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KoreanDecoding the Foreign Exchange Regulations 2025 Amendments: RBI’s Step Towards Rupee Internationalization
Introduction
On 14 January 2025, the Reserve Bank of India (“RBI”) introduced certain amendments to the (i) Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instrument) Regulations, 2019 (“Mode of Payment Regulations”), (ii) Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 (“Currency Accounts Regulations”), and (iii) the Foreign Exchange Management (Deposit) Regulations, 2016 (“Deposit Regulations”)
The amendments to these regulations are all aimed to encourage the use of the Indian Rupee (INR) in cross border transactions. In this update, we discuss the key changes brought to the said regulations and our thoughts on the same.
Key Changes to the regulations
1. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instrument) Regulations, 2019 (to access the 2025 amendment click here)
Previously, any Non-resident Indian (“NRI”) could only use the funds held in Non-Resident External (“NRE”) account / Foreign Currency Non-Resident (Banks) (FCNR – B) account / Escrow account, for foreign investments including Foreign Direct Investment in equity instruments. The amended Mode of Payment Regulations now permits NRIs to use their funds held in any of the repatriable foreign currency or Rupee accounts including Non-Resident Ordinary (“NRO”) accounts, Special Non-Resident Rupee (“SNRR”) accounts, Special Rupee Vostro accounts for purposes of foreign investment in India, thus broadening the scope by including the use of Rupee accounts, which were not earlier provided for.
2. Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 (to access the 2025 amendment click here)
Earlier, only an Indian resident exporter who has undertaken a construction or turnkey projects, is exporting services or engineering goods could open, hold and maintain a foreign currency account with a bank outside India. The amended Currency Account Regulations now allows any exporter who is a person resident in India, to open, hold and maintain a bank account in any foreign currency with any bank outside India, for realization of full export value and advance remittance received by the exporter towards export of goods or services. The foreign currency account could be used for receiving the amount against export of any goods or services or for paying for imports in India. Further, the funds held in such accounts can be repatriated to India within a month from the date of receipt of funds in the foreign account.
3. Foreign Exchange Management (Deposit) Regulations, 2016 (to access the 2025 amendment click here)
The following are the key amendments to the Deposit Regulations:
- Special Non-Resident Rupee (SNRR) accounts: The amendment allows NRIs with business interests in India to open and maintain SNRR accounts with an authorised dealer bank (“AD Bank”) in India as well as with its branch outside India. This was previously restricted to only AD Bank’s branch in India. Further, the units in International Financial Services Centre (“IFSC”) can now open SNRR accounts with authorised dealers outside the IFSC, for conducting business-related transactions outside the IFSC. This newly introduced provision now enables NRIs to also open SNRR accounts in their foreign jurisdictions.
- Setting up of SNRR accounts: The amendment to Deposit Regulations allows transfer of funds between repatriable INR accounts (which was earlier restricted to bona fide business interest transactions). Prior to the amendment, the list of such bona fide business interest transactions was exhaustive and ranged from import and export of goods and services, trade credit transactions and lending under external commercial borrowing amongst others. The Deposit Regulations now allows the opening of SNRR account for all ‘permissible current and capital account transactions’which provides NRIs with greater flexibility in managing their funds, allowing them to move money freely between such accounts for legitimate purposes such as repatriation, business operations, or personal use.
- The Tenure of SNRR accounts: The amendment provides that the tenure of SNRR account will now align with the contract or business operation period, meaning the account will remain active for the duration of the business transaction it is tied to, thus, eliminating the seven-year cap previously imposed.
- Repatriation, Taxation, and Reclassification of SNRR accounts: The amendment provides that the balances in the SNRR account in India are eligible for repatriation and subject to applicable taxes. If the account holder becomes a resident, the account may be reclassified as a resident rupee account. Additionally, in the event of the holder’s demise, amounts payable to a non-resident nominee must be credited to an NRO/NRE account in India or remitted through banking channels. These clarifications reinforce that all repatriation, taxation, re-classification, and nominee-related rules specifically apply to SNRR accounts held in India.
Our Thoughts
The 2025 amendments to the Mode of Payment Regulations, Currency Accounts Regulations, and Deposit Regulations align with the 2022 initiative of the RBI to introduce Special Rupee Vostro Accounts and RBI’s memorandum of understanding with the central banks of the United Arab Emirates, Indonesia, and Maldives, which aim to promote and facilitate cross-border transactions in domestic currencies.
These amendments are an enabling step toward the internationalization of the rupee and the liberalization of India’s foreign exchange laws and provide an impetus to Indian Rupee’s global footprint with an aim of making the Indian Rupee a dominant currency in cross-border transactions, fostering greater ease in financial transactions, and supporting business activities by encouraging financial capital inflow.
The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.
