Direct answer: FEMA 10(R) regulation 5(B) permits a qualifying Indian entity’s overseas-office account for normal business operations, subject to its conditions. For initial-expense remittances, the ordinary accounting-year ceiling is the higher of 15% of the last two financial years’ average annual sales/income/turnover or 25% of net worth, aggregated across the entity’s covered overseas accounts. Opening an account does not make every remittance permissible.
Checked on 23 October 2026 against the actual regulation 5(B) of the Foreign Currency Accounts Regulations and RBI’s Deposits and Accounts Master Direction, Part I paragraph 4.1, updated 2 September 2026. This article covers initial funding, aggregation and account-closure controls for an office, branch or representative. It is not an ODI subsidiary-equity or an individual LRS calculation.
Identify the Indian entity, account and business purpose
The regulation addresses a firm, company or body corporate registered or incorporated in India, with an overseas office, branch or representative account used for its normal business operations. Establish the account-holder arrangement, location, representative and purpose. A separately incorporated foreign subsidiary and the Indian entity’s own office are different structures.
Review the proposed spending and other applicable permissions. A percentage ceiling is not permission to enter a prohibited contract, make an unrelated investment or acquire overseas real estate without the relevant separate framework. Retain the board or other internal authority and the AD bank’s transaction evidence alongside the legal basis.
Build the ordinary initial-expense ceiling in two limbs
Use the Indian entity’s supported figures for each of the last two financial years and document the sales, income or turnover measure actually applicable. Calculate the two-year annual average and 15% of it, then compare 25% of supported net worth. The higher figure is the stated ordinary initial-expense ceiling, before considering prior covered remittances and any applicable exception.
Do not add the two percentage amounts together. Do not treat every overseas office or every bank account as receiving a fresh full allowance. Regulation 5(B) speaks to the Indian entity’s total remittances to all such accounts in an accounting year. Maintain an entity-wide register and distinguish initial expenses from the separate recurring-expense limb.
| Working | Calculation or evidence | Control |
|---|---|---|
| Initial-expense ceiling | Higher of the two stated percentage limbs | Use supported Indian-entity figures. |
| Accounting-year utilisation | Aggregate applicable covered remittances across accounts | Deduct prior use before a new instruction. |
| Exception and closure | Source-specific evidence, setup/closure dates and balances | Do not infer unlimited permission from one exception. |
Apply exceptions to their actual facts
The regulation states that its remittance restriction in clause (b) does not apply where funds come from the Indian entity’s EEFC account. It also provides a specified exception for the stated EOU/EPZ/technology-park situations within the prescribed establishment period. Do not apply either exception merely because the company exports or holds a foreign-currency balance.
For an EEFC-funded payment, preserve the source trail and applicable account conditions. The exception concerns the specified remittance restriction; it does not waive the normal-business purpose, other FEMA requirements or the separate account-closure conditions. Keep ordinary funding and supported exception-based funding separately identifiable in the register.
Track setup, closure and repatriation
Regulation 5(B) requires account closure if the office or branch is not set up within six months of account opening, within one month of office or branch closure, or where no representative is posted for six months, with the balance repatriated to India. Record event dates at account opening and update them when operations change.
Use actual calendar-month dates rather than a generic 180-day or 30-day formula. The illustrations select ordinary dates without month-end ambiguity and assume the stated calendar-month convention applies. Keep a practical earlier action date so bank processing does not run into the statutory endpoint.
Separate treasury arithmetic from the legal decision
A consolidated balance, a favourable exchange rate or a profitable overseas opportunity does not establish the remittance route. Reconcile approved purpose, ordinary ceiling utilisation, any supported exception, account activity and closure status before issuing the instruction. Review host-country requirements and Indian reporting/tax obligations independently where relevant.
The six examples assume valid normal-business accounts and no other disqualifying facts. Capital and turnover figures are verified inputs for these fictional cases. USD/INR 83.40 is an assumed conversion input, not a market quote. No example determines tax, customs duty or a separate overseas-investment approval.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: The turnover limb is higher
Last-two-year annual turnovers are ₹12 crore and ₹16 crore. Average is ₹14 crore; 15% is ₹2.10 crore. Supported net worth is ₹6 crore and 25% is ₹1.50 crore. The ordinary initial-expense ceiling is ₹2.10 crore, not their sum of ₹3.60 crore.
Illustrative example 2: The net-worth limb is higher
Annual turnovers of ₹4 crore and ₹6 crore average ₹5 crore, with 15% equal to ₹0.75 crore. Net worth of ₹8 crore gives a 25% amount of ₹2 crore. The higher ordinary initial ceiling is ₹2 crore. Choosing only the turnover limb would understate that numerical ceiling by ₹1.25 crore, though all other conditions still apply.
Illustrative example 3: Two offices use one entity-wide ceiling
The verified ordinary initial-expense ceiling is ₹90 lakh. Covered initial remittances this accounting year are ₹35 lakh for Office A and ₹25 lakh for Office B, totalling ₹60 lakh. Remaining headroom is ₹30 lakh. A proposed additional ₹40 lakh would bring use to ₹1 crore and exceed the ordinary ceiling by ₹10 lakh; opening a third account does not reset it.
Illustrative example 4: Trace the EEFC exception without enlarging the ordinary budget
The ordinary initial-expense ceiling is ₹45 lakh and prior covered ordinary funding is ₹20 lakh. A fresh ₹30 lakh ordinary-funded proposal would create ₹50 lakh use, ₹5 lakh beyond that ceiling. Separately, ₹75 lakh of proposed funding is demonstrably sourced from the Indian entity’s EEFC account and satisfies the stated exception. That exception is assessed for the ₹75 lakh source-specific payment; it does not by itself validate the ₹5 lakh excess in the ordinary-funded proposal.
Illustrative example 5: Diary a calendar six-month setup test
An account opens on 20 April 2026. On the stated calendar-month convention, the six-month setup point is 20 October 2026. No office has been set up by that point, so the closure and balance-repatriation condition must be addressed. An internal action date of 19 October is one calendar day earlier. Do not silently substitute an assumed 180-day rule.
Illustrative example 6: Close and repatriate after office closure
An overseas office closes on 10 October 2026. Under the stated calendar-month convention the account must be closed within one month, by 10 November 2026, with its balance repatriated. Assume the balance is USD 12,000 with no further legitimate movements. At fictional INR 83.40 per USD, the rupee equivalent is ₹10,00,800 before charges. That amount is a conversion illustration, not a tax exemption.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm the Indian entity and office/branch/representative structure. | Constitution, establishment and account-holder evidence. |
| 2 | Record the normal-business purpose and spending. | Business plan, contracts and authorised expense budget. |
| 3 | Support the last two financial years’ selected annual measure. | Accounts and sales/income/turnover reconciliation. |
| 4 | Verify the net-worth input and compute both percentage limbs. | Supported net-worth schedule and initial-ceiling working. |
| 5 | Aggregate ordinary covered remittances across all accounts. | Entity-wide accounting-year register. |
| 6 | Separate initial expenses from recurring expenses. | Purpose classification and distinct applicable-limit review. |
| 7 | Document any EEFC or other prescribed exception on its actual facts. | Source trail and condition-specific conclusion. |
| 8 | Check other FEMA, host-country and internal requirements. | Permission and approval memorandum where applicable. |
| 9 | Maintain calendar setup, representative and closure dates. | Account-opening evidence and event diary. |
| 10 | Reconcile closure balances and repatriation. | Bank statements, closure confirmation and inward receipt. |
Sixteen practitioner FAQs
1. Is this the same calculation as funding a foreign subsidiary?
No. Establish whether the account belongs to the Indian entity’s office/branch/representative or another legal structure.
2. Can an individual use this entity allowance instead of LRS?
This provision concerns the stated Indian entity and overseas-business account arrangement; do not substitute it for an individual’s route.
3. What is the ordinary initial-expense comparison?
Compare 15% of the last-two-year average annual sales/income/turnover with 25% of net worth and use the higher stated limb.
4. Are the two percentage amounts added?
No. The initial-expense comparison uses whichever is higher.
5. Does every office receive a fresh allowance?
No. Reconcile the Indian entity’s total remittances to all covered accounts for the accounting year.
6. Does an unused balance prove available remittance headroom?
No. Track remittances and the applicable purpose and period, not only the closing bank balance.
7. Can recurring expenses be placed in the initial-expense working?
Do not assume that. The regulation has a separate recurring-expense limb requiring its own review.
8. Does merely being an exporter establish the EEFC exception?
No. Establish that the relevant payment is actually sourced from the Indian entity’s EEFC account and meets the applicable conditions.
9. Does that exception waive every FEMA requirement?
No. It concerns the stated remittance restriction, with other purpose and account conditions remaining relevant.
10. Can an overseas real-estate purchase be approved from the percentage ceiling alone?
No. Review the separate applicable property and capital-account framework.
11. What happens if the office is not established within six months?
The regulation requires the stated account closure and repatriation response. Track the actual opening and setup dates.
12. What deadline follows office closure?
The regulation specifies closure of the account within one month of the office or branch closure, with balance repatriation.
13. Is six months automatically 180 days?
No. Use the applicable calendar-month computation and actual dates rather than substituting a fixed-day assumption.
14. Is one month always 30 days?
No. Calendar-month endpoints differ. Use a dated working and an earlier operational action date.
15. Can a missing overseas representative be ignored if the bank account is active?
No. The regulation also addresses the situation where no representative is posted for six months.
16. What should the AD-bank evidence file contain?
Account structure, purpose, financial inputs, cumulative remittances, exception support and setup/closure/repatriation records.
Working-paper organisation
Keep the source documents, calculation and final conclusion together for the same entity and period. If using assurePractice or other assureOffice tools, use only confirmed available functions and retain this evidence with the output.
Conclusion
Calculate and aggregate ordinary initial funding before remitting, and support each exception with its source evidence. Keep setup and closure dates linked to the balance-repatriation file.