In terms of Notification No. 118 under section 19, dated 7th September, 1992, general permission has been granted for acquisition, holding and disposal of foreign securities as stated above. Consequently, no RBI permission is required to acquire or hold such securities. These securities can also be freely disposed of and the sale proceeds credited to the foreign currency account abroad or RFC accounts in India. Similarly, fresh securities can also be acquired / transferred.

Incidentally, the term "Security" has been defined in section 2(u) of FERA as meaning shares, stock, bonds and debentures. Apart from the above, for the purpose of sections 9 and 19 of FERA, the term also includes life insurance policies [Section 9(5) of FERA]. Accordingly, life insurance policy premium can also be paid out of such foreign currency account / RFC account and no permission would be required to continue to hold, acquire life insurance policy abroad.

Where the conditions of the notification stated in para 9.1 above are not satisfied ( for example, residence outside India is less than one year), RBI permission would be required.

Life insurance policy

As far as foreign life insurance policies are concerned, please refer above.

Settlement / gifts

Section 24 of FERA prohibits a person resident in India from making any gift / settlement in favour of any non-resident. The prohibition extends to property situated in India / abroad.

In view of RBI’s Notification dated 7th September, 1992, returning Indians can make gifts or settlements to / in favour of any person in foreign exchange out of foreign exchange held abroad / in RFC account.

Gift of movable property situated in India is liable to gift tax in India; therefore, a gift from RFC account will be liable to gift-tax. In view of section 5(1)(ii) of the Gift-tax Act, a gift of movable property outside India is exempt from gift-tax; this exemption is not available to an Indian citizen, who is ordinarily resident in India. In the case of a returning Indian, he would usually be not ordinarily resident (within the meaning of Income-tax Act / Gift-tax Act) and accordingly, the exemption would be available. Hence, gifts made from foreign currency account abroad would be exempt from gift-tax, unless the donor is an Indian citizen, and ordinarily, resident in India.
 

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