Black Money trail: When is a foreign bank account illegal?

A person residing in India is allowed to open a bank account in a foreign bank if she/he has to engage in any current or capital account transaction and remit money to or from India, under the Foreign Exchange Management Act (Fema), 1999. Under the Liberalised Remittance Scheme, an Indian resident can open a foreign bank account and remit money from India for any permitted current or capital account transaction, only up to a specified limit within a financial year.

Further, a resident of India, who was a non-resident Indian earlier and had opened a foreign bank account at that time, can continue to hold and maintain it even after returning to India. Fema provisions allow such a person to use foreign bank accounts for any purpose, without any monetary limits.

Kishore Joshi, senior associate at corporate law firm Nishith Desai Associates, says in normal course, a resident Indian isn't allowed to open a bank account in a foreign country. If the account in a foreign bank has income undisclosed to income tax authorities, or has funds from illegal sources, the account can be declared illegal, under the Fema. The penalty for contravention of the Fema provisions could be up to three times the amount involved. In case the amount cannot be quantified, the penalty imposed could be up to Rs 2 lakh. According to Fema provisions, in addition to the penalty, any currency, security, money or property involved in the contravention could be confiscated.

Lalit Kumar from corporate law firm J Sagar Associates says if funds deposited in a foreign bank result from any activity considered illegal, the act is treated as a criminal offence.