A comprehensive guide to Special Non-Resident Rupee Account (‘SNRR’) 

Certainly, the Indian Rupee (INR) has been making significant strides toward becoming a more global currency. Recently, the Unified Payments Interface (UPI) has been accepted in France, making it the first European country to do so. This allows people to make secure online transactions in Indian rupees using UPI-powered apps to scan QR codes generated on merchant websites. The Eiffel Tower was the first merchant to accept UPI payments in France.

In the past, non-residents having business interests in India were required to make and receive payments in Foreign Currency only. But, with the benefit provided by the SNRR account, the transactions can be done by non-residents having business interests in India in INR. Initially designed for Registered Foreign Portfolio Investors (RFPIs) by the RBI, SNRR accounts were established to enable RFPIs to conduct transactions related to the buying and selling of securities under the Portfolio Investment scheme through Authorized Dealer (AD) Banks in India.

Historically, non-residents with business interests in India were mandated to conduct financial transactions exclusively in foreign currency. However, the advent of the Special Non-Resident Rupee (SNRR) account has facilitated these transactions in Indian Rupees (INR) for non-resident entities engaged in business activities within India. Originally instituted by the Reserve Bank of India (RBI) for Registered Foreign Portfolio Investors (RFPIs), SNRR accounts were created to allow RFPIs to undertake transactions related to the purchase and sale of securities under the Portfolio Investment Scheme through Authorized Dealer Banks in India.

In 2016, the scope of SNRR Accounts underwent expansion as the RBI extended eligibility to “any person resident outside India, having business interest in India.” This revision allowed any person having a business interest in India to open SNRR Accounts denominated in Indian Rupees with AD Banks.

Given the above, an SNRR account is a type of current account that allows any person resident outside India (individual or corporate) to open an INR bank account with an Authorized Dealer (AD) Bank in India. The purpose of this account is to undertake certain prescribed transactions in Indian Rupees (INR). SNRR account has been notified in sub-regulation (4) of regulation 5 of the Foreign Exchange Management (Deposit) Regulations, 2016¹.

The key facts and regulations revolving around the SNRR account have been discussed in the ensuing paragraphs –

Who is eligible to open SNRR Accounts?

As per the master direction issued by the RBI for Deposits and Accounts2, any person can open an SNRR account with AD bank in India for making bona fide transactions in INR provided they fulfil the following conditions cumulatively:

• The person should be a resident outside India as per the relevant laws of FEMA, and
• The person should have a business interest in India.

In case the above conditions are simultaneously satisfied by any person. Then he shall be eligible to open an SNRR account in India.

What transactions are allowed to be undertaken through an SNRR account? What is included in the meaning of business interest?

RBI through an amendment3 to Foreign Exchange Management (Deposits) Regulation, 2016 expanded the meaning of business interest and provided clarity over the transactions that can be undertaken through an SNRR account. As per the amendment, apart from the transaction in the nature of generic business interest, the following transaction can also be made through the SNRR account:

Investments in India

RBI has allowed persons resident outside India (‘PROI’) to make investments in Indian entities through the SNRR Accounts. These investments include –

• Purchase and sale of debt and non-debt instruments by Foreign Portfolio Investors (‘FPI’).
• Investments in non-debt instruments by Foreign Venture Capital Investors.
• Investments in non-debt instruments by a person resident outside India in an investment vehicle.

Import and Export of Goods and Services

Payments made/received for the Import or Export of Goods and Services are allowed to be undertaken through an SNRR account provided that they are in compliance with Section 5 and Section 7 of FEMA respectively.

Trade Credits and External Commercial Borrowings

Tarde credit transactions and lending under the External Commercial Borrowing (‘ECB’) framework4 are allowed to be undertaken through the SNRR account.

Business transactions by the International Financial Service Centre (‘IFSC’)

IFSC units are allowed to enter into business transactions (e.g. administrative expenses, INR amount from scrap sale, government incentives etc.) in INR at GIFT city through an SNRR account maintained with AD bank in India but outside the IFSC area.

All the above transactions are permitted by the RBI to be undertaken through an SNRR account provided they are bona fide and denominated in INR.

How an SNRR account is different from a Non-Resident (Ordinary) (‘NRO’) account?

Both the SNRR account and NRO account are designed by RBI to facilitate ease of transaction for non-residents in India. However, these accounts are inherently different from each other and cater to different needs. The major differences between these accounts are as follows:

• SNRR account is primarily used for managing business transactions whereas NRO is primarily used to manage any income earned from India.
• SNRR is a repatriable account whereas NRO is not a repatriable account.
• SNRR is a non-interest earning account whereas NRO is interest bearing account.
• SNRR can be only opened as a current account whereas NRO can be opened as a current, savings, recurring, and fixed deposit account.

Other points for consideration

The following important should be kept in mind before opening an SNRR account with AD bank

• A separate SNRR account can be opened for each different business transaction undertaken by the person. However, the AD bank may maintain a single SNRR account, if the said AD bank is able to identify and categorise the transactions.
• Inter-SNRR account transfers are permitted within the different accounts of the same person.
• The transaction in the SNRR should be related to business.
• Since the SNRR account is a current account only, therefore no interest income is earned on the balance lying the said account.
• The SNRR account is valid for a maximum period of 7 years or tenure of the contract/project (whichever is lower). However, approval for extension may be granted by RBI on making an application. No extension is required to be obtained if only permitted transactions (as mentioned above) are undertaken.
• Transfer of balances from the NRO account to the SNRR account is not permitted.
• Balances maintained in the SNRR account are repatriable.
• Any domestic credits and overseas debits into and from the SNRR account shall require the furnishing of Form A2 to the AD bank.
• AD banks shall ensure compliance with applicable regulations to the SNRR account.
• Taxes shall apply to SNRR transactions as they would apply normally.
• Pakistan and Bangladesh residents require prior approval of RBI before opening an SNRR account.
• SNRR account shall be converted into a ‘Resident Rupee Account’ if the account holder becomes a resident in India.
• In case of the death of the account holder, the amount due/payable on the SNRR account shall be transferred to the NRO/ NRE account of the nominee or can be remitted through normal banking channels.
• No SNRR account holder can use the account to make available foreign exchange to a resident in India in exchange for INR.

Cases where SNRR accounts are beneficial for the non-residents

Foreign entities obtaining income tax refunds

There have been several cases where non-residents who do not have any physical presence in India receive income from India. These incomes include fees for technical services, royalties, etc. Taxes are being deducted from this income according to the provisions of the Income Tax Act, 1961, even though, in reality, this income may not be taxable in India or may be taxed at lower rates on a gross basis.

Consequently, non-residents are unable to claim refunds for the taxes deducted due to the absence of a bank account in India. In such situations, SNRR accounts are beneficial as they enable non-residents to receive refunds from tax authorities without establishing any presence in India.

Foreign entities undertaking turnkey projects in India

India has been growing in terms of GDP as well as in terms of its infrastructure. Most of the turnkey projects in India require expertise knowledge and experience which is majorly possessed by foreign entities. Given the same, the turkey projects are generally being awarded and executed by an Unincorporated Joint Venture (‘UJV’) between a foreign entity and an Indian entity.

Earlier, foreign entities were required to establish project offices (as regulated by RBI) in India to execute the said projects awarded to UJVs. Now, with the introduction of the SNRR account, foreign companies can execute projects without establishing a project office in India. This allows for seamless remittance of project funds and profits through SNRR accounts.

We have seen that earlier the companies used to chase the income tax authorities for multiple years to get their income tax refunds processed. However, due to the inability of CPC to process the refund to a bank account outside India, the refunds of the companies used to pile up for multiple years. But now, with the help of the SNRR bank account, foreign companies can get the refund processed from CPC within 10-15 days from the account opening (after the refund determination by the income tax department).

Given the above, we may conclude that the SNRR bank account has helped companies who have business interests in India to do business more easily and conveniently. We have practically seen that foreign companies have bagged contracts in India worth thousands of dollars and done the entire operations through the SNRR bank account seamlessly. These relaxed provisions of the SNRR bank account show the intention of the government to ease the process of doing business in India.