Overseas Foreign Currency Accounts for Exporters: FEMA Compliance and Risks

RBI’s 2025 Liberalisation of Foreign Currency Accounts & Compliance Risks for Indian Exporters – FEMA Violations in the Digital Era

Summary: Through a number of amendments to the regulations of the Foreign Exchange Management Act 1999, notified in January 2025 (FEMA 10(R)(5)/2025-RB) and October 2025 (FEMA 10(R)(7)/2025-RB), the Reserve Bank of India has allowed Indian exporters to open and maintain foreign currency accounts with banks outside India directly. This is a major liberalisation of the earlier position which required that all export proceeds be realised through an Authorised Dealer bank in India. The same package of modifications extends the SNRR account architecture and supports cross-border settlement in INR. While these changes provide operational benefits to exporters doing business in several geographies, they also generate new FEMA compliance duties, and non-compliance can result in civil and perhaps criminal consequences. This page describes the modified framework and its compliance requirements.

Introduction: FEMA and the Digital Export Economy

All cross-border foreign exchange transactions by Indian residents are governed by the Foreign Exchange Management Act, 1999 (FEMA). It is administered by the Reserve Bank of India (RBI) and enforced by the Directorate of Enforcement (ED) under the Ministry of Finance. Unlike its predecessor, the Foreign Exchange Regulation Act 1973 (FERA) which provided for criminal liability for foreign exchange violations, FEMA adopts a civil penalty paradigm for most contraventions with criminal prosecution reserved for specific aggravated violations under Section 13(1B) and proceedings under the Prevention of Money Laundering Act 2002 (PMLA) where proceeds of FEMA violations constitute proceeds of crime.

In the digital era, cross-border transactions have grown tremendously faster and more frequent. Indian software exporters, freelancers, e-commerce platforms and manufacturing exporters are generally paid by overseas counterparties in foreign currencies through a variety of channels including bank transfers, online payment platforms and more and more stablecoin or digital currency settlements. This has produced new opportunities but also new FEMA compliance issues.

The January 2025 and October 2025 amendments to the Foreign Currency Accounts regulations by the RBI are the biggest liberalisation of foreign exchange accounts for exporters in a decade and come at a time when the scale and complexity of digital cross border transactions make compliance monitoring more critical and challenging.

The State Before the Amendment

Prior to the modifications in January 2025, Indian exporters had to channelise all export revenues through an Authorised Dealer (AD) bank in India, which is usually an AD Category-I bank authorised by the RBI to deal in foreign exchange. Exporters were required to realise and repatriate export proceeds to India within a specified period (ie, 9 months from the date of shipment of goods or service provided or shorter period for specific categories) and retention of foreign exchange earnings in an Exchange Earners’ Foreign Currency (EEFC) account in India was subject to certain limits.

Those exporters who wanted to use overseas banking facilities to manage export proceeds had very limited options. The EEFC account structure did not allow for the creation of accounts outside India. The practical implication was that whenever exporters had large overseas operations, especially when they were handling import payments as well as export collections from the same foreign territory, they had to route funds through Indian banking systems inefficiently for every transaction.

What Changed: 2025 Amendments

1. Fifth Amendment – January 2025 (FEMA 10(R)(5)/2025-RB)

Notification No. RBI amended the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations 2015, vide FEMA 10(R)(5)/2025-RB dated 14 January 2025, to permit Indian exporters to open and maintain foreign currency accounts with banks outside India under general permissibility (i.e. without prior RBI approval).

These overseas foreign currency accounts (OFCAs) can be used for (i) receiving revenues of exports; (ii) receiving advance payments against future shipments; and (iii) making import payments immediately. The balances in these accounts should either be used for making payments on account of imports or repatriated to India within the required term as per the general repatriation requirements laid down under the FEMA (Export of Goods and Services) Regulations.

2. Seventh Amendment – October 2025 (FEMA 10(R)(7)/2025-RB)

On 6 October 2025, the RBI issued a further revision introducing a statutory definition of ‘International Financial Services Center’ (IFSC) in the Foreign Currency Accounts Regulations, in line with the provision under the IFSCA Act 2019. This change will bring IFSC units which are deemed to be non-residents under FEMA inside the ambit of the offshore foreign currency account regime supporting financial institutions operating out of GIFT City.

3. Account Expansion SNRR

A parallel revision in the form of the Foreign Exchange Management (Deposit) (Fifth revision) Regulations, 2025 has increased the Special Non-Resident Rupee (SNRR) account system. The main changes are:

(i) the earlier maximum tenure of 7 years for SNRR accounts has been removed (the tenure will now be decided by the length of the account holder’s business in India)

(ii) the list of permissible SNRR transactions has been expanded to include all current and capital account transactions (the earlier restriction to specifically enumerated business purposes has been removed)

(iii) overseas branches of AD banks will be allowed to open SNRR accounts for persons resident outside India (PROIs)

Summary of Major Changes for 2025 FEMA Amendments

Overseas FCA (exporters): Indian exporters can now create foreign currency accounts with overseas banks for collecting export proceeds and advance payments (FEMA 10(R)(5)/2025-RB, Jan 2025), no prior RBI clearance needed.

Allowed usage: Receipt of export proceeds Receipt of export advance payments Payment of imports Balances must be returned within the time limits indicated.

SNRR term: 7-year cap abolished. Tenure now is the time business has been running.

SNRR scope: All current and capital account transactions allowed (not restricted to the list provided).

SNRR for overseas AD branches: Indian AD banks with foreign branches can now open SNRR accounts for PROIs to settle Indian transactions.

IFSC Non-residents for FEMA purposes: The position of the units in IFSC is currently provided in the FCA Regulations.

New Framework Produces Compliance Requirements

The aforesaid liberalisation does not lessen the compliance burden of the exporter under FEMA – it imposes new requirements and if ignored, amounts to contraventions under FEMA attracting civil penalty.

1. Duties for repatriation

Repatriation is the most important duty. Export proceeds received in an overseas foreign currency account should be repatriated to India within the time limit specified under the FEMA (Export of Goods and Services) Regulations, which is normally by the end of the month following the month of receipt of the funds. Any amount remaining in the offshore account after this period without the approval of the RBI for longer retention shall be in contravention of FEMA under Section 10(5) read with Section 7.

Exporters with numerous accounts abroad – such as a USD account in Singapore and a EUR account in Germany – have to keep tabs on the dates for repatriation separately. Automated treasury systems adapted to the domestic EEFC account architecture will need to be re-configured to indicate retention of offshore accounts beyond the authorised period.

2. Allowed Use: Import Payment Only

According to FEDAI Special Circular No. 08/FAQ/2025 dated 25 August 2025, cash lying in an exporter’s overseas foreign currency account can be used solely for Import Payments or can be repatriated to India. The account may not be used for investment, lending or transfer to a third party outside of the US other than in connection with allowed import transactions. Any other utilisation of the funds, such as to keep them as a buffer for the treasury or to transfer them to a connected overseas firm, would be an unauthorised capital account transaction.

3. Reporting Line: AD Bank

The AD bank of the exporter has to give complete information regarding the overseas FCA, including the bank details and purpose of the account, volumes of transactions and partial utilisation of export revenues for import payments. If the AD bank is not kept updated or if the proceeds are routed through the overseas FCA in a manner not reported to the AD bank, it is a FEMA reporting failure and a possible PMLA risk. Here, the hidden transactions mean that foreign income is being concealed.

4. Black Money (Undisclosed Foreign Income and Assets) Act 2015 Interface

Indian residents with foreign assets including foreign bank accounts are required to disclose such assets in Schedule FA of their Income Tax Return and where appropriate in the Schedule under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015. The liberalisation in FEMA 2025 permits the Indian exporters to hold overseas bank accounts legitimately under general permission for the first time; nevertheless, it does not absolve the holders of such accounts from IT Act disclosure duties.

In case of foreign FCAs being set up by exporters but not being reported in Schedule FA of their ITR, they are exposed under Black Money Act which imposes flat 30% tax on undisclosed foreign income and assets and penalty equal to 90% of tax, regardless of commercial genuineness of transactions involved. Advisers must be alert to the intersection between FEMA liberalisation and Black Money Act disclosure duties.

Consequences of Violating FEMA

FEMA violations are mostly civil. Section 13(1) of FEMA specifies that any contravention shall be penalised with a civil penalty which may extend to three times the sum involved when such sum is measurable or up to ₹2 lakh (extendable by ₹5,000 for every day during which such contravention continues) where such sum is not quantifiable. Adjudication is by Adjudicating Authority with appeal to Appellate Tribunal for Foreign Exchange (ATFE).

Compounding of FEMA violations – i.e. voluntary settlement – is permitted under the Compounding of Contraventions under FEMA Regulations. Revised measures of compounding will enable settlement of penalties of up to Rs 5 crore at the ED level, hence facilitating resolution of cases involving what the RBI calls ‘small’ infractions. If there is no accusation of fraudulent intent, compounding is the preferable approach for exporters for technical violations of repatriation timelines.

Where FEMA infractions entail proceeds that are deemed to be proceeds of crime under PMLA – for example, where unreported overseas accounts have received revenue from a scheduled offence – the ED can commence PMLA attachment proceedings in parallel or outside the FEMA adjudication. This dual track exposure is crucial especially with the larger PMLA scheduled crime list post transition from IPC to Bharatiya Nyaya Sanhita.

Summary

The RBI’s 2025 FEMA modifications are a tangible step toward India’s export competitiveness, providing Indian businesses with the same foreign banking freedom that their worldwide rivals have long enjoyed. But liberalisation isn’t deregulation. Every new permission under FEMA comes with accompanying duties – on repatriation timetables, allowed use of funds, AD bank reporting and income tax disclosure – the breaking of which invites civil and possibly criminal consequences.

For advisers with exporter clients, the immediate focus is a compliance audit: identify which clients are likely to open overseas foreign currency accounts, ensure their treasury systems can track and enforce the repatriation deadline, confirm their AD bank reporting procedures, and confirm Schedule FA disclosures in the annual ITR reflect the overseas account position. FEMA, the Black Money Act and PMLA have converged and an international FCA such as the business opportunity can easily become a regulatory burden if not dealt with sufficient compliance infrastructure.

References

• Foreign Exchange Management Act, 1999 (FEMA) – Sections 7, 10, 13; FEMA (Export of Goods and Services) Regulations
• RBI Notification No. Foreign Exchange Management (Foreign Currency Accounts by person residing in India) (Fifth Amendment) Regulations, 2025 FEMA 10(R)(5)/2025-RB issued 14th January, 2025.
• RBI Notification Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Seventh Amendment) Regulations, 2025. Dated: 6th October 2025.
• RBI Press Release dated January 16, 2025 — Amendments to FEMA Regulations to facilitate INR in cross-border transactions
• Foreign Exchange Management (Deposit) (Fifth Amendment) Regulations, 2025 – Liberalisation of SNRR Account.
• FEDAI SPECIAL CIRCULAR NO. 08/FAQ/2025 dated 25th August 2025 — FAQs on Foreign Currency Accounts and SNRR Accounts.
• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 – Sections 3, 10; Schedule FA declaration duties under the Income Tax Act.
• Prevention of Money Laundering Act, 2002 — PMLA and FEMA infractions; scheduled offence concept
• Compounding of Contraventions under FEMA, 2000, Regulations – compounding of penalties up to Rs. 5 crore at ED level.
• EY India, ‘Liberalization of FEMA Regulations for facilitating settlement of cross-border transactions in Indian Rupee (INR)’, March 2025.
• Lexology/Legal500, ‘FEMA Update: Changes to FEMA Regulations Encouraging Greater Use of INR’, January 2025.
• Lexology, ‘From Local to Global: Decoding RBI’s Recent Amendments to FEMA Regulations for Cross-Border Transactions’, January 2025.