Presentation on Fema by CA. Sudha G. Bhushan [balance sheet and fema]

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Presentation on Fema by CA. Sudha G. Bhushan [balance sheet and fema]

  1. 1. By Sudha G. BhushanBALANCE SHEET AND FEMAREGULATIONS Presentation on FEMA by CA. Sudha G. Bhushan
  2. 2. Companies Act, 1956 Section 211 of the companies Act says Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit Presentation on FEMA by CA. Sudha G. Bhushan
  3. 3.  Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto Presentation on FEMA by CA. Sudha G. Bhushan
  4. 4. Income Tax Act Section 92 :- Computation of Income from International Transaction Section 92 A :- Associated enterprise Section 92B:- Meaning of International transaction Section 92E :- Report from Accountant Presentation on FEMA by CA. Sudha G. Bhushan
  5. 5. 1. List of associated enterprises with which the company has entered in to International transaction?2. Has the assessee entered into any international transaction(s) in respect of purchase/sale of raw material, consumables or any other supplies for assembling / processing /manufacturing of goods/articles from/to associated enterprises3. Has the assessee entered into any international transaction(s) in respect of purchase/sale of any other tangible moveable/immovable property or lease of such property?4. Has the assessee entered into any international transaction(s) in respect of purchase/sale/use of intangible property such as know-how, patents, copyrights, licenses5. Has the assessee entered into any international transaction(s) in respect of services such as financial, administrative, technical, commercial services6. Has the assessee entered into any international transaction(s) in respect of granting/receiving loans/ advances to or from associated enterprise. Presentation on FEMA by CA. Sudha G. Bhushan
  6. 6. Foreign Exchange ManagementAct, 1999 Save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall— (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person; (b) make any payment to or for the credit of any person resident outside India in any manner; (c) receive otherwise (than) through an authorised person, any payment by order or on behalf of any person resident outside India in any manner; (d) 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. Presentation on FEMA by CA. Sudha G. Bhushan
  7. 7. Transactions Current Account Transactions Capital Account Transactions Presentation on FEMA by CA. Sudha G. Bhushan
  8. 8. Items relating toBALANCE SHEET Presentation on FEMA by CA. Sudha G. Bhushan
  9. 9. Items at liability side Share capital Reserve and Surplus Secured Loans Unsecured Loans Current Liabilities and provisions Presentation on FEMA by CA. Sudha G. Bhushan
  10. 10. Items at asset Side Fixed Assets Investments Current Assets, Loans and Advances Misc Expenditure Profit and loss account [Cr. Balance] Presentation on FEMA by CA. Sudha G. Bhushan
  11. 11. Share capitalLIABILITY SIDE Presentation on FEMA by CA. Sudha G. Bhushan
  12. 12. Share capital Equity Share capital  Authorised share capital  Paid up share capital Preference Share capital Presentation on FEMA by CA. Sudha G. Bhushan
  13. 13. Routes Foreign Direct Investment is freely permitted in almost all sectors. Automatic Route - The foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. Government Route - Prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required. Presentation on FEMA by CA. Sudha G. Bhushan
  14. 14. Intimation of Share CapitalParticulars Time Frame Forms With whom Authorised dealer category -I bank, with the regional office of the Reserve Bank under whose jurisdiction the registered office of the company is situatedIntimation to RBI about the amount ofconsideration received (in the Form of within 30 days from the date ofInward remittance or in the form of receipt of the amount ofdebit to NRE/FCNR account consideration Annexure II and Annexure III Within 180 days from the date ofShares to be allotted receipt of consideration Within 30 days from the date of issueReporting of issue of shares of shares Form FC- GPR (part A) along with A certificate from the Company Secretary Presentation on FEMAcertificate from Auditors of the A by CA. Sudha G. Bhushan company
  15. 15. FC GPR Form Signed by Managing Director/Director/Secretary of the Company and submitted to the Authorised Dealer of the company, who will forward it to the Reserve Bank. The following documents have to be submitted along with Part A: (i) A certificate from the Company Secretary of the company certifying that : a) all the requirements of the Companies Act, 1956 have been complied with; b) terms and conditions of the Government’s approval, if any, have been complied with; c) the company is eligible to issue shares under these Regulations; and d) the company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration. (ii) A certificate from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. Presentation on FEMA by CA. Sudha G. Bhushan
  16. 16. Annual Return Part B of Form FC GPR To be submitted by 31st of July every year. All investments by way of direct/portfolio investments/re-invested earnings/others in the Indian company made during the previous year. Presentation on FEMA by CA. Sudha G. Bhushan
  17. 17. Issue price Listed Companies :- on the basis of SEBI guidelines. Unlisted companies :- Valuation of shares has to be done by a Chartered Accountant in accordance with the guidelines issued by the erstwhile Controller of Capital Issues (CCI). Presentation on FEMA by CA. Sudha G. Bhushan
  18. 18. Preference Share Preference shares to be considered as debt. Accordingly, all the norms applicable for ECBs, viz. eligible borrowers, recognized lenders, amount and maturity, end- use stipulations, etc. shall apply. Presentation on FEMA by CA. Sudha G. Bhushan
  19. 19. Convertible Debentures At par with Equity share Presentation on FEMA by CA. Sudha G. Bhushan
  20. 20. RESERVE AND SURPLUS Presentation on FEMA by CA. Sudha G. Bhushan
  21. 21. Reserves and Surplus Share Premium account Profit and loss account  Direct Income  Indirect Income Presentation on FEMA by CA. Sudha G. Bhushan
  22. 22. Share Premium Account Section 78 of the Act reads as follows: (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the security premium account ; (2) The security premium account may, notwithstanding anything in sub-section (1), be applied by the company---  (a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares ;  (b) in writing off the preliminary expenses of the company ;  (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company ; or  (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. Presentation on FEMA by CA. Sudha G. Bhushan
  23. 23. Profit and loss account Nature of Business  Commission income  Trading of commodities  Manufacturing of product Presentation on FEMA by CA. Sudha G. Bhushan
  24. 24. LOANS External Commercial Borrowings Trade Credit Share application money/ Advances from Customers Presentation on FEMA by CA. Sudha G. Bhushan
  25. 25. External Commercial Borrowings External Commercial Borrowings (ECB) refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds) availed of from non-resident lenders with minimum average maturity of 3 years. Presentation on FEMA by CA. Sudha G. Bhushan
  26. 26. Monthly Return Borrowers are required to submit ECB-2 Return certified by the designated AD bank on monthly basis so as to reach DSIM, Reserve Bank within seven working days from the close of month to which it relates. Presentation on FEMA by CA. Sudha G. Bhushan
  27. 27. Trade Credits Trade Credits (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit.  Suppliers’ credit relates to credit for imports into India extended by the overseas supplier.  Buyers’ credit refers to loans for payment of imports in to India arranged by the importer from a bank or financial institution outside India for maturity of less than three years. It may be noted that buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB) which are governed by ECB guidelines. Presentation on FEMA by CA. Sudha G. Bhushan
  28. 28.  AD banks are permitted to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year from the date of shipment. For import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years from the date of shipment. No roll-over/extension will be permitted beyond the permissible period. AD banks shall not approve trade credit exceeding USD 20 million per import transaction. Presentation on FEMA by CA. Sudha G. Bhushan
  29. 29. Fixed AssetsASSET SIDE Presentation on FEMA by CA. Sudha G. Bhushan
  30. 30. Fixed Asset From above we can see that foreign investment is not allowed in real estate only if the company proposes to engage in the business of real estate. Therefore the inference can be drawn that the prohibition is with relation to investment in the business of real estate and not in the immovable property[ residential /commercial] for carrying out the business activities. The sale and purchase of immovable property in India by a person resident outside India is regulated by the provisions Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. As per FOREIGN EXCHANGE MANAGEMENT (ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA) REGULATIONS, 2000 Presentation on FEMA by CA. Sudha G. Bhushan
  31. 31. Investments Direct Investment Outside India The Indian Party submits Form ODI, duly completed, to the designated branch of an authorized dealer. In this connection the following must be noted: (a) The Form ODI must be submitted in duplicate to the AD for the purpose of making remittance towards investment in overseas JV/WOS. (b) The form should be complete in all respects and accompanied by:  (i) a certificate from the statutory auditors in the format given in the form, and  (ii) a certified copy of the resolution of the Board of Directors approving the investment. Presentation on FEMA by CA. Sudha G. Bhushan
  32. 32.  Unique Identification Number On receipt of the form ODI from the AD Category – I bank, Reserve Bank will allot a Unique Identification Number for each JV/WOS outside India and the Indian Party must quote such number in all its communications and reports to the Reserve Bank and the authorized dealer. An Indian Party is required to:  (i) receive share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within six months, or such further period as Reserve Bank may permit, from the date of effecting remittance  (ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical fees etc., within 60 days of its falling due, or such further period as the Reserve Bank may permit. Presentation on FEMA by CA. Sudha G. Bhushan
  33. 33. Items relating toPROFIT AND LOSS ACCOUNT Presentation on FEMA by CA. Sudha G. Bhushan
  34. 34. Export As per Section 7 of the FEMA,19999 - It is obligatory on the part of the exporter to realize and repatriate the amount representing the full value of goods or software exported to India within twelve months from the date of Export Presentation on FEMA by CA. Sudha G. Bhushan
  35. 35.  Every exporter of goods or software in physical form or through any other form, either directly or indirectly, to any place outside India, shall furnish to the specified authority, a declaration in one of the forms set out in the Schedule and supported by such evidence as may be specified, containing true and correct material particulars including the amount representing— (i) the full export value of the goods or software; or (ii) if the full export value is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods or the software in overseas market, and affirms in the said declaration that the full export value of goods (whether ascertainable at the time of export or not) or the software has been or will within the specified period be, paid in the specified manner Presentation on FEMA by CA. Sudha G. Bhushan
  36. 36. Various Forms Form GR :To be completed in duplicate for export otherwise than by Post including export of software in physical form i.e., magnetic tapes/discs and paper media. Form SDF: To be completed in duplicate and appended to the shipping bill, for exports declared to Customs Offices notified by the Central Government which have introduced Electronic Data Interchange (EDI) system for processing shipping bills notified by the Central Government. Form PP : To be completed in duplicate for export by Post. Form SOFTEX: To be completed in triplicate for declaration of export of software otherwise than in physical form, i.e., magnetic tapes/discs, and paper media. Presentation on FEMA by CA. Sudha G. Bhushan
  37. 37.  Pre incorporation expenses:- Exceeding USD 1,00,000 shall require prior approval of RBI as per schedule III of the FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSACTIONS) RULES, 2000. Presentation on FEMA by CA. Sudha G. Bhushan
  38. 38. Payment made abroad Advertisement in foreign magazine Consultancy Fees :- US 1,000,000, per project, for any consultancy service procured from outside India Royalty Fees :- Remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump sum payment exceeds US $ 2 million : Approval from Central Government Presentation on FEMA by CA. Sudha G. Bhushan
  39. 39. Import Regulated by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce & Industry, Department of Commerce, Government of India. Applications by persons, firms and companies for making payments, exceeding USD 500 or its equivalent, towards imports into India must be made in Form A-1 Presentation on FEMA by CA. Sudha G. Bhushan
  40. 40.  In terms of the extant regulations, remittances against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc. AD Category - I banks may permit settlement of import dues delayed due to disputes, financial difficulties, etc. Interest in respect of such delayed payments may be permitted in terms of the directions. Deferred payment arrangements, including suppliers and buyers credit, providing for payments beyond a period of six months from date of shipment up to a period of less than three years, are treated as trade credits for which the procedural guidelines laid down in the Master Circular for External Commercial Borrowings and Trade Credits may be followed Presentation on FEMA by CA. Sudha G. Bhushan
  41. 41. Documentation In case of imports, where value of foreign exchange remitted/paid for import into India exceeds USD 100,000 or its equivalent, the AD through whom the relative remittance was made, shall ensure that the importer submits :- The Exchange Control copy of the Bill of Entry for home consumption, or The Exchange Control copy of the Bill of Entry for warehousing, in case of 100% Export Oriented Units or Customs Assessment Certificate or Postal Appraisal Form, as declared by the importer to the Customs Authorities, where import has been made by post, as evidence that the goods for which the payment was made have actually been imported into India Presentation on FEMA by CA. Sudha G. Bhushan
  42. 42. Realization of Foreign Exchange A person shall sell the realised foreign exchange to an authorised person under clause , within the period of ninety days from the date of its receipt. Any person who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to an authorised person does not use it for such purpose or for any other purpose for which purchase or acquisition of foreign exchange is permissible under the provisions of the Act or the rules or regulations or direction or order made thereunder, shall surrender such foreign exchange or the unused portion thereof to an authorised person within a period of sixty days from the date of its acquisition or purchase by him. Presentation on FEMA by CA. Sudha G. Bhushan
  43. 43. sudhag999@gmail.comCA. Sudha G. BhushanFEMA Presentation09769033172 Presentation on FEMA by CA. Sudha G. Bhushan
  44. 44.  Capital Account Transactions Current Account Transactions Presentation on FEMA by CA. Sudha G. Bhushan
  45. 45. Current Account 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 Presentation on FEMA by CA. Sudha G. Bhushan
  46. 46. Capital Account 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 sub-section (3) of section 6 Presentation on FEMA by CA. Sudha G. Bhushan
  47. 47.  Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawls is a current account transaction: Provided that 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 prescribed Presentation on FEMA by CA. Sudha G. Bhushan
  48. 48.  Capital account transactions. 6. (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; (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. (3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following— (a) transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending in foreign exchange in whatever form or by whatever name called; (e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident Presentation on FEMA by CA. Sudha G. Bhushan
  49. 49.  outside India; (f)deposits between persons resident in India and persons resident outside India; (g)export, import or holding of currency or currency notes; h)transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; (i)acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; (j)giving of a guarantee or surety in respect of any debt, obligation or other liability incurred— (i)by a person resident in India and owed to a person resident outside India; or (ii)by a person resident outside India. (4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. (5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. Presentation on FEMA by CA. Sudha G. Bhushan
  50. 50. Section 92 Any income arising from an international transaction shall be computed having regard to the arm’s length price. Explanation.—For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm’s length price. Presentation on FEMA by CA. Sudha G. Bhushan
  51. 51. Section 92E Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed Presentation on FEMA by CA. Sudha G. Bhushan
  52. 52. International Transaction For the purposes of this section and sections 92, 92C, 92D and 92E, “international transaction” means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise Presentation on FEMA by CA. Sudha G. Bhushan

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