FOREIGN EXCHANGE ISSUES FOR INDIAN RESIDENTS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india [email_address] mobile : 91+9414430763
Who is resident? 182 days of stay in India during last financial year.
Difference between foreign currency and foreign exchange Foreign currency means currency notes of other countries foreign exchange is a wider word and includes currency, cheque, drafts and other instruments of other countries.
HOW MUCH FOREIGN CURRENCY CAN YOU TAKE? Authorised dealers can release upto $25000 for a business trip to any country except Nepal and Bhutan. If you want more amount, you have to obtain permission from RBI.
What is non cooperative countries / territories? List of the countries where you cannot take foreign exchange – as identified by FATF (FINANCIAL ACTION TASK FORCE) see the website : www.fatf-gafi.org
For students ... Students going abroad for studies are treated as NRIs and are given all the facilities that are offered to NRIs. They can receive remittances upto $100000 they can take with them $2000 for their expenditure in cash and remaining amount in traveller cheque/ bank draft.
Private visit abroad If you are going for private visit (for example for tourism) you are allowed to take upto $10000 per annum from authorised dealers. You may visit more than once, but the total aggregate foreign exchange withdrawals may be upto $10000, beyond which you have to take permission from RBI. You Can take it for visit for education / employment also.
VISIT TO NEPAL & BHUTAN No foreign exchange is available for visit to Nepal and Bhutan
Visit to Iraq & Libya Normally a person can get foreign currency notes upto $2000 when he visits abroad, but when a person is visiting Iraq or Libya, he can get upto $5000 .
How to get foreign exchange? Go to any authorised dealer / money exchanger and collect foreign exchange against rupees. You can do it in cash upto Rs. 50000. if the amount is more than Rs. 50000, you have to do it against cheque / draft.
ICC With international credit card, you can make payment of international journals, international payments etc. You can also buy international book and meet personal expenses in foreign exchange through ICC.
Foreign Traveller A foreign traveller can keep upto Rs. Rs. 5000, and foreign currency upto $5000 and total foreign exchange upto $10000. if the amount is more than this limit, the traveller will have to make declaration at airport in Currency Declaration form at the customs office.
Current account / capital account Current account transaction refers to expenditure on day to day items and other usual transactions. Capital account transactions refers to investments for long term like Debentures / mutual funds etc. Current account transactions in foreign exchange are generally permitted. Capital account transactions generally require prior permission.
Permissible capital account transactions.... Following capital account transactions are permissible : schedule I – for residents in India schedule II – fore persons from out of India Non permissible : - real estate investments, TDR (transferrable development rights), agriculture, plantation,nidhi company, chit fund, etc.
Schedule I for residents in India : insurance policy out of india investment in foreign security export / import of foreign currency etc.
Schedule II – for persons from out of India Foreign currency accounts export / import of foreign currency remittance out of india acquisition of immovable property in India etc.
Restrictions on Indian residents Generally Indian residents are not permitted to give loan in Rupees to a foreign nationals subject to some exceptions. Indian residents can take loan in Rupees on non-repatriation basis from non-residents subject to some conditions like amount has to come from NRE / NRNR/NRO account and period of loan should not be more than 3 year. Rate of interest should not be more than 2% than bank rate.
Indian companies issueing debentures... If Indian companies issues debentures to non-residents, they have to inform RBI about it. If they issue non-convertible debentures, they will have to give all the details to RBI in 30 days. Rate of interest should not be more than PLR of SBI + 300 basis points. Minimum duration of such debenture must be 3 years. The company cannot deal in agri / plantation / nidhi / chit fund activities.
Immovable property out of India RBI has made Foreign exchange management (acquisition and transfer of immovable property out of India) regulations 2000 – as per that no person can acquire immovable property out of India other than as gift without RBI permission. This doesnot apply to NRI or non-residents.
Repatriation of foreign exchange If you earn any foreign exchange than you have to bring it to India within maximum 60 days (if you resident in India) as per FEM (realisation, repatriation and surrender of foreign exchange) regulations 2000 if you have taken some foreign exchange from an authorised dealer for travel etc, you have to return it back in 90 days from return back to India
Facilities for foreign tourists For a short stay in India, they can open NRO rupee account for maximum 6 months. When they return back they can get it converted into foreign exchange. AD (Authorised dealers) have to ensure that repatriation of money from India is such which is repatriable. A resident in India can repatriate to his relative upto his salary only. Forign nationals living in India can open resident rupee account with banks and can deal in rupees.
Role of AD They have follow all the rules and ensure that they give money as per FEMA. They can release foreign exchange upto $25000 for business trip, $100000 for education / employment / medical purpose and upto $10000 for tourism purpose. They have to ensure that forign exchange is repatriated as per law.
Gifts from residents You can give gifts upto Rs. 500000 to non-residents.
IMPORTANT INFORMATION DOCUMENTS EXIM POLICY HANDBOOK OF IMPORT AND EXPORT PROCEDURE FEMA EXCHANGE CONTROL MANUALS FEDAI DOCUMENTS
IMPORTANT DOCUMENTS AT THE TIME OF IMPORT IMPORT LICENSE FOREIGN EXCHANGE CONTROL COPY BILL OF ENTRY FOR HOME CONSUMPTION CUSTOMS ASSESSMENT CERTIFICATE OR POSTAL ASSESSMENT FORM
OPENING L/C Importer will approach his bank for opening an L/C L/C = Letter of credit the bank of the importer will give a guarantee about payment to the bank of the exporter under L/C. When the exporter exports, he can obtain immediate payment from his bank on producing L/C of the importer's bank. The banks will have transaction between themselves.
Difference between packing credit and L/C Packing credit is issued to exporter, but L/C is issued to importer. Packing credit covers all the expenditure till export, L/C covers the price of import = and as per this the exporter gets payment as soon as he exports. The bank of the importer provides this facility to the importer against some charges.
Foreign exchange requirements Importer requires foreign exchange for imports. The banker / authorised dealer provides foreign exchange after looking at the necessary documents like import licence etc. The foreign exchange must be used for the purpose for which it has been obtained. The banker / authorised dealer has to ensure that only that amount is released which is actually required.
Mode of payment Authorised dealers will ensure that payment regarding impor is made in account. Cash payments are not permitted. In case advance payment is made, physical goods must come in 3 months. If the amount is more than $25000 then there must be a guarantee from some international bank. Proper EC copy must be submitted by the importer
Time limit for settlement Import payments must be settled within 6 months from the date of import. If it is more than 6 months, then it will be treated as ECB (external commercial borrowing) and will require prior permission of RBI/ Government
Export remittances The exporter has to declare exports to RBI and has to ensure that payments are received within time and as per approved methods of payments. Payments can be collected through bank account / international credit card / FCNR / NRE account / escrow account etc
Exports that dont require declarations.... Demonstrations / sales promotions (UPTO 2% OF TOTAL EXPORTS ONLY) , gifts (upto 1 lakhs), exports for reimports only, goods sent for repairs, goods less than 25000 rupees in value, samples, publicity material, personal goods of travellers.
What is consignment export ? Consignment means you are sending goods to someone for trade on your responsibility – and if goods are not sold, they are your property and you may get it back. Consignment export means sale or return back. It has to be settled in 6 months.
Exports requiring RBI approval Examples : project exports, export as contract against imports, elongated payment period, exports relating to agrements of government of India or other governments
Remittances relating to exports... These include : agency commission, export claims etc.
SEZ If you are operating from SEZ you are permitted to have foriegn currency account with an authorised dealer
Authorised dealers These are listed with RBI as per FEMA, they have to obtain RBI permission for some specified business transactions. Example: they cannot give guarantee in favour of exporters without RBI permission unless that exporter is listed as non-caution exporter.
Forfaiting Factoring and forfaiting can be undertaken by EXIM bank / authorised dealers. Under this they collect payments regarding export receivables against commission.
New trends.... Indian companies are now permitted to have foreign exchange accounts in other countries and to have properties in other coutnries (with prior approval from RBI) and they can acquire businesses / firms in other countries also as per their business requiremetns (as per govt. Policies) .
PEM PEM stands for Project Export memorandum – when companies are entering into project exports, they have to follow guidelines relating to this. Project exports generally has deferred payments - therefore prior permission must obtained before enteringi into PEM.
Other provisions Authorised dealers have to ensure that they get copesof GR Form and other documents required andforeign currency is used for acutal import / export and all required documents are submitted.
FDI Upto 100% Foreign Direct Investment is permitted under automatic route in many sectors. Investors will have to inform regional office of RBI in 30 days of remittances. In some sectors industrial licence is required and in some sectors, FDI is not permitted. But in most of the sector, now it is permitted including atomic energy etc.
Shares issue to NRIs Within 30 days of share issue to Non-residents, FC – GPR form has to be submitted. They have to submit all the details like they have implemented all the provisions of companies act & FEMA for this purpose.
Transfer from NR Now non residents can transer shares to other non-residents / residents and such transfer can be for consideration / as a gift. This tranfer can be only to an NRI / resident Indian. They can also sell it in stock exchanges through brokers. They will have to take NOC from income tax department
Tranfer by residents As per RBI notification of 2000, residents can also tranfer to non-residents – as per FEMA – so long as it is in automatic route. You have to keep in mind SEBI (Substantial acquisition of shares and takeover) regulation 1997 + required regulations under IRDA or other such laws.
Permission from RBI If it is not falling in automatic route, apply for permission to RBI with a copy of FIPB approval and details like pric, mode of payment etc. Price must not be lower than the higher of the average weekly high / low of last 6 months. FC-GPR form with details of existing shareholding must also be submitted.
FDI in different modes FEMA regulations 2000 give schedule I which gives list of industries for which automatic route is there. It doesnt requre prior RBI permission, for othe industries, take prior permission from RBI. Rate of dividend should not exceed SBI prime lending rate + 300 basis points. For other sectors take permission from SIA / FIPB/ RBI for investments.
PORTFOLIO INVESTMENT FIIs including asset management companies, mutual funds, hedge funds etc. Are permitted to invest in shares in India. FII have to invest in ratio of 70:30 in equity and debt when they invest in India, they are also permitted to invest as 100% debt.
Limits for FII investment An NRI / PIO can buy upto 5% in a company. All NRI/PIO/OCB can invest upto 10% in a company. A single FII can invest upto 10% in a company and all FIIs together can invest upto 24% in a company. Companies can raise this limit by passing board resolution and special resolution in general meeting subject to sectoral cap (like 49'% or 74% etc.)
FII dealings FII can deal through stock exchanges without RBI permission, but if they are dealing without stock exchanges, they have to obtain permission from RBI.
NRI dealings NRIs have to deal through NRE /FCNR account only. Sometimes they are permitted to deal in NRO account also – when they are investing on non-repatriation basis.
PERMITTED FIIs FOLLOWNG CAN REGISTER AS FII WITH RBI & SEBI: banks, pension funds, hedge funds, mutual funds, insurance companies, investment funds etc.
ECB External commercial borrowings : Indian comapnies can raise loans from other countries through various routes like : FRN (floating rate note), ECP (euro commercial paper), FCCB (foreign currency convertible bond), NIF (note issue facility), syndicate loan, etc.
ECB MECHANISMS Companies engage in many ECB mechanisms like : arbitrage hedging underwriting fund raising etc.
ADR /GDR American depository receipt / Global depository receipt are permitted by RBI as per scheme of 1993, companies can also sponsor issue of ADR / GDR. Infosys, Wipro etc. Are some of the companies which went for ADR / GDR during 1990s. After ADR/ GDR company will have to submit return in proforma as per annexure C of RBI notification 2000.
Royalty / technical fees Upto $2million of royalty upto 5% of domestic sale or 8% of export sale is permitted as royalty.
EEFC account Exchange Earners Foreign Currency account – a person who has earned foreign currency can retain 50% of the foreign currency earned in EEFC account with authorised dealers. This account can be used for current account transactions or for permitted capital account transactions.
RFC account Resident foreign currency account – if an NRI is returning India for ever, he can keep his foreign currency in RFC account and there are no restriction on use of funds in RFC account.
RFC (DOMESTIC) ACCOUNT A Resident who lives in India but receives foreign exchange payments / honorarium can open RFC (Domestic) account for retaining such payments.
Liberalised Remittance Scheme Residents can use upto $25000 for payments for permitted transactions per annum in this scheme Foreign Exchange Management (current account transactions) rules 2000 schedule I and II.
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