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Dr. Tabrez Ahmad
Professor of Law

Dr. Tabrez
Ahmad, http://corpoolexindia.blogspot.in

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Agenda
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Objective
FERA/FEMA
Organizational setup
Definitions
FEMA – highlights
M...
Objective
 The main objective behind the Foreign Exchange Management Act

(1999) is to consolidate and amend the law rela...
FERA/FEMA
 The Foreign Exchange Management Act (1999) or in short FEMA has

been introduced as a replacement for earlier ...
FOREIGN EXCHANGE
FEMA prohibits:
 Dealing in or transfer of Foreign Exchange or Foreign Security to any
person other than...
Exemptions
 possession of foreign currency or foreign coins by any person up to

such limit as the Reserve Bank may speci...
Exemptions Contd.
 foreign exchange acquired from

employment, business, trade, vocation, services, honorarium, gifts, in...
Organizational setup
 The FEMA head-office, also known as Enforcement Directorate is

situated in New Delhi and is headed...
Definitions
 "Adjudicating Authority" means an officer authorized under sub-

section (1) of section 16
 "Appellate Trib...
Definitions
 "Bench" means a Bench of the Appellate Tribunal
 “Capital account transaction" means a transaction which al...
Definitions
 "chartered accountant" shall have the meaning assigned to it in

clause (b) of sub-section (1) of section 2 ...
Definitions
 Current account transaction means a transaction other than a capital

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account transaction and wit...
Definitions
 "Director of Enforcement" means the Director of Enforcement

appointed under sub-section (1) of section 36
...
Definitions
 "foreign currency" means any currency other than Indian currency

 "foreign exchange" means foreign currenc...
Definitions
 "foreign security" means any security, in the form of

shares, stocks, bonds, debentures or any other instru...
Definitions
 "Indian currency" means currency which is expressed or drawn in

Indian rupees but does not include special ...
Definitions
 "service" means service of any description which is made available to

potential users and includes the prov...
Definitions
 "person" includes—

(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an a...
FEMA - highlights
 provides guidelines for the free flow of foreign exchange in India.
 It prohibits foreign exchange de...
FEMA - highlights
 There are 7 types of current account transactions, which are totally

prohibited, and therefore no tra...
FEMA - highlights
 An ROI is permitted to hold shares, securities and properties acquired

by him while he was a Resident...
Manner of receipt in Foreign Exchange
Payment for Export can be received :
 in form of Draft, cheque, foreign currency no...
Manner of receipt in Foreign Exchange
Contd.
 From a rupee account held in the name of exchange house with an

authorised...
Manner of payment in Foreign Exchange
 Payment shall be made in a currency appropriate to the country of

shipment of goo...
Liberalized Remittance Scheme
 Under the Liberalized Remittance Scheme, all resident

individuals, including minors, are ...
Contravention and compounding
 Contravention is a breach of the provisions of the Foreign Exchange

Management Act (FEMA)...
Hedging of Price Risk in Commodities
 A person resident in India is permitted to enter into a contract in a

commodity ex...
Forex facilities
 The legal framework for administration of foreign exchange

transactions in India is provided by the Fo...
Guidelines for Travel
 Foreign exchange can be purchased from any authorized person, such

as Authorized Dealer (AD) Cate...
Guidelines for Travel
 For private visits abroad, other than to Nepal and Bhutan, viz., for

tourism purposes, etc., any ...
Guidelines for Travel
 For business trips abroad to countries, other than to Nepal and

Bhutan, a person can avail of for...
Guidelines for Travel
 Travelers going to all countries other than (a) and (b) below are allowed

to purchase foreign cur...
Guidelines for Travel | Medical Treatment
 AD Category I banks and AD Category II, may release foreign exchange

up to US...
Guidelines for Travel Medical Treatment
 An amount up to USD 25,000 is allowed for maintenance

expenses of a patient goi...
 Use of International Credit Cards (ICCs) / ATMs/ Debit Cards can be

made for travel abroad in connection with various p...
FEMA, which has replaced FERA, had become the need ofth
e hour since FERA had become incompatible with the postliberalisat...
NRI & PIO
NRI is a person resident outside India who is a citizen of India
PIO means a citizen of any country other than B...
Facilities available to NRI & PIO
 Bank Accounts: NRE A/C, FCNR A/C, NRO A/C
 Repatriation Limit: upto USD 1 million per...
Acquisition of Immovable Property by NRI &
PIO in India
 Permitted to purchase Residential and Commercial Property withou...
Acquisition by NRI & PIO in India Contd.
Payment can be made by NRI / PIO out of
n
n

Funds remitted to India through norm...
Difference between FEMA & Income Tax
Provisions
One major distinction is in Income tax unlike FEMA purpose of stay is
not ...
Types of AccountsNRE (Non Resident External)
 It’s a Rupee Account
 Amount Principal as well Interest is freely repatria...
Types of AccountsNRO (Non Resident Ordinary)
 It’s a Rupee Account
 Current incomes in the account is freely repatriable...
Foreign Currency Non Resident Account
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Maintained in Foreign Exchange
No loss or gain due to fluctuations
Bo...
Manner of Repatriation
It can be done in the following manner:
 Sell it to Authorised Person in India in exchange for Rup...
Repatriation
“Repatriate to India" means bringing into India the realized foreign
exchange and the selling of such foreig...
Surrender
 Any Foreign Exchange earned by a person other than person resident in

India not used for permissible purposes...
Current Account Transactions
 Any person may sell or draw foreign exchange to or from an authorized

person if such sale ...
Current Account Transactions Contd.
The definition is inclusive and any expenditure which is not a capital
account transac...
Current Account Transactions
Few Examples
 Payment for imports of goods
 Remittance of interest on investment made and f...
Restrictions on Current Account
Transactions
The following requires prior approval of RBI:
 Gifts and Donations above USD...
Prohibited Current Account Transactions
 Drawal of exchange for travel to or with residents of Nepal/Bhutan
 Commission ...
Release of Exchange for Travel
The following do not require any approval from RBI:
 Upto USD 10,000 or equivalent in one ...
Business and Commercial Remittance
Abroad
 Foreign Technology Agreements are permitted except in High Priority

Industrie...
Import of Goods & Services
Import of Goods and Services is also a Current Account Transaction
and is freely permitted howe...
Export of Goods & Services
 Exporter should make proper Declaration in prescribed

forms to Authorised Dealers
 Declarat...
Capital Account Transactions
 "capital account transaction" means a transaction which alters the

assets or liabilities, ...
Foreign Direct Investment
Investing in India

Government Route
(FIPB)

Automatic Route

General Rule
No prior Permission R...
Who can make FDI?
 Person Resident outside India except of Pakistan
 Entity incorporated outside except Pakistan & Bangl...
Industrial Policy towards Foreign Investment
FDI in shares is permitted 100% in all industries except the following:
 Pro...
Prohibited Sectors
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Retail Trading (except single brand retailing)
Atomic Energy
Lottery Business
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Activities requiring Government Approval
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Petroleum Sector
Investing Companies in Infrastructure a...
Penalties for Contravention under FEMA
 The Penalty could be up to thrice the sum involved where amount is

quantifiable
...
Dr. Tabrez Ahmad
http://corpolexindia.blogspot.in

64
Dr. Tabrez Ahmad
http://corpolexindia.blogspot.in

65
Dr. Tabrez Ahmad
http://corpolexindia.blogspot.in
66
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Foreign Exchange Management Law

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  • Transcript of "Foreign Exchange Management Law"

    1. 1. Dr. Tabrez Ahmad Professor of Law Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 1
    2. 2. Agenda                      Objective FERA/FEMA Organizational setup Definitions FEMA – highlights Manner of receipt in foreign exchange Liberalized Remittance Scheme Contravention and compounding Hedging of Price Risk in Commodities Forex facilities Guidelines for Travel NRI & PIO Types of Accounts-NRE, NRO Re-patriation Surrender Current Account Transactions Release of Exchange for Travel Business and Commercial Remittance Abroad Business and Commercial Remittance Abroad Export & Import of Goods and Services Foreign Direct Investment Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 2
    3. 3. Objective  The main objective behind the Foreign Exchange Management Act (1999) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also formulated to promote the orderly development and maintenance of foreign exchange market in India.  FEMA is applicable to all parts of India. The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 3
    4. 4. FERA/FEMA  The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA)  FEMA was introduced because the FERA didn’t fit in with postliberalisation policies  A significant change that the FEMA brought with it, was that it made all offenses regarding foreign exchange civil offenses, as opposed to criminal offenses as dictated by FERA. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 4
    5. 5. FOREIGN EXCHANGE FEMA prohibits:  Dealing in or transfer of Foreign Exchange or Foreign Security to any person other than Authorised Person  Make any payment otherwise through an authorized person to or for the credit of any person resident outside India in any manner  receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner.  enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 5
    6. 6. Exemptions  possession of foreign currency or foreign coins by any person up to such limit as the Reserve Bank may specify  foreign currency account held or operated by such person or class of persons and the limit up to which the Reserve Bank may specify  foreign exchange acquired or received before the 8th day of July, 1947  foreign exchange held by a person resident in India up to such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred above Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 6
    7. 7. Exemptions Contd.  foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inh eritance or any other legitimate means up to such limit as the Reserve Bank may specify  such other receipts in foreign exchange as the Reserve Bank may specify Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 7
    8. 8. Organizational setup  The FEMA head-office, also known as Enforcement Directorate is situated in New Delhi and is headed by a Director.  The Directorate is further divided into 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and each office is headed by a Deputy Director.  Each zone is further divided into 7 sub-zonal offices headed by the Assistant Directors and 5 field units headed by Chief Enforcement Officers. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 8
    9. 9. Definitions  "Adjudicating Authority" means an officer authorized under sub- section (1) of section 16  "Appellate Tribunal" means the Appellate Tribunal for Foreign Exchange established under section 18  "authorized person" means an authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under sub-section (1) of section 10 to deal in foreign exchange or foreign securities Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 9
    10. 10. Definitions  "Bench" means a Bench of the Appellate Tribunal  “Capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in subsection (3) of section 6  "Chairperson" means the Chairperson of the Appellate Tribunal Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 10
    11. 11. Definitions  "chartered accountant" shall have the meaning assigned to it in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949)  "currency" includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank  "currency notes" means and includes cash in the form of coins and bank notes Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 11
    12. 12. Definitions  Current account transaction means a transaction other than a capital     account transaction and without prejudice to the generality of the foregoing such transaction includes:(i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii) remittances for living expenses of parents, spouse and children residing abroad, and (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 12
    13. 13. Definitions  "Director of Enforcement" means the Director of Enforcement appointed under sub-section (1) of section 36  "export", with its grammatical variations and cognate expressions, means— (i) the taking out of India to a place outside India any goods, (ii) provision of services from India to any person outside India Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 13
    14. 14. Definitions  "foreign currency" means any currency other than Indian currency  "foreign exchange" means foreign currency and includes,— (i) deposits, credits and balances payable in any foreign currency, (ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency; Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 14
    15. 15. Definitions  "foreign security" means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividends is payable in Indian currency  import", with its grammatical variations and cognate expressions, means bringing into India any goods or services; Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 15
    16. 16. Definitions  "Indian currency" means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under section 28A of the Reserve Bank of India Act, 1934 (2 of 1934) Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 16
    17. 17. Definitions  "service" means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 17
    18. 18. Definitions  "person" includes— (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and (vii) any agency, office or branch owned or controlled by such person Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 18
    19. 19. FEMA - highlights  provides guidelines for the free flow of foreign exchange in India.  It prohibits foreign exchange dealing undertaken other than an authorized person  It also makes it clear that if any person residing in India, received any Forex payment (without there being a corresponding inward remittance from abroad) the concerned person shall be deemed to have received they payment from a non authorized person. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 19
    20. 20. FEMA - highlights  There are 7 types of current account transactions, which are totally prohibited, and therefore no transaction can be undertaken relating to them. These include transaction relating to lotteries, football pools, banned magazines and a few others.  FEMA and the related rules give full freedom to Resident of India (ROI) to hold or own or transfer any foreign security or immovable property situated outside India.  Similar freedom is also given to a resident who inherits such security or immovable property from an ROI. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 20
    21. 21. FEMA - highlights  An ROI is permitted to hold shares, securities and properties acquired by him while he was a Resident or inherited such properties from a Resident.  Certain prescribed limits have been substantially enhanced. For instance, residence now going abroad for business purpose or for participating in conferences seminars will not need the RBI's permission to avail foreign exchange up to US$. 25,000 per trip irrespective of the period of stay, basic travel quota has been increased from the existing US$ 3,000 to US$ 5,000 per calendar year. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 21
    22. 22. Manner of receipt in Foreign Exchange Payment for Export can be received :  in form of Draft, cheque, foreign currency notes/traveler’s cheque etc. provided the foreign currency so received is surrendered within the specified time period  by debit to FCNR /NRE Account  In rupees from the credit card servicing bank in India where payment is made via credit card Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 22
    23. 23. Manner of receipt in Foreign Exchange Contd.  From a rupee account held in the name of exchange house with an authorised dealer if the amount does not exceed Rs 2 lacs  In the form of precious metals  Payment can be received in cash from Foreign Travelers in India if the same foreign exchange is duly surrendered  RBI also permits offsetting of export proceeds against import payables etc. after obtaining prescribed certificate from CA/Cost Accountant in this regard Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 23
    24. 24. Manner of payment in Foreign Exchange  Payment shall be made in a currency appropriate to the country of shipment of goods  Drawal of Foreign Currency means drawal from an authorised person and includes opening of letter of credit, use of international credit card etc. which has an effect of creating foreign exchange liability Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 24
    25. 25. Liberalized Remittance Scheme  Under the Liberalized Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 200,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.  Under the Scheme, resident individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, without prior approval of the Reserve Bank. Individuals can also open, maintain and hold foreign currency accounts with banks outside India for carrying out transactions permitted under the Scheme. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 25
    26. 26. Contravention and compounding  Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 26
    27. 27. Hedging of Price Risk in Commodities  A person resident in India is permitted to enter into a contract in a commodity exchange or market outside India to hedge price risk in commodities imported / exported, domestic transactions, freight risk, etc., through the Authorised Dealer Category - I (AD Category – I) banks.  The role of Authorized Dealer banks here is primarily to provide facilities for remitting foreign currency amounts towards margin requirements from time to time, subject to verification of the underlying exposure.  There are two channels through which residents can undertake hedge i.e. .Authorized Dealers’ Delegated Route and Reserve Bank’s Approval Route Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 27
    28. 28. Forex facilities  The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under the Foreign Exchange Management Act, 1999 (FEMA), which came into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions.  All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 28
    29. 29. Guidelines for Travel  Foreign exchange can be purchased from any authorized person, such as Authorized Dealer (AD) Category-I bank and AD Category II.  Full-Fledged Money Changers (FFMCs) are also permitted to release exchange for business and private visits.  An Authorized Dealer is any person specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities and normally includes banks. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 29
    30. 30. Guidelines for Travel  For private visits abroad, other than to Nepal and Bhutan, viz., for tourism purposes, etc., any resident can obtain foreign exchange up to an aggregate amount of USD 10,000, from an Authorized Dealer, in any one financial year, on self-declaration basis, irrespective of the number of visits undertaken during the year. This limit of USD 10,000 or its equivalent per financial year for private visits can also be availed of by a person who is availing of foreign exchange for travel abroad for any purposes, such as, for employment or immigration or studies.  A resident Indian is allowed to take INR of denomination of Rs.100 or lesser denomination to Nepal and Bhutan without limit. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 30
    31. 31. Guidelines for Travel  For business trips abroad to countries, other than to Nepal and Bhutan, a person can avail of foreign exchange up to USD 25,000 per visit. Visits in connection with attending of an international conference, seminar, specialized training, study tour, apprentice training, etc., are treated as business visits. Release of foreign exchange exceeding USD 25,000 for business travel abroad (other than to Nepal and Bhutan), irrespective of the period of stay, requires prior permission from the Reserve Bank.  Investments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 31
    32. 32. Guidelines for Travel  Travelers going to all countries other than (a) and (b) below are allowed to purchase foreign currency notes / coins only up to USD 3000. Balance amount can be carried in the form of travelers cheque or banker’s draft.  Exceptions to this are (a) travelers proceeding to Iraq and Libya who can draw foreign exchange in the form of foreign currency notes and coins not exceeding USD 5000 or its equivalent (b) travelers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States who can draw entire foreign exchange in the form of foreign currency notes or coins. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 32
    33. 33. Guidelines for Travel | Medical Treatment  AD Category I banks and AD Category II, may release foreign exchange up to USD 100,000 or its equivalent to resident Indians for medical treatment abroad on self declaration basis, without insisting on any estimate from a hospital/doctor in India/abroad.  A person visiting abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 33
    34. 34. Guidelines for Travel Medical Treatment  An amount up to USD 25,000 is allowed for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or to a person for accompanying as attendant to a patient going abroad for medical treatment/check-up.  The amount of USD 25,000 allowed to the patient going abroad is in addition to the limit of USD 100,000 mentioned above. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 34
    35. 35.  Use of International Credit Cards (ICCs) / ATMs/ Debit Cards can be made for travel abroad in connection with various purposes and for making personal payments like subscription to foreign journals, internet subscription, etc. The entitlement of foreign exchange on International Credit Cards (ICCs) is limited by the credit limit fixed by the card issuing authority only. With ICCs one can (i) meet expenses/make purchases while abroad (ii) make payments in foreign exchange for purchase of books and other items through internet in India. If the person has a foreign currency account in India or with a bank overseas, he/she can even obtain ICCs of overseas banks and reputed agencies. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 35
    36. 36. FEMA, which has replaced FERA, had become the need ofth e hour since FERA had become incompatible with the postliberalisation policies of the Govt of India. FEMA has brought a new management regime of Foreign Exchange consistent with the emerging frame work of the WTO Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 36
    37. 37. NRI & PIO NRI is a person resident outside India who is a citizen of India PIO means a citizen of any country other than Bangladesh or Pakistan, if:  held anytime an Indian Passport  either of his parents or grand parents were citizen of India  the person is a spouse of an Indian origin or of a person referred above Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 37
    38. 38. Facilities available to NRI & PIO  Bank Accounts: NRE A/C, FCNR A/C, NRO A/C  Repatriation Limit: upto USD 1 million per year from NRO Account  Housing Loans: can obtain Housing Loans for purchasing property in India Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 38
    39. 39. Acquisition of Immovable Property by NRI & PIO in India  Permitted to purchase Residential and Commercial Property without RBI’S Permission  No Limitation on the Number / size of the Property  Purchase of Agricultural Land/ Plantation Property/ Farm Houses requires RBI Permission  PIO should not be a citizen of Pakistan , Bangladesh , Sri Lanka , Afghanistan , China , Iran , Nepal , Bhutan  Citizen of above Countries not permitted to acquire Immovable Property except by way of Lease for less than five years without permission of RBI Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 39
    40. 40. Acquisition by NRI & PIO in India Contd. Payment can be made by NRI / PIO out of n n Funds remitted to India through normal banking channel or Funds held in NRE / FCNR / NRO account maintained in India No payment can be made either by traveler's cheque or by foreign currency notes and also no payment can be made outside India. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 40
    41. 41. Difference between FEMA & Income Tax Provisions One major distinction is in Income tax unlike FEMA purpose of stay is not relevant and only the period of stay is relevant Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 41
    42. 42. Types of AccountsNRE (Non Resident External)  It’s a Rupee Account  Amount Principal as well Interest is freely repatriable  Transfer from/to FCNR A/c permitted  Any form of Account is maintainable  Term Deposit permitted minimum for one and maximum for three years  Nomination/ Joint Holding can be done in name of /with non resident Disadvantages: If Rupee depreciates savings of person counted in USD depreciates Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 42
    43. 43. Types of AccountsNRO (Non Resident Ordinary)  It’s a Rupee Account  Current incomes in the account is freely repatriable  Principal amount is repatriable upto USD 1 million Dollar subject to applicable taxes  Any form of Account is maintainable  Term Deposit permitted minimum for one and maximum for three years  Nomination/ Joint Holding can be done in name of /with resident also Disadvantages: If Rupee depreciates savings of person counted in USD depreciates Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 43
    44. 44. Foreign Currency Non Resident Account        Maintained in Foreign Exchange No loss or gain due to fluctuations Both Principal & Interest are repatriable NRI can open this account Residents of Pakistan and Bangladesh requires prior RBI approval Joint Account only with NRI is permissible Can be opened with funds remitted from outside India through normal Banking Channels and those are of repatriable nature Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 44
    45. 45. Manner of Repatriation It can be done in the following manner:  Sell it to Authorised Person in India in exchange for Rupees  Retain in an account with an authorised dealer  Use it for discharge of a debt or liability denominated in foreign exchange in the manner specified by RBI Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 45
    46. 46. Repatriation “Repatriate to India" means bringing into India the realized foreign exchange and the selling of such foreign exchange to an authorized person in India in exchange for rupees, or  the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank,  It includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 46
    47. 47. Surrender  Any Foreign Exchange earned by a person other than person resident in India not used for permissible purposes should be surrendered within 60 days of such acquisition / purchase  However if acquired for Foreign Travel within 90 days if the exchange is in currency and coins and 180 days if it is in traveler’s cheque or if the same is acquired by person resident in India These provisions are not applicable to Foreign Currencies of Nepal and Bhutan Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 47
    48. 48. Current Account Transactions  Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction.  The Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be required from time to time. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 48
    49. 49. Current Account Transactions Contd. The definition is inclusive and any expenditure which is not a capital account transaction will be current account transaction. It includes:  payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business  payments due as interest on loans and as net income from investments  remittances for living expenses of parents, spouse and children residing abroad, and  expenses in connection with foreign travel, education and medical care of parents, spouse and children Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 49
    50. 50. Current Account Transactions Few Examples  Payment for imports of goods  Remittance of interest on investment made and funds borrowed from abroad after tax deductions  Remittance of Dividend if the investment was allowed without any condition  Booking with Airlines/Shipping  Salary/remuneration to Foreign Directors subject to restrictions in any other law Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 50
    51. 51. Restrictions on Current Account Transactions The following requires prior approval of RBI:  Gifts and Donations above USD 5000  Corporate Donation above 1 % of Foreign Exchange Earning during 3 previous years or USD 5 million, whichever is less  Commission to Agents abroad for sale of residential/commercial plots in India above 5 % of Inward Remittance or USD 25000 , whichever is higher  Consultancy Charges paid abroad for more than USD 1 million  Reimbursement of Pre-incorporation expenses above 5% of FDI or USD 1 lac whichever is higher Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 51
    52. 52. Prohibited Current Account Transactions  Drawal of exchange for travel to or with residents of Nepal/Bhutan  Commission on export to JV/WOS abroad  Commission on Rupee Trade  Call back Charges  Remittance out of Lottery, racing etc.  Bogus Prizes / Fictitious Schemes etc. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 52
    53. 53. Release of Exchange for Travel The following do not require any approval from RBI:  Upto USD 10,000 or equivalent in one financial year for one or more pvt visits abroad (nepal and Bhutan being exempted )  Upto USD 25,000 for business visits  Upto USD 1,00,000 for person going to abroad employment, education (yearly) and for medical Treatment Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in for 53
    54. 54. Business and Commercial Remittance Abroad  Foreign Technology Agreements are permitted except in High Priority Industries  Payment can be made on lump sum or Royalty based on sales or by issue of Equity Shares after deducting TDS  There are no limitations on royalty payment and payment of Technical Fees  No collaboration permitted in Lottery, Gambling etc. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 54
    55. 55. Import of Goods & Services Import of Goods and Services is also a Current Account Transaction and is freely permitted however few procedures are required to be followed as  Obtaining of Import License if required  Opening of Letter of Credit  CA Certificate for deduction of TDS for payment made outside  Gold may be imported by nominated agencies/banks on consignment basis Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 55
    56. 56. Export of Goods & Services  Exporter should make proper Declaration in prescribed forms to Authorised Dealers  Declaration is not required in case Trade Samples, Baggage, Gifts less than 5 lacs etc.  Export of Goods on following requires prior approval  Lease/hire  Counter Trade  Export on Elongated Credit Terms Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 56
    57. 57. Capital Account Transactions  "capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions like:      Changes in Assets/ Liabilities Transfer/ issue of security Borrowing/ Lending Export, import or holding of currency or currency notes Giving guarantee  Capital Account Transaction are deemed to be prohibited unless permitted and Current Account Transactions are deemed to be permitted unless prohibited Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 57
    58. 58. Foreign Direct Investment Investing in India Government Route (FIPB) Automatic Route General Rule No prior Permission Required Only informing RBI within 30 days of issue and reciept of funds Prior Permission Required Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 58
    59. 59. Who can make FDI?  Person Resident outside India except of Pakistan  Entity incorporated outside except Pakistan & Bangladesh  Person Resident of Bangladesh & entities incorporated there can make investment in India in form of shares and conv. Debentures with prior approval of RBI Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 59
    60. 60. Industrial Policy towards Foreign Investment FDI in shares is permitted 100% in all industries except the following:  Proposals requiring Industrial License  Investment exceeding 24% inn SSI reserved items  Investment in Defense sector upto 26%  Foreign collaborator having previous tie up  Acquisition in shares of existing Company  Prohibited Sectors Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 60
    61. 61. Prohibited Sectors             Retail Trading (except single brand retailing) Atomic Energy Lottery Business Gambling Betting etc. Business of chit fund Nidhi Company Trading in TDRs Activity /sector not opened for private sector investment Agriculture except few prescribed Plantation except tea plantation Real Estate Business except few prescribed Manufacture of Cigars, cigarettes etc. Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 61
    62. 62. Activities requiring Government Approval             Petroleum Sector Investing Companies in Infrastructure and Service Sector Defense & Strategic Industries Atomic Minerals Print Media Broadcasting Postal Services Courier Services Establishment & operation of Satellite Development of Integrated Township Tea Sector Asset Reconstruction Company Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 62
    63. 63. Penalties for Contravention under FEMA  The Penalty could be up to thrice the sum involved where amount is quantifiable  If the Amount is not quantifiable , penalty upto Rs 2 lacs can be imposed  If contravention is of continuing nature, further penalty up to Rs 5000 per day during which the contravention continues can be imposed Dr. Tabrez Ahmad, http://corpoolexindia.blogspot.in 63
    64. 64. Dr. Tabrez Ahmad http://corpolexindia.blogspot.in 64
    65. 65. Dr. Tabrez Ahmad http://corpolexindia.blogspot.in 65
    66. 66. Dr. Tabrez Ahmad http://corpolexindia.blogspot.in 66

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