FEMA (Foreign Currency Accounts) Fifth Amendment Regulations, 2025: A Step Towards Global Ease of Doing Business
The Reserve Bank of India (RBI) has introduced a key reform in its Foreign Exchange Management Act (FEMA) framework through the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Fifth Amendment) Regulations, 2025. This amendment, notified under Notification No. FEMA 10(R)(5)/2025-RB on January 14, 2025, provides Indian exporters with greater flexibility in managing foreign exchange earnings.
In this article, we explore the details of this amendment, its implications, and how it can facilitate smoother global trade transactions with practical examples.
Key Features of the Amendment
- Opening Foreign Currency Accounts Abroad
The amendment allows Indian exporters to:
- Open, hold, and maintain foreign currency accounts with banks outside India.
- Utilize these accounts for receiving export proceeds and advance remittances for the export of goods and services.
Consider an Indian IT company exporting software solutions to the United States. Earlier, the company had to receive all payments in its Indian bank account, convert the proceeds into INR, and then manage forex risks separately. With the new regulations, the company can now open a USD account with a foreign bank and directly collect payments from its U.S. clients, reducing currency conversion costs and operational challenges.
- Utilization of Funds in Foreign Accounts
Funds held in these foreign accounts can be used for:
- Paying for imports into India, such as raw materials, machinery, or software licenses purchased from international suppliers.
- Repatriating funds back to India, within a maximum period of one month from the date of receipt, after accounting for forward commitments.
For example a garment exporter in India who imports fabric from Italy can now use funds received from U.S. clients (credited to a foreign account) to pay the Italian supplier directly. This reduces unnecessary back-and-forth currency conversions, saving time and transaction costs.
Compliance Requirements
While providing this flexibility, the RBI has ensured that compliance remains a priority. Exporters must adhere to:
- Regulation 9 of FEMA (Export of Goods and Services) Regulations, 2015, which mandates the timely realization and repatriation of export proceeds.
- Proper documentation and reporting to the authorized dealer (AD) banks to maintain transparency.
Practical Implications and Advantages
- Streamlined Forex Management
Exporters often face the challenge of managing currency fluctuations. By holding foreign currency accounts, they can mitigate forex risks.
- Alignment with Global Trade Practices
Many global exporters maintain foreign currency accounts abroad to facilitate smoother cross-border transactions. The new amendment aligns Indian businesses with this global norm, enhancing their ease of doing business.
- Boost to Export Competitiveness
The ability to manage foreign exchange earnings directly gives Indian exporters a competitive edge. It reduces costs associated with conversion, delays in payment realization, and intermediaries.
For instance, an Indian tea exporter dealing with buyers in multiple countries like Japan, Russia, and the U.K. can now manage payments in JPY, RUB, and GBP through respective foreign accounts. This simplifies international invoicing and enhances client satisfaction.
The FEMA Fifth Amendment Regulations, 2025, marks a significant shift towards empowering Indian exporters by providing them with greater flexibility and aligning them with global trade practices. By allowing the maintenance of foreign currency accounts abroad, this amendment is set to reduce transactional inefficiencies and enhance India’s export competitiveness.
Exporters, however, must ensure compliance with the RBI guidelines and timely reporting to avoid penalties. As global trade becomes increasingly complex, such reforms position India as a facilitator of business growth on the international stage.
Stakeholders, especially exporters, are advised to consult professionals and understand the operational nuances of these regulations to maximize the benefits.
This amendment is a leap forward in making Indian exporters self-reliant and globally competitive—truly a “Make in India” initiative in action!