compliance with the interest rate etc. directives.

When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non-Resident (Ordinary) Account.

When a person resident in India leaves for Nepal or Bhutan for taking up employment or for carrying on business or vocation or for any other purposes indicating his intention to stay in Nepal or Bhutan for an uncertain period, his existing account will continue as a resident account. Such account should not be designated as Non-Resident (Ordinary) Account (NRO).

NRO accounts may be re-designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.

In case of person who had availed of loan or overdraft facilities while resident in India and who subsequently becomes a person resident outside India, the authorised dealer may at their discretion and commercial judgement allow continuance of the loan/overdraft facilities. In such cases, payment of interest and repayment of loan may be made by inward remittance or out of legitimate resources in India of the person concerned.

The amount due/payable to non-resident nominee from the NRO account of a deceased account holder shall be credited to NRO account of the nominee with an authorised dealer/authorised bank in India.

The amount payable to resident nominee from the NRO account of a deceased account holder shall be credited to resident account of the nominee with a bank in India.

Persons going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all the facilities available to NRIs. Educational and other loans availed of by them as residents in India will continue to be available as per FEMA regulations.

Authorised dealers have been permitted to issue International Credit Cards to NRIs/PIO, without prior approval of RBI. Such transactions may be settled by inward remittance or out of balances held in the cardholder's FCNR/NRE/NRO Accounts.

The remittances (net of applicable taxes) will be allowed to be made by the authorised dealers on production of an undertaking by the remitter and a Certificate from a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, Government of India in their Circular No. 10/2002 dated October 9, 2002 [cf. our A.P. (DIR Series) Circular No. 56 dated November 26, 2002 ].