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Do you know why Indian exporters go for EEFC Accounts?


EEFC (‘Exchange Earners’ Foreign Currency) Account is a facility available to all categories of exchange earners including SEZ developers (except SEZ Units). In this scheme of bank accounts, the exchange earners (resident of India) can maintain their account in any of the permitted foreign currency viz.  USD, GBP, Euro, JPY  etc.  In the other words we can call that, ‘EEFC account’ is a type of resident Indian’s current account wherein funds maintained in foreign currency. No interest will be paid on balance held in the account.

Exchange earners (including professional charges, honorarium etc. received by individuals) who have received funds through normal banking channels, can credit hundred per cent of inward remittance to EEFC account. The payments received in foreign exchange by a unit in the Domestic Tariff Area, for supply of goods to a unit in the Special Economic Zone (SEZ) in India is also treated as inward remittance for the purpose. The disinvestment proceeds of ADR/GDR Scheme approved by the Foreign Investment Promotion Board of the Government of India are also treated as inward remittance and therefore permitted to be credited to EEFC account. However, remittances received on account of foreign currency loan or investment received from abroad or received for meeting specific obligations by the account holder cannot be credited to EEFC account.

Utility of EEFC accounts:

  1. The depositor who receives inward remittance can directly credit the proceeds to his EEFC account without converting the foreign currency into Rupees. Thereby exporter saves transaction cost towards converting foreign currency into Indian Rupees.
  2. EEFC account holder can use the funds available in his account for the purpose of payment towards cost of goods and services imported, including payment towards Custom duty, airfare ,and hotel expenditure.
  3. The foreign currency funds maintained in EEFC account is useful to the account holder when he needs to make payment for his imports in foreign currency at a future date. The funds available in his EEFC account are protected from fluctuations in the exchange rates while making payments. Consequently, the account holder incurs minimum transaction costs while making payment in foreign currency for imports.
  4. The balances available in EEFC account can be hedged so that the currency held by the account holder can be sold on a future delivery date which will be at a rate favourable to account holder. In that case, the balances in the account sold forward by the account holders have to remain earmarked for delivery. Such forward contracts can also be rolled over.
  5. Payment in foreign exchange through EEFC account towards goods supplied by a 100 percent Export Oriented Unit or a Unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park in India is permitted.
  6. The account holders do not have any restriction in withdrawing funds in Indian Rupees from his EEFC account.
  7. The amount withdrawn in Indian Rupees is not eligible for conversion into foreign currency and for re-credit to the account. However, unutilised foreign currency earlier withdrawn from the account can be re-credited to the account.

EEFC account holders are permitted to purchase foreign exchange from Forex market only after utilizing fully the available balances in the EEFC accounts.  ADs are obtaining a declaration, in this effect, while selling foreign exchange to their EEFC account holders.

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