Fema Session at mylan

FEMA Overview
Basics - Export and Imports - NRI Transactions
CA Murali Krishna G
gmk@sbsandco.com
Date: 25th January, 2019
By

FEMA Knowledge Series
 About the idea behind the knowledge series
 Proposed approach to the knowledge series
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Act
Regulations
Master
Directions
AP (DIR) Series
Circulars
FAQs
Special
permissions
Rules Press Notes
Schematic flow of the Law

FEMA Act – Introduction
 Rationale behind the Act
 Effective date of new Act
 Applicability of the Act
 Its size and nature
 49 Sections
 6 Rules
 25 Regulations
 Other related matters
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Key Definitions (1/4)
 Authorized Person [2(c)]
 Capital Account Transaction [2(e)]
 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,
 includes transactions referred to in sub-section (3) of section 6
 Currency [2(h)]
 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
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 Current Account Transaction [2(j)]
 transaction other than a capital account transaction, and 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
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 Foreign Currency [2(m)]
 Foreign Exchange [2(n)]
 Means foreign currency and includes
 deposits, credits and balances payable in any foreign currency
 drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency
but payable in any foreign currency
 drafts, travelers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons
outside India, but payable in Indian currency
 Foreign Security [2(o)]
 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
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 Person[2(u)] – includes
 individual,
 HUF,
 company,
 firm,
 AOP or a BOI, whether incorporated or not,
 every artificial juridical person, and
 any agency, office or branch owned or controlled by such person;
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FEMA Trigger Points
 Transaction between person resident in India and resident outside India
 Transaction by Resident in Forex
 Transaction by Non Resident in Rupees
 Transaction by Resident outside India
 Transaction by Non Resident in India
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Rules at glance
Sl.
No.
O R No.
/ R R No.
(if any)
Rule Title Commonly referred as
1. 379/2000 FEM (Encashment of Draft, Cheque, Instrument
and Payment of Interest) Rules, 2000
Encashment Rules
2. 380/2000 FEM (Authentication of Documents) Rules, 2000 Authentication of Documents
Rules
3. 381/ 2000 FEM (Current Account Transactions) Rules, 2000 CAT Rules
4. 382/2000 FEM (Adjudication Proceedings and Appeal)
Rules, 2000
Adjudication and Appeal Rules
5. 383/2000 FEM (Compounding Proceedings) Rules, 2000 Compounding Rules
6. 677/2000 The Appellate Tribunal For Foreign Exchange
(Recruitment, Salary and Allowances and Other
Conditions of Service of Chairperson and
Members) Rules, 2000
ATFE Rules
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Regulations at Glance (1/3)
Sl. No. O R No./ R R
No. (if any)
Regulation Title Commonly referred as
1 1/2000 FEM (Permissible Capital Account Transactions) Regulations, 2000 Capital Account Transactions
2 2/2000 FEM (Issue of Security in India by a Branch, Office or Agency of a person
resident outside India) Regulations, 2000
IDR Regulations
3 3/2000
3 (R)-2018 (RB)
FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000
FEM (Borrowing and Lending) Regulations, 2018 (Revised w.e.f 17-12-2018)
ECB Regulations
4 4/2000 FEM (Borrowing and Lending in Rupees) Regulations, 2000
(Merged with 3/(R) above)
Rupee Borrowing Regulations
5 5/2000/
5 (R) – 2016 (RB)
FEM (Deposit) Regulations, 2016 (Revised wef 01-04-2016) Deposit Regulations
6 6/2000/
6(R) – 2015 (RB)
FEM (Export and Import of Currency) Regulations, 2015 (Revised wef 29-12-
2015)
Currency Regulations
7 7/2000/
7-(R) – 2015 (RB)
FEM (Acuisition and Transfer of Immovable Property Outside India)
Regulations, 2015 (Revised wef 21-01-2016)
Foreign Assets Regulations
8 8/2000 FEM (Guarantees) Regulations, 2000 Guarantee Regulations
9 9/2000/
9 (R) – 2015 (RB)
FEM (Realisation, Repatriation and Surrender of Foreign Exchange)
Regulations, 2015 (revised wef 29-12-2015)
Forex Realization Regulations
10 10/2000/
10 (R) – 2015 (RB)
FEM (Foreign Currency Accounts by a person Resident in India) Regulations,
2015 (Revised wef 21-01-2016)
Foreign Currency accounts
Regulations
11 10A/2014 FEM (Crystallization of Inoperative Foreign Currency Deposits) Regulations,
2014
Foreign Deposits Regulations
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Sl.
No.
O R No./ R R No.
(if any)
12 11/2000/
11(R) – 2015 (RB)
FEM (Possession and Retention of Foreign Currency) Regulations, 2015
(Revised wef 29-12-2015)
Possession of Foreign Currency
Regulations
13 12/2000/
12(R) – 2015 (RB)
FEM (Insurance) Regulations, 2015 (Revised wef 29-12-2015) Foreign Insurance Regulations
14 13/2000/
13(R) – 2016 (RB)
FEM (Remittance of Assets) Regulations, 2016 (Revised wef 01-04-
2016)
Remittance of Assets Regulations
15 14/2000/
14(R) – 2016 (RB)
FEM (Manner of Receipt and Payment) Regulations, 2016 (Revised wef
02-05-2016)
Receipt and payment Regulations
16 20/2000/
20(R) – 2017 (RB)
FEM (Transfer or issue of security by a person resident Outside India)
FDI Regulations
17 21/2000
21(R)-2018 (RB)
FEM (Acquisition and transfer of Immovable Property in India)
Acquisition of Immovable Properties
In india
18 22/2000/
22(R) – 2016 (RB)
FEM (Establishment in India of Branch or Office or other place of
business) Regulations, 2016 (Revised wef 31-03-2016)
Branch Office Regulations
19 23/2000/
23(R) – 2015 (RB)
FEM (Export of Goods and Services) Regulations, 2015 (Revised wef. 12-
01-2016)
Exports Regulations
20 24/2000 FEM (Investment in Firms or Proprietary concern in India) Regulations,
2000
Investments into Firm or Proprietary
concerns
21 25/2000 FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000 Derivatives Regulations
25/01/2019All the Original Regulations are dated of 03/05/2000

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Sl. No. O R No./ R R
No. (if any)
21 71/2002 FEM (Off-shore Banking Units) Regulations, 2002 OBU Regulations
22 101/2003 FEM (Withdrawal of General Permission to Overseas Corporate
Bodies) Regulations, 2003
OCB Regulations
23 120/2004 FEM (Transfer or Issue of Any Foreign Security)Regulations, 2004 ODI regulations
24 10A/2014 FEM (Crystallization Of Inoperative Foreign Currency Deposits)
Regulations, 2014
Crystallization regulations
25 339/2015 FEM (International Financial Services Centre) Regulations, 2015 IFSC Regulations
26 348/2015 FEM (Regularization of Assets Held Abroad by a Person Resident in
India) Regulations, 2015
Black Money Regulations
27 389/2018 FEM (Cross Border Merger) Regulations, 2018 Cross Border Regulations

Important Sections (1/2)
 Dealing in Foreign Exchange – Section 3
 Holding of Foreign Exchange – Section 4
 Current Account Transaction – Section 5
 Capital Account Transaction – Section 6
 Export of Goods and Services – Section 7
 Realisation & Repatriation of FE – Section 8
 Authorized Person – Section 10
 RBI Powers to issue Directions to AP – Section 11
 Powers to RBI for inspection of AP – Section 12
 Penalties – Section 13
 Enforcement of Orders of AA – Section 14
 Compounding of Offences – Section 15
 Appointment of AA – Section 16
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Important Sections (2/2)
 Appeal to SD (Appeals) – Section 17
 Establishment of AT – Section 18
 Appeals and related procedures of AT – Section 19 to 33
 Bar of Jurisdiction of Civil Courts – Section 34
 Appeal to High Court – Section 35
 Directorate of Enforcement – Section 36
 Procedure related to ED – Section 37, 37A and 38
 Miscellaneous matters – Section 39 to 40
 Power of CG to give directions to RBI – Section 41
 Contravention by Companies – Section 42
 Power of CG to make rules – Section 46
 Power of RBI to make Regulations – Section 47
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Definition of Resident in India (2 (v)) (1/2)
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a person residing in India for more than 182 days
during the course of the preceding financial year
A person who has gone out of India or who stays
outside India, in either case-
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or
vocation outside India, or
(c) for any other purpose, in such circumstances as
would indicate his intention to stay outside India for
an uncertain period;
A person who has come to or stays in India, in either
case, otherwise than-
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in
India, or
(c) for any other purpose, in such circumstances as
would indicate his intention to stay in India for an
uncertain period;
India
But does not
include

Definition of Resident in India (2 (v)) (2/2)
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
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Definition of Non Resident Indian/ PIO
 Non Resident means a person resident outside India who is citizen of India;
 Person of Indian Origin (PIO) means a citizen of any country (other than Bangladesh or
Pakistan) who had:
(a) at any time held Indian passport or
(b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the
Constitution of India or the Citizenship Act, 1955 or
(c) the person is a spouse of an Indian citizen or a person referred to in (a) or (b).
Note: Clause (c) above is excluded for the purpose of acquisition of immovable property
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Case Studies
 X, an Indian Citizen, left India on 1st November 2017 for employment.
- What is residential status for 2017-18 and for 2018-19?
- What if, he resigns and comes back to India on 31.03.2018?
 Y, a German Citizen and frequent visitor, visits India on 1st September 2017 and leaves India
on 31st March 2018.
- What is residential status for 2018-19?
- What if, his visit is towards a seasonal business in India?
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Export of Goods / Services
[Foreign Exchange Management (Export of Goods and Services)
Regulations, 2015]

Authorities involved in Cross Border Trade
 Director General of Foreign Trade -Foreign Trade Policy
 Customs Authorities -Customs law
 Central Excise Authorities – Central Excise law
 Authorised Dealers – remittances
 Income Tax authorities – Income Tax law
 Sales Tax Authorities – State level sales tax laws
 Additional Laws involved - Research & Development Cess Act, 1986 (for import of drawings and
designs)
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Definition of Import/ Export [2 (p)/ 2(l)]
 “Import”
with its grammatical variations and cognate expressions, means bringing into India any goods
or services;
 “Export”
with its grammatical variations and cognate expressions, means
• the taking out of India to a place outside India any goods
• Provision of services from India to any person outside India
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Manner of receipt for exports
 Bank draft, pay order, banker's or personal cheques.
 Foreign currency notes/foreign currency travellers’ cheques from the buyer during his visit to
India
 Payment out of funds held in the FCNR/NRE account maintained by the buyer
 International Credit Cards of the buyer
 Wire Transfers etc.
 Credit to EEFC a/c
 Processing of export related receipts through Online Payment Gateway Service Providers
(OPGSPs) up to USD 3000 (effective from October 14, 2011)
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Invoicing for exports
 All export contracts and invoices shall be denominated either in freely convertible currency or
in Indian Rupees but export proceeds shall be realised in freely convertible currency [Para 2.40
of FTP (August 27, 2009 - March 31, 2014)]
 Export proceeds against specific exports may also be realised in rupees provided it is through a
freely convertible Vostro account of a non-resident bank situated in any country, other than a
member country of the ACU or Nepal or Bhutan.
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Exchange Earners’ Foreign Currency a/c (EEFC)
 Permissible Credits
 inward remittance received (other than loan and investments)
 Receipts by DTA for supplies to SEZ units
 Permissible Debits
 Conversion into INR
 trade related loans / advances to overseas importers
 repay packing credit advances
 Retention of CFE
 100% - up to 9/05/2012
 50% - from 10/05/2012
 100% - from 01/08/2012 subject to conversion of balance into INR before end of following
month
 Eg- Balance as on 31/07/2012 – say USD 100,000 – to be converted into INR before 30/09/2012
 Eg – Balance of accruals during Aug-12 – say USD 200,000 - to be converted into INR before 30/09/2012
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Foreign Currency a/c abroad
 For Exports
 Apply to RBI in Form EFC – through AD in case of Indian Bank / directly to RBI in case of
Foreign Banks
 Receipts by DTA for supplies to SEZ units
 For foreign office/ branch
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Time period for realisation of export proceeds
 Special Economic Zones (SEZs) – 9 months
 Status Holder Exporters – 9 months
 100 % EOUs, EHTPs, STPs and Biotechnology Parks (BTPs) - 9 months
 Goods exported to a warehouse established outside India - ASAP but not later than 15 months
of shipment of goods
 In all other cases - 12 months (June 3, 2008 to till September 30, 2012 (A.P. (DIR Series)
Circular No.40 ; dated November 01, 2011)
 In case of consignment sales - within the period undertaken by the overseas buyer, subject to
maximum of 12 months
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Advance Payment against export
 Obligation to export
 Maximum period -within one year of receipt of advance payment
 Maximum interest - LIBOR + 100 basis points
 Routing of documents covering the shipment – through AD where the advance received
 Refund of money
 within one year - automatic route
 after one year - with prior approval of RBI
 Contracts for longer period supply
 AD has to carry KYC exercise for overseas buyer and compliance with AML
 The advance should be used only for execution of contract
 Progress payments shall be received directly from the buyer
 Maximum interest - LIBOR + 100 basis points
 there should be no instance of refund exceeding 10% of the advance payment received in the last
three years
 Refund of money –with prior approval of RBI
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Export on consignment basis
 AD has to ensure that
 Documents are delivered to consignment agent only on obtaining a declaration stating that the
amount would be paid within 1 year of export
 The agents/consignees may deduct from sale proceeds of the goods the following normal expenses –
 receipt, storage and sale of the goods, such as landing charges, warehouse rent, handling charges,
etc.
 and remit the net proceeds to the exporter
 The account sales received from the Agent/Consignee should be verified by the AD.
 Deductions in Account Sales should be supported by bills/receipts in original except in case of petty
items like postage/cable charges, stamp duty, etc
 freight and marine insurance must be arranged in India
 AD Category – I banks may allow the exporters to abandon the goods, which remain unsold at the
expiry of the period of the sale contract.
 the exporters may show the value of the unsold goods as deduction from the export proceeds in the
Account Sales
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Extension of time or self write off (1/2)
 Eligibility for extension or self write-off
 Such overdue export bills does not exceed 10% of total outstanding dues during the financials year
 Such export bills are not subject to investigation by DE/ CBI etc.
 Exporter should submit a statement giving details of outstanding bills within one month of closure of
financial year
 Extension by AD
 Period of extension – up to 6 months, at a time
 Such export bills are not subject to investigation by DE/ CBI etc
 exporter has not been able to realise export proceeds for reasons beyond his control
 The exporter submits a declaration for realisation within extended period
 Limit - USD one million or 10 per cent of the average export realizations during the preceding three
financial years, whichever is higher (other than legal litigation matters).
 Extension by RBI
 All other cases
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Extension of time or self write off (2/2)
 Write-off with approval of AD (through which the documents are handled)
 Exporter has not been able to realise the outstanding export dues despite best efforts (along with
supporting documents)
 Exporter made request for write off of the unrealised portion
 The relevant amount has remained outstanding for one year or more
 The aggregate amount of write off allowed by the AD Category – I banks during a FY <= 10 per cent of
the total export proceeds realised by the concerned exporter through the concerned AD Category – I
banks during the previous FY
 Such export bills are not subject to investigation by DE/ CBI etc.
 Conditions to be satisfied:
 The overseas buyer has been declared insolvent and a certificate from the official liquidator indicating
that there is no possibility of recovery of export proceeds produced
 The overseas buyer is not traceable over a reasonably long period of time
 The unrealised amount represents the undrawn balance of an export bill (<= 10% of invoice value)
 The case is not the subject matter of any pending civil or criminal suit
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Part Balances
 Due to differences in weight, quality etc. AD has to ensure-
 The amount of undrawn balance is considered normal in the particular line of export trade,
subject to a maximum of 10% of the full export value
 An undertaking is obtained from the exporter on the duplicate of EDF forms that he will
surrender/account for the balance proceeds of the shipment within the period prescribed
for realization.
 Failure to arrange the balance proceeds – AD has to ensure that exporter has realised higher
of-
 at least the value for which the bill was initially drawn (excluding undrawn balances) or
 90 per cent of the value declared on EDF form
 a period of one year has elapsed from the date of shipment
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Netting off
 SEZ units (through AD approval)
 same Indian entity and the overseas buyer / supplier (bilateral netting) and the netting may
be done as on the date of balance sheet of the unit in SEZ
 All the relevant documents are submitted to the concerned AD Category – I banks who
should comply with all the regulatory requirements relating to the transactions
 Other than SEZ units- through AD approval (w.e.f. 17-11-2011)
 The import is as per the Foreign Trade Policy in force
 Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home
consumption have been submitted by the importer to the Authorized Dealer bank
 Payment for the import is still outstanding in the books of the importer
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Opening/ hiring of Warehouse
 AD can approve such proposal on an application made by the exporter
 Initial approval can be given for 1 year and may be renewed from time to time
 Conditions
 Applicant’s export outstanding does not exceed 5 per cent of exports made during the
previous financial year
 minimum export turnover of USD 100,000/- during the last financial year
 All transactions should be routed through the designated branch
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Dispatch of shipping documents
 Normally all the documents should be dispatched through AD within 21 days of
export
 Direct dispatch may be permitted subject to the following:
 Advance payment or an irrevocable LC has been received for the full value of the export shipment and
underlying sale contract/LC provides for such dispatch of documents
 The AD also can approve such arrangement for direct dispatch subject to the track record of the
exporter
 The export value does not exceed USD 25000
 Regularisation with approval of AD
 The documents are dispatched direct to the consignee or agent (resident of final destination)
 The export proceeds have been realised in full
 The exporter is its regular customer for at least 6 months
 The exporter’s account is fully compliant with the RBI’s extant KYC / AML guidelines
 bank is satisfied about the bonafides of the transaction
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Counter-Trade arrangement
 Meaning –
 Voluntary arrangement between the Indian Party and overseas party through an Escrow
Account opened in India in USD
 Conditions –
 RBI prior approval is required
 All imports and exports under the arrangement should be at international prices in
compliance of FTP and FEMA
 No interest would be paid on balances in Escrow Account
 No funding facilities are available on the Escrow Account
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Export of goods by SEZ
 Undertaking of Job work abroad and exporting from other country
 Processing / manufacturing charges are suitably loaded in the export price and are borne by
the ultimate buyer
 The exporter has made satisfactory arrangements for realisation of full export proceeds
subject to the usual EDF procedure
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Exemption from filing of declarations
 Exemption from filing of GR/SDF/PP
 In case of trade samples of goods and publicity material supplied free of cost – the exporter is
exempted from declaration (Reg 4(a))
 AD-1 may permit the EDF waiver as under:
 Status holders – 2% of the average annual exports of the applicant during the preceding
three licensing years or Rs. 1 Cr, whichever is less
 Pharmaceutical companies – 2% of the average annual exports of the applicant during the
preceding three licensing years
 In case of supplies of pharma products, vaccines and life saving drugs to health programs
of international agencies (UN, WHO-PAHO, etc) – 8% of the average annual exports of the
applicant during the preceding three licensing years
 In case of export of goods as gift along with a declaration and the value is <= Rs 5 Lakhs (Reg
4(d))
 Other cases – EDF/GR/SDF/PP Waiver procedure of RBI to be followed
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Invoicing of Software exports
 long duration contracts involving series of transmissions –
 Regular invoices - at least once a month or on reaching the ‘milestone’
 Last invoice – within 15 days from the date of completion of the contract
 May submit a combined SOFTEX form in quadruplicate not later than 30 days from the date
of invoice/date of last invoice (as the case may be)
 one-shot operation –
 within 15 days from the date of transmission
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Other Exports
 RBI prior approval –
 Lease or hire basis
 Elongated terms
 Project exports / service exports–
 Approval of AD Category – I banks/EXIM Bank/ Working Group
 Post award of contract but before undertaking execution
 On-site software contracts–
 Can repatriate profits
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Setting up branch office abroad
 Initial expenses –
 Up to 15% of average annual sales during last two years or 25% of net worth; whichever is
higher
 Recurring expenses-
 Up to 10% of average annual sales during last two years
 The details of bank accounts opened in the overseas country should be
promptly reported to the AD Bank.
 Remittances of “off-site” and “on-site” contracts – 100% of profits of each
contract
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Agency commission on exports
 Declaration of commission on export forms –
 Amount of commission has been declared on EDF/SOFTEX form and accepted by the
Customs authorities or Ministry of Information Technology, Government of India / EPZ
authorities as the case may be
 Otherwise, the exporter has to explain reasons behind such non-disclosure and there is a
valid agreement between the exporter and commission agent
 The relative shipment has already been made
 No specified limit of percentage of commission
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Case Studies
1. X, a Resident Indian, exported goods worth INR 1 Cr and invoiced in USD, to an NRI buyer in
Dubai. X visited Dubai on a holiday trip and collected INR 2 Lacs. Is it allowed?
In continuation of above example, X opened a bank account in Dubai and asked the buyer to
transfer proceeds to that account. Is that allowed? What are other impacts?
2. Y Pvt Ltd, exported goods worth USD 50K to a buyer in Iran on 1st April 2014. Business was
regular with this buyer over last 5 years. For current invoice, company realized USD 10K on 1st
August 2014 and USD 15K on 31st March 2016. Balance not received till date. What are
contraventions involved, probable impact and options available to avoid penalties?
3. A Ltd, an Indian entity is subsidiary of B Ltd, a UK company. A Ltd imports raw material from B
Ltd, and exports finished products to B Ltd. As at March 31, 2018, A Ltd has INR 1 Cr receivable
from B Ltd and a payable of GBP 100K to B Ltd. Is netting off allowed?
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Case Studies
4. ABC Ltd is an Indian Company has its associated enterprise XYZ Ltd in Germany. ABC Ltd exports
drugs to XYZ Ltd at Cost plus 10% mark up [Eg: USD 100 plus 10% mark up making USD 110], with
a condition that ultimate profits (on sales to end customers) shall be shared in 50:50 ratio [Eg:
USD 110 sold at USD 150, making profit of USD 40 to be shared in 50:50]. Is this allowed under
FEMA? What precautionary measures are to be taken considering various other Indian laws?
5. As a modification to above case, what difference does it make if the supply is under a contract
manufacture agreement at Cost plus 10% mark up, but the initial invoicing is at a budget price of,
say, USD 125, that gets trued up / down based on actuals at regular intervals, say half-yearly.
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25/01/2019
Import of Goods / Services
[Foreign Exchange Management (Current Account
Transactions) Rules, 2000]

Forms to be submitted for import payments
 Form A-1 (for payments exceeding USD 5000)
 Exchange control copy of B/E, Postal Appraisal Form or Customs Assessment Certificate, etc.,
 Import Licenses, if any
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Mode of payment for imports
 Through Document Credits (LC etc.)
 Through forex remittances
 By crediting to account being maintained by the exporter in India
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Time Limit for payment towards Imports
 Normal imports - with in 6 months of imports
 Guarantee of Performance - as per the agreement
 Delay beyond six months
 due to disputes, financial difficulties - without interest.
 In case of interest payment, it shall not exceed prevailing trade credits from the bank(s)
 Deferred Payments - shall comply with the Trade Credit Regulations
 In case of advance payments (usance payments)
 interest is known - reduce the proportionate interest of LC
 Import of books - there is no time limit and interest payment, if any, shall be within the limits
prescribed
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Trade Credits
 Suppliers Credit – Where the overseas supplier give credit for certain period
 Buyer’s Credit – Where the overseas supplier facilitates the credit from a foreign bank /
financial institution
 Maturity period
 Capital Goods - > 1 year and < 3 years from the date of shipment
 Others - < 1 year
 Amount - USD 50 Million per shipment or amount prescribed by RBI
 No roll over or extension is permitted
 All in cost ceiling
25/01/2019
Maturity Period All-in-cost ceilings over 6 months LIBOR*
Up to one year FC - 250 basis points@
INR- Prevailing Market Conditions> 1 year but < 3 years
* for the respective currency of credit or applicable benchmark
@ w.e.f. 16th December, 2018

Import of Foreign Currency
 Sending of FC
 without limit foreign exchange in any form other than currency notes, bank notes and
travellers cheques
 Bringing of FC
 without limit foreign exchange (other than unissued notes)
 Conditions - declaration in CDF at the Customs Port if exceeds
 currency notes, bank notes or travellers cheques - USD10,000 or its equivalent
 currency notes - USD 5,000 or its equivalent
 Indian Currency - Rs.25,000/- per person
25/01/2019

Advance Remittances
 Automatic route - without limit
 Conditions:
 For Goods - exceeding USD 200,000 or its equivalent
 For Services - exceeding USD 500,000 or its equivalent
 SBLC or a guarantee from an international bank of repute or AD Category – I bank against
counter guarantee
 In case of advance for goods and if AD has satisfied with the track record and bonafides of
importer – amount can be remitted up to USD 5 Million – without such SBLC or guarantee
25/01/2019

Receipt of Bills/ documents
 Import Bills / documents should be received by the AD-1
 Eligibility of direct receipt by the importer
 Where the value of import bill does not exceed USD 300,000
 Import bills received by wholly-owned Indian subsidiaries of foreign companies from their
principals
 Status Holder Exporters as defined in the FTP, 100% EOU/ Units in SEZ, PSU and Limited
Companies
25/01/2019

Evidence of Import
 Physical Imports
 If the FC remittance exceeds USD 100,000 or its equivalent
 The Exchange Control copy of the Bill of Entry for home consumption
 The Exchange Control copy of the Bill of Entry for warehousing, in case of 100% EOUs
 Customs Assessment Certificate or Postal Appraisal Form
 Documents against Acceptance (D/A) basis - production of evidence of import at the time of
effecting remittance of import bill
 Non Physical Imports (software or data through internet / datacom channels
and drawings and designs through e-mail/fax etc)
 a certificate from a Chartered Accountant as to receipt of the imports
25/01/2019

Evidence of Import
 Evidence of import in lieu of Bill of Entry
 Certificate from CEO or Auditor
 If the FC remittance less than USD 1,000,000 or its equivalent
 the importer is a company listed on a stock exchange in India and having net worth >= Rs.100 crore as
on the date of its last audited balance sheet
25/01/2019

Follow up by AD
 Evidence of import in lieu of Bill of Entry
 If the FC remittance > USD 1 Million or its equivalent
 The importer does not submit the evidence within 3 months of payment
 The AD should follow up for next 3 months including through registered post
 The AD should forward a half-yearly statement (June & December) to RBI within 15 days
 If the FC remittance <= USD 1 Million – AD satisfies with the bonafides of the remitter – no further follow
up required
25/01/2019

Case Studies
 R Ltd imported Plant & Machinery from its parent company P Ltd on lease basis for a period of
10 years. Is it allowed?
 What if, in the above case, it is a normal import but extended credit facility of 5 years?
 What if, in the above case, it is import raw materials with credit facility of 5 years?
25/01/2019

Loans from NRI / PIO (1/3)
 Borrowing in FC by Individual resident Indian in India
 The lender is a close relative (ref Sec 2(77) of Companies Act, 2013)
 The maximum loan amount is USD 250,000 or its equivalent INR
 The loan amount shall be received by CFE/NRE/FCNR funds
 Minimum maturity period of the loan is 1 year
 The loan is free of Interest
 Restriction on end use of Funds
 The borrower shall not engage in Agricultural/ Plantation/ real estate business/ trading in
TDR/ does not act as Nidhi or Chit Fund company;
 also the funds shall not be used for investment in capital or otherwise, in any company or
partnership firm or proprietorship concern or any entity, whether incorporated or not or for
re-lending
25/01/2019

 Borrowing in INR by persons other than Companies in India
 The loan amount shall be received by CFE/NRE/NRO/FCNR funds
 The loan period shall not exceed 3 years
 The Rate of Interest shall not exceed 2% over prevailing bank rate
 The loan amount is not eligible for repatriation (but eligible under USD 1 Million)
• Restriction on end use of Funds
Same as in previous slide
25/01/2019

 Borrowing in INR by Companies in India
 The amount shall be received by way issue of NCDs
 The issue of NCDs is made by public offer
 The loan period shall not be less than 3 years
 The Rate of Interest shall not exceed 3% over prevailing bank rate
 The company shall file report to RBI within 30 days of receipt
 Additional conditions for repatriation
 The % of investment by NRI shall be within the limits specified under FDI
 The amount has to come by CFE/NRE/FCNR account
 Restriction on end use of Funds
 The borrower shall not engage in Agricultural/ Plantation/ real estate business/ trading in
TDR/ does not act as Nidhi or Chit Fund company;
 Also the funds shall not be used for investment in capital or otherwise, in any company or
partnership firm or proprietorship concern or any entity, whether incorporated or not or for
re-lending
25/01/2019

25/01/2019
Introduction to Compounding
Regulations

What is Compounding ?
 A process by which an entity/individual committing a contravention can make an application
and seek regularization by admitting the contraventions under FEMA on payment of the
amount imposed.
How are contraventions detected ?
 Voluntary Disclosure
 Authorised Dealer Correspondence
 Market Intelligence
 RBI scrutiny at the time of reporting, seeking approvals for refund etc.,
 Media
Introduction
25/01/2019

Compounding Powers of ED
Amount involved in contravention (INR) Relevant Officer
<= 5 Lakhs Deputy Director (DD)
> 5 Lakhs and <= 10 Lakhs Additional Director (AD)
> 10 Lakhs and <= 50 Lakhs Special Director (SD)
> 50 Lakhs and <= 100 Lakhs SD with Deputy Directorate
> 100 Lakhs SD with Directorate
25/01/2019

Compounding Powers of RBI
Amount involved in contravention (INR) Relevant Officer
Up to Rs. 10 Lakhs Assistant General Manager (AGM)
Rs. 10 Lakhs to Rs. 40 Lakhs Deputy General Manager (DGM)
Rs. 40 Lakhs to Rs. 100 Lakhs General Manager (GM)
Above Rs. 100 Lakhs Chief General Manager (CGM)
25/01/2019

 The compounding application can be submitted to the RBI for the cases other than the Cases of
contravention having a money-laundering, national and security concern involving serious
infringements of the regulatory framework including cases where application for compounding
has not been filed within the stipulated period in the memorandum issued by the Reserve Bank
may be referred to Directorate of Enforcement for further investigation and necessary action
under Section 37 of the Act or to the Anti Money Laundering Authority instituted under
Prevention of Money Laundering Act, 2002 or to any other agencies as deemed fit.
 Contraventions related to any transaction without proper approval or permission from the
concerned Government or any Statutory Authority as the case may be under the relevant
laws/regulations as envisaged under FEMA, would not be compounded unless the required
approval is obtained from the concerned authorities.
Compounding of offences
25/01/2019

Compounding Application (1/2)
 Application in the format as per Rule 4 or 5
 Details as per Annex-II relating to Foreign Direct Investment (FDI), External Commercial
Borrowings (ECB), Overseas Direct Investment (ODI) and Branch Office (BO)/ Liaison Office (LO),
as applicable,
 Undertaking as per Annex III that they are not under any enquiry/investigation/adjudication by
any agency such as Directorate of Enforcement (DoE), CBI etc as on the date of the application
 ECS mandate and details of their bank account as per Annex IV
 Copy of the Certificate of Incorporation, Memorandum and Articles of Association
 Last three years Audited Financial Statements
25/01/2019

Compounding Application (2/2)
 The compounding application can be made
 in the format prescribed as per A.P.(DIR Series) Circular No.31 dated February 1, 2005 (in
duplicate).
 Submitted to Compounding Authority, Cell For Effective Implementation of FEMA (CEFA),
located in Mumbai or the Concerned Regional Office (RO) (as the case may be).
 Application Fee Rs. 5,000/- by way of a Demand Draft drawn in favour of “Reserve Bank of
India” and payable at “Mumbai” or “Concerned RO” (as the case may be).
25/01/2019

 Opportunity of being heard shall be given to all the concerned as expeditiously as possible as
and within 180 days from the “date of receipt of the application in complete form” by RBI.
 Appearing for personal hearing is not mandatory.
 Appearing for or opting out of personal hearing does not have any bearing whatsoever on the
amount imposed in the compounding order.
Personal Hearing and Order
25/01/2019

 Penalty
 Penalty up to thrice the sum involved in such contravention, where the amount is
quantifiable or
 Up to Rs. 2,00,000/- where the amount is not directly quantifiable and
 In case contravention continues, further penalty which may extend to Rs. 5,000/- for every
day after the first day during which the contravention continues.
 Payment shall be made by way of demand draft in favour of the “Reserve Bank of India” within
15 days from the date of order.
 Certificate of receipt of compounded amount shall be issued by the RBI, subject to the specified
conditions, if any, in the order.
Penalty and Payment
25/01/2019

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