Foreign exchange is applicable on all type of foreign inflow in the India. Fema is applicable venture funding in india. all investment by NRI in india subject to FEMA regulations.

1. Foreign exchange Management Act, 1999

2. SHORT HISTORY OF FORIEGN EXCHANGE
CONTROL IN INDIA
Her
Majesty
Defence
of India
Act, 1939
FERA, 1947
FERA, 1973
FEMA,
1999

3. NEW INDUSTRIAL POLICY,1991
BEFORE 1991
We remained a closed economy in
the eyes of world.
BOP breached its limits
demanding an immediate airlift of
tonnes of gold to Bank of England
and Switzerland to raise dollar loan
in 1991
AFTER 1991
The nation emerged stronger
from 67 tonnes gold pledging for
$2.2 billion loan in 1991 to $300+
billions reserve in 7 years.
The favourable forex reserves and
the industries demand triggered
the nation to liberalize its forex
control regime

4. Object
“facilitating external trade and
payment and promoting orderly
development and maintenance of
foreign exchange market”
 Contravention attracts penalty /
fine and not imprisonment (except
in some cases) / compounding
 Only specified acts regulated
 Citizenship - not relevant /
Residence - Emphasized
 No Presumption of Mens Rea……..
Prosecution to prove
4
NEW ERA UNDER FEMA
The Foreign Exchange Regulation
Act, 1973 (‘FERA’)
The Foreign Exchange
Management Act, 1999 (‘FEMA’)
Object
“Conservation of foreign
Exchange”
 Severe penal provisions
 All acts controlled and regulated
 Applied to Indian Citizens
in/outside India and Foreign
Citizens in India.
 Blanket powers of search,
seizure, imprisonment, etc.
 Presumption of Mens-rea

5. Mechanism under FEMA
Act – FEMA (Passed by the
Parliament – the
Legislature)
Notifications Notified
in the Gazette – by
the Executive
Rules –
Current A/C (Current
Account by the
Government )
Regulations-
Capital A/C (Capital
Account by the RBI)
AP Dir Circulars
to Aps (All aspect of
Forex transactions
by the RBI)

6. ESTABLISHMENT OF BUSINESS IN INDIA BY
FOREIGN ENTITIES
Apart from establishment of wholly owned Subsidiary or enter in
to a Joint Venture Agreement (JV) in India, foreign entities can
also set up the business in India through the establishment of
Liaison office (LO), Branch Office (BO), Project Office (PO) as per
the Foreign Exchange Management (Establishment in India
of a branch office or a liaison office or a project office or
any other place of business) Regulations, 2016.
An offshore business which has a direct Indian operation in India
(and is not operating through an agent) will be treated as one of
Liaison Office (LO), Branch Office (BO) or Project Office (PO), for
which Reserve Bank of India (RBI) under provisions of the FEMA

7. MODE OF ESTABLISHMENT OF BUSINESS IN INDIA
Liaison Office (LO) Branch Office (BO) Wholly owned
Subsidiary (WOS)
A Liaison Office [also
known as representative
office] can undertake
only
liaison activities i.e. it
can act as a channel of
communication between
Head Office abroad &
parties in India.
 It is not allowed to
undertake any business
activity in India and
have any income in
India.
Companies incorporate
outside India and
Engaged in
manufacturing or
trading
activities are allowed to
setup Branch
Offices with specific
approval of the RBI.
Normally, the Branch
Office be engaged in the
activity of the Parent
Company.
An incorporated entity
formed and registered
under the Companies
Act,2013 or other earlier
Act. It is a distinct legal
entity, apart from its
shareholders.

8. STRUCTURE OF FEMA
Foreign Exchange Management Act, 1999 (W.e.f 01-06-2000)
Section 1
(Application
&
Commence
ment)
Section2
( Definitions)
Section 3
to Section
9
( deals with
Current A/c
transaction
Rules &
capital A/c
Regulations
Section 10
to Section
12
(deals with
Authorised
Person)
Section 13
to Section
38
(Contraven
tion ,
Penalties,
Appeals &
Adjudicatio
n)
Section 39
to 49
(Miscellane
ous
Provisions)
There are 49 sections under FEMA ,of which
9 sections (Section1-9) are substantive and
the rest are procedural/ administrative.

9. TWO GOLDEN RULES OR PRINCIPLES IN FEMA FOR
FOREX TRANSACTION
• All Current Account
Transactions are
permitted unless
otherwise Prohibited
Current
Account
Transaction
• All Capital account
transactions are
prohibited unless
otherwise permitted
Capital
Account
Transaction

10. CURRENT ACCOUNT TRANSACTION
• Any Person may sell or draw foreign exchange to or from an
Authorized person if such sale or drawl is a current Account
transaction.
The definition is exclusive and any expenditure which is not a capital account
transaction will be current account transaction. It include:
 Payment due in connection with foreign trade, other current business,
Services, and short-term banking and credit facilities in the ordinary course
of business
 Payment 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

11. CAPITAL ACCOUNT TRANSACTION
Capital Account Transaction Means a transaction which the
alters the assets or liabilities, including contingent liabilities,
outside India of persons resident in India or assets or
liabilities in India person resident outside India, and include
transaction 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.

12. TYPES OF FDI
 Inward Foreign Direct Investment
 Outward Foreign Direct Investment
 Vertical Foreign Direct Investment
 Horizontal Foreign Direct Investment

13.  Inflow of equipment and technology.
 Improved consumer welfare through reduced cost, wider
choice & improved quality.
 Employment generation.
 Provide access to global markets for Indian producer.
ADVANTAGE OF FDI

14. DISADVANTAGE OF FDI
 Hindrance to Domestic Investment.
 Loss of control.
 Negative influence on Exchange Rate.
 Risk of Political Changes.
 Higher Cost.

15. FDI ROUTE
 FDI in sectors/activities to the extent permitted under
automatic route does not require any prior approval either by
the Government or RBI.
 The investors are only required to notify the Regional Office
concerned of RBI within 30 days of receipt of inward
remittances and file the documents with that office within 30
days of issue of shares of foreign investors.
 The lists are comprehensive and cover most Industries of
Interest to Foreign Companies.
AUTOMATIC APPROVAL

16. FDI ROUTE
 FDI in activities not covered under the automatic route require
prior government approval. Approvals of all such proposals
including composite proposals involving foreign
investment/foreign technical collaboration are granted on the
recommendations of Foreign Investment Promotion Board (FIPB).
 Application for all FDI cases, except Non-Resident Indian (NRI)
investments and 100% Export Oriented Units (EOUs), should be
submitted to the FIPB Unit, Department of Economic Affairs
(DEA), Ministry of Finance.
 Application for NRI and 100% EOU cases should be presented to
SIA in Department of Industrial Policy and Promotion.
GOVERNMENT APPROVAL

17. Overseas Direct Investment (‘ODI’)- Background
 Investment by an Indian Party by way of contribution to the
capital or subscription to the Memorandum of Association
(‘MOA’) of a foreign entity or by way of purchase of existing
shares of a foreign entity by:
 Investment through stock exchange; or
 Private placement in that entity; or
 Market purchase; or
 Investment in a Joint Venture or Wholly Owned Subsidiary
abroad; .
 But does not include Portfolio Investment

18. POSSIBLE ROUTES FOR INVESTMENT
Automatic Route
 Overseas JV/WOS to be engaged in
bonafide business activity except real
estate and banking;
 Investment in Financial Sector should
comply with additional conditions
 Indian party not on RBI’s Exporters’
Caution List/list of defaulters/under
investigation by an Authority such as
ED, SEBI etc.
 Overall ceiling of financial commitment
in all JV/WOS is 100% of net worth as
on last audited Balance Sheet
 Submission of Form Annual
Performance Report in respect of all its
overseas investment
Approval Route
 Cases not covered under Automatic route
 Specific application to RBI with necessary
documents in Form ODI through the AD
(Category I Bank) along with prescribed
supporting and documents
 RBI would inter alia consider the following
factors:
o Prima facie viability of JV/WOS outside
India
o Contribution to external trade and other
benefits
• which will accrue to India through
such investment
o Financial position and business track
record of the
• Indian party and foreign entity
o Expertise and experience of the Indian
party in the
• same or related line of activity of the
JV/WOS outside India.

19. External Commercial Borrowing (ECB)
Automatic Route Approval Route
U$ 750 M-Maximum
U$ 200 M- Hotel, Hospital, S/W
and Miscellaneous Service;
U$ 10 M- NGO in MF –MFI;
Specified NBFC and SIDBI as
per conditions
Approval route applicable -
when not covered in Automatic
route
19
Short term debt not encouraged
Minimum average maturity
3 or 5 years depending on the
quantum of ECB
ECB Policy- An Overview
External Commercial Borrowings – Commercial Loans, buyer / suppliers credit, securitized
instruments (Bonds, Preference shares etc.) with a minimum average maturity of 3 years.

20. ECB Policy- At A Glance
20
Eligible
Lender
•International Capital Markets
•Multilateral Financial
Institutions
•Export credit agencies
•Suppliers of equipment
•Foreign collaborators
•Foreign Equity Holders (min.
25%)
Eligible
Borrowers
•Corporates
•NGOs in Micro Finance
•SEZ Units (except financial
intermediaries, individuals,
Trusts)
•Companies in Miscellaneous
Services i.e. Training Activities,
R&D; and Infra Support; (except
Edu Inst., Trading business,
Financial Services, and
Consultancy Services) only from
its Direct/Indirect Equity
Holder/Group Cos
•Other specified
End Use
•Real/ Industrial sector (SME)–
•Import of capital goods,
•New Projects, Expansion/
modernization of existing units
•ODI in JV/ WOS abroad
•Payment of Interest During
Construction (IDC)
•Payment for obtaining License/
permit for 3G spectrum.
•For lending to self help groups or
for micro credit by NGO’s
•Repayment of rupee loans by
companies in infrastructure sector
manufacturing and hotel sector
(with project cost of INR 250 or
more)
•General corporate purpose from
foreign direct equity holder
Maturity &
interest
Prohibition
 Minimum avg. maturity
period
USD 20 M – 3 years
>USD 20 upto 750 M – 5
years
•On lending, Investment in
capital market or acquiring a
company in India
•Real Estate
•General corporate purposes
•Repayment of existing INR
Loan

21. ECB POLICY- PROCEDURES & COMPLIANCE
•Execution of Loan Agreement
(filing is not compulsory)
21
Filing of Form 83 duly certified
by CA/CS to AD
AD to process the request and
send to RBI for LRN
Drawn should take place post
allotment of LRN
Filing of Monthly Return in ECB
2 by 7th of next month

22. SECTION 13 –
 Any contravention, under FEMA, may invite following kinds
of penalties:
 If, the amount against which offence is quantities, then
penalty will be "THRICE" the sum involved in
contravention.
 Where the amount cannot be quantified the penalty may
be imposed up to two lakh rupees.
 If, the contravention is continuing everyday, then Rs.
Five Thousand for every day after the first day during
which the contravention continues.
 Further in addition to the penalty, any currency, security or
other money or property involved in the contravention may
also be confiscated.
CONTRAVENTION, PENALTIES & ADJUDICATION

23.  SECTION 17 –
 Empowers the central Govt. to appoint one or more
special Directors to hear the appeals against the orders
of the Adjudicating Authorities.
 SECTION 18 –
 Empowers the central Govt. to establish Appellate
Tribunal to hear appeals against the orders of
Adjudicating Authorities and special Director.
 SECTION 19 –
 It makes provisions as regards appeals to Appellate
Tribunal.
PROVISIONS IN SECTIONS ……

24. SECTION 20 – 25
 Composition of Appellate Tribunal.
 Qualifications for appointment of Chairperson member
and Special Director.
 Term of Office.
 Terms and Conditions of service.
 Vacancies.
PROVISIONS IN SECTIONS ……

25. SECTION 25 – 30
 Resignation and Removal.
 Member to act as Chairperson in certain circumstances.
 Staff of Appellate Tribunal and Special Directorate.
 Power of Appellate Tribunal and Special Director.
 Distribution of business among benches.
 Power of Chairperson to Transfer cases.
SECTION 31-35
 Decision to be by majority.
 Right of Appellant to take assistance of legal practitioner or CA and of
Govt. to appoint presenting officer.
 Members, etc to public servants.
 Civil court not to have jurisdiction.
 Appeal to High Court.
PROVISIONS IN SECTIONS ……

26. Please visit www.enterslice.com
Email at info@enterslicellp.com
Call at 9810688728
For more advisory support on FEMA