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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Key Definitions (2/4)

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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Key Definitions (3/4)

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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Key Definitions (4/4)

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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Regulations at Glance (2/3) Sl. No.

O R No./ R R No. (if any)

Regulation Title Commonly referred as

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) Regulations, 2017 (Revised wef 07-11-2017)

FDI Regulations

17 21/2000 21(R)-2018 (RB)

FEM (Acquisition and transfer of Immovable Property in India) Regulations, 2018 (Revised wef 26-03-2018)

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

25/01/2019 All the Original Regulations are dated of 03/05/2000

Regulations at Glance (3/3)

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Sl. No. O R No./ R R No. (if any)

Regulation Title

Commonly referred as

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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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

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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

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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

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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

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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

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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

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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

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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?

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Loans from NRI

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

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Loans from NRI / PIO (2/3)

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

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Loans from NRI / PIO (3/3)

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

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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

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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

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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)

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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

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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

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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).

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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

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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

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