Amendments in Budget 2015 in FEMA, FEMA amendments in BUDGET, Budget 2015 FEMA Amendments, FEMA amendments, Impact of change of capital account transactions, Budget 2015 FEMA, FEMA Budget 2015

1. Key amendments under FEMA
BUDGET 2015
Institute of Chartered Accountants of India
Borivali Study Circle || 15th March 2015
By: CA. Sudha G. Bhushan
Taxpert Professionals Private Limited

2. `
Major Changes
Capital Account
Transactions
Money Laundering
provisions
FDI in AIF
Merging of FDI and
FII limits

3. `
FM Mr. Arun Jaitley said…
“Capital Account Controls is a policy, rather than a
regulatory, matter. I, therefore, propose to amend, through
the Finance Bill, Section-6 of FEMA to clearly provide that
control on capital flows as equity will be exercised by the
Government, in consultation with the RBI”
Changes in Section 6
Changes in Section
47
Changes in Section
46

4. `
Section 6 of FEMA : 6. Capital account transactions
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign
exchange to or from an authorised person for a capital account transaction. —(1) Subject to
the provisions of sub-section (2), any person may sell or draw foreign exchange to or from
an authorised person for a capital account transaction."
(2) The Reserve Bank may, in consultation with the Central Government, specify—(a) any
class or classes of capital account transactions which are permissible;
any class or classes of capital account transactions, involving debt instruments, which are
permissible
(b) the limit up to which foreign exchange shall be admissible for such transactions:
Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign
exchange for payments due on account of amortization of loans or for depreciation of
direct investments in the ordinary course of business.
(C)any conditions which may be placed on such transaction“
(2A) The Central Government may, in consultation with the Reserve Bank, prescribe–– (a)
any class or classes of capital account transactions, not involving debt instruments, which
are permissible; (b) the limit up to which foreign exchange shall be admissible for such
transactions; and (c) any conditions which may be placed on such transactions.”;

5. `
What does it mean……
RBI may now specify - any class of classes of
capital account transactions, involving debt
instruments, which are permissible; the limit
upto which forex shall be admissible for and
any conditions which may be placed on such
transactions, in consultation with the Central
Government.
Central Government may now specify any
class of classes of capital account
transactions, not involving debt instruments,
which are permissible; the limit upto which
forex shall be admissible for and any
conditions which may be placed on such
transactions, in consultation with the RBI.

6. `
Section 47
Section 47 of FEMA Act, 1999 which empowered RBI to make regulations has been
amended to the extent that all regulations made by RBI till date under Section 6 and Section
47 on capital account transactions, the regulation making power in respect of which now
vests with the Central Government, shall continue to be valid, until amended or rescinded
by the Central Government.

7. `
Section 47
Section 47 : Present
The Reserve Bank may, by notification, make regulations
to carry out the provisions of this Act and the rules
made thereunder. —
a) the permissible classes of capital account
transactions, the limits of admissibility of foreign
exchange for such transactions, and the prohibition,
restriction or regulation of certain capital account
transactions under section 6;
(b) the manner and the form in which the declaration is
to be furnished under clause (a) of sub-section (1) of
section 7;
(c) the period within which and the manner of
repatriation of foreign exchange under section 8;
(d) the limit up to which any person may possess foreign
currency or foreign coins under clause (a) of section 9;
(e) the class of persons and the limit up to which foreign
currency account may be held or operated under clause
(b) of section 9;
----
------
Section 47 : Amended
Post amendment of Section 47 of FEMA Act, 1999 RBI
will have power to make regulations for following:
(a) the permissible clauses of capital account
transactions, involving debt instruments determined
under sub-section (7) of section 6, the limits of
admissibility of foreign exchange for such transactions,
and the prohibition, restriction or regulations of such
capital account transactions under section 6;
(b) the manner and form in which the declaration is to
be furnished under clause (a) of sub-section (1) of
Section 7;
(c) the period within which and the manner of
repatriation of foreign exchange under Section 8;
(d) the limit upto which any person may possess foreign
currency or foreign coins under clause (a) of Section 9;
(e) the clause of person under limit upto which foreign
currency account may be held or operated under clause
(b) of Section 9;
------
--------

8. `
Section 46
Power to make rules.—
(1) The Central Government may, by notification, make rules to carry out the provisions of this Act. —(1) The Central Government may, by
notification, make rules to carry out the provisions of this Act."
(2) Without prejudice to the generality of the foregoing power, such rules may provide for,—(a) the imposition of reasonable restrictions
on current account transactions under section 5;
“(aa) the instruments which are determined to be debt instruments under sub-section (7)
of section 6;
(ab) the permissible classes of capital account transactions in accordance with sub-section
(2A) of section 6, the limits of admissibility of foreign exchange, and the prohibition,
restriction or regulation of such transactions;”;
(b) the manner in which the contravention may be compounded under sub-section (1) of section 15;
(c) the manner of holding an inquiry by the Adjudicating Authorities under sub-section (1) of section 16;
(d) the form of appeal and fee for filing such appeal under sections 17 and 19;
(e) the salary and allowances payable to and the other terms and conditions of service of the Chairperson and other Members of the
Appellate Tribunal and the Special Director (Appeals) under section 23;
(f) the salaries and allowances and other conditions of service of the officers and employees of the Appellate Tribunal and the office of
the Special Director (Appeals) under sub-section (3) of section 27;
(g) the additional matters in respect of which the Appellate Tribunal and the Special Director (Appeals) may exercise the powers of a civil
court under clause (i) of sub-section (2) of section 28;
“(gg) the aggregate value of foreign exchange referred to in sub-section (1) of section 37A
(h) the authority or person and the manner in which any document may be authenticated under clause (ii) of section 39; and
(i) any other matter which is required to be, or may be, prescribed.

9. `
for good or for bad….
From RBI to central Government
Shifting of power to specify
capital account transactions
from RBI to Central
Government except for debt
instruments to be notified
by Central Government.
Power to make notifications,
prescribe declarations,
period of repatriation, etc.
will still remain with RBI
Regulations/Notifications
prescribed by the RBI so far
to remain valid unless
amended
Amend Section 6 of FEMA
Act, 1999 to provide that
control on capital flows as
equity will be exercised by
the Government, in
consultation with the RBI.
“As of today there
were things which
were falling between
two stools; Limited
Liability Partnership
(LLP) is a classic
example where just
because the two arms
of the government one
of talking to each
other things were just
got delayed”
 Debt instruments
shall mean such
instruments as may be
determined by the
Central Government in
consultation with the
RBI.

10. `
FM Mr. Arun Jaitley said…
“I propose to do away with the distinction
between different types of foreign investments,
especially between foreign portfolio investments
and foreign direct investments, and replace them
with composite caps”

11. `
Merging of FII and FDI limits
 Results in “Composite Ceiling”
 Will impact sectors where FDI caps (non-composite exist)
 Replacement - whether lowering of existing caps
FPI = FDI
Banking
- Total foreign investment limit: 74%
- FPI cap: 49%
- Policy Impact: FPI investment can go up from current 49% to 74%
FPI = FDI
Power Exchange
- Total foreign investment limit: 49%
- FDI cap: 26%
- FPI cap: 23%
- Policy Impact: FPI can go up to 49%
Currently, in
the foreign
investment d
ata, only FDI
is taken into
account and
not FII/FPI.

12. `
more room for foreign portfolio
investments in India
clarity on the otherwise ambiguous
foreign investment cap
Banking, infrastructure, defence, ports
and exchanges main beneficiariesgreater
flexibility for stakeholders to structure
foreign investment

13. `

14. `
FM Mr. Arun Jaitley said…
Alternate Investment Funds Regulations have been
notified by SEBI. Such alternate investment funds provide
another vehicle for facilitating domestic investments.
Keeping in view the need to increase investments from all
sources, I propose to also allow foreign investments in
Alternate Investment Funds.”

15. `
Background
The SEBI (Alternative Investment Funds) Regulations, 2012
(“AIF Regulations”) were notified on May 21, 2012.
The AIF Regulations succeeded and repealed the erstwhile
SEBI (Venture Capital Funds) Regulations, 1996 (“VCF
Regulations”).
Erstwhile FDI Policy, did not contemplate or provide any
impact of the various relevant provisions on the
alternative investment funds (“AIFs”) that have now been
registered with SEBI under the AIF Regulations.
Considering the number of AIFs being registered with the
SEBI and the interest shown by non-residents to invest in
such AIFs, it was imperative for the DIPP to issue an
immediate clarification on this issue.
“To promote
domestic investments
and manufacturing as
spelt out in the ‘Make
in India’ programme,
the Government has
proposed to allow
foreign direct
investments in
Alternative
Investment Funds —
a privately pooled
investment fund for
real estate, private
equity and hedge
funds.”

16. `
Allow foreign Investment in AIFs
Consolidated FDI Policy still talks of VCFs instead of
AIFs
FIPB Policy acknowledged the need for FDI Policy to
take cognizance of AIF regulations
FIPB has so far granted specific approvals to AIFs
while treating such investments at par with Foreign
Investment
Yet to be clarified …..
 Whether all investments to fall under automatic route?
 Whether downstream investments will require FIPB clearance?
 Whether the first leg of investment (issue of trust units to foreign investor)
would be subject to FDI rules such as pricing guidelines, etc.?
AIFs are basically
funds established
or incorporated in
India for the
purpose of pooling
in capital from
Indian investors.

17. `
FM Mr. Arun Jaitley said…
Tracking down and bringing back the wealth
which legitimately belongs to the country is our
abiding commitment to the country
Changes in Section 2 Section 18 amended
Section 37A
introduced

18. `
Insertion of Section 37A
After section 37 of the Foreign Exchange Act, the following section shall be inserted, namely:—
“37A. (1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the Central
Government has reason to believe that any foreign exchange, foreign security, or any immovable property,
situated outside India, is suspected to have been held in contravention of section 4, he may after recording
the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange,
foreign security or immovable property: Provided that no such seizure shall be made in case where the
aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India,
is less than the value as may be prescribed.
(2) The order of seizure along with relevant material shall be placed before the Competent Authority,
appointed by the Central Government, who shall be an officer not below the rank of Joint Secretary to the
Government of India by the Authorised Officer within a period of thirty days from the date of such seizure.
(3) The Competent Authority shall dispose of the petition within a period of one hundred eighty days from the
date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard
to the representatives of the Directorate of Enforcement and the aggrieved person. Explanation.— While
computing the period of one hundred eighty days, the period of stay granted by court shall be excluded and a
further period of at least thirty days shall be granted from the date of communication of vacation of such stay
order.’
SECTION 37

19. `
Authorised Officer and Competent
Authority
Section 2 is amended to include :
‘(cc) ‘‘Authorised Officer’’ means an officer of the
Directorate of Enforcement authorised by the Central
Government under section 37A
(gg) “Competent Authority’’ means the Authority
appointed by the Central Government under sub-section
(2) of section 37A

20. `
Amendment in Section 18
In section 18 of the Foreign Exchange Act, after the
words “Adjudicating Authorities’’, the words
“Competent Authorities’’ shall be inserted
Section 18. Establishment of Appellate Tribunal.—The Central Government shall, by notification,
establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign Exchange to
hear appeals against the orders of the Adjudicating Authorities and the Special Director
(Appeals) under this Act. —The Central Government shall, by notification, establish an Appellate
Tribunal to be known as the Appellate Tribunal for Foreign Exchange to hear appeals against the
orders of the Adjudicating Authorities and the Special Director (Appeals) under this Act."

21. `
FEMA to be amended to supplement Black Money Law
Proposed to allow seizure and
eventual confiscation of
equivalent foreign exchange,
foreign security, immovable
property in India equivalent to
value of such assets held
outside India
To levy penalty and prosecution
with punishment of
imprisonment up to 5 year

22. `
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23. `
Section 37
Power of search, seizure, etc.—
(1) The Director of Enforcement and other officers of Enforcement, not
below the rank of an Assistant Director, shall take up for investigation the
contravention referred to in section 13. —(1) The Director of Enforcement
and other officers of Enforcement, not below the rank of an Assistant
Director, shall take up for investigation the contravention referred to in
section 13."
(2) Without prejudice to the provisions of sub-section (1), the Central
Government may also, by notification, authorise any officer or class of
officers in the Central Government, State Government or the Reserve
Bank, not below the rank of an Under Secretary to the Government of
India to investigate any contravention referred to in section 13.
(3) The officers referred to in sub-section (1) shall exercise the like powers
which are conferred on income-tax authorities under the Income-tax Act,
1961 (43 of 1961) and shall exercise such powers, subject to such
limitations laid down under that Act.