Foreign Exchange Management Act (FEMA) 2000
Detailed summary of important notifications is given below:
(I) Regulations for Current Account Transactions.
Any person may sell or draw foreign exchange to or from an authorised dealer if such sale or withdrawal is a current account transaction except for following transactions where drawal of exchange is prohibited -
i. Travel to Nepal or Bhutan
ii. Transactions with a person resident in Nepal or Bhutan (unless specifically exempted by Reserve Bank by general or special order)
iii. Remittance out of lottery winnings
iv. Remittance of income from racing/riding etc. or any other hobby.
v. Remittance for purchase of lottery tickets, banned/proscribed magazines, football pools, sweepstakes, etc.
vi. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies.
vii. Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
viii. Payment of commission on exports under Rupee State Credit Route.
ix. Payment related to "Call Back Services" of telephones.
x. Remittance of interest income on funds held in Non-Resident Special Rupee (NRSR) account scheme
Besides these specific cases, there are certain other transactions, for which specific RBI approval will be required.
Reserve Bank approval would still be required for importers availing of Supplier's Credit beyond 180 days and Buyer's Credit irrespective of the period of credit
Authorised dealers may now permit remittance of surplus freight/passage collections by shipping/airline companies or their agents, multimodal transport operators, operating expenses of Indian airline/shipping companies and other such remittances after verification of documentary evidence in support of the remittance.
(II) Regulations relating to Capital Account Transactions
Foreigners are not allowed to invest in any company or partnership firm or proprietary concern which is engaged in the business of Chit Fund or as a Nidhi Company or in Agricultural or Plantation activities or in Real Estate business (other than development of townships, construction of residential / commercial premises, roads or bridges) or construction of farm houses or trading in Transferable Development Rights (TDRs).
Listing of permissible classes of Capital account transactions for a person resident in India and also by a person resident outside India has been provided in the regulations.
The act also provides detailed rules and regulations on borrowing and lending in Foreign Currency as well as Indian Rupee by a person resident in India from/to a person resident outside India either on non-repatriation or repatriation basis and restrictions on borrowed funds.
Authorised dealers are now permitted to grant rupee loans to NRIs against security of shares or immovable property in India, subject to certain terms and conditions. Authorised dealers or housing finance institutions approved by National Housing Bank can also grant rupee loans to NRIs for acquisition of residential accommodations subject to certain terms and conditions.
Generally, there is no change in the existing Non Resident External (NRE) and Foreign Currency Non Resident, FCNR (B) and Non Resident Ordinary (NRO) account scheme except that the limit for permitting overdraft in NRE account has been raised from Rs.20, 000 to Rs.50, 000 and ceiling on permitting overdraft in NRO accounts has been dispensed with.
General permission has been granted to Indian company (including Non-Banking Finance Company) registered with Reserve Bank to accept deposits from NRIs on repatriation basis subject to the terms and conditions specified in this schedule. Indian proprietorship concern/firm or a company (including Non-Banking Finance Company) registered with Reserve Bank can also accept deposits from NRIs on non-repatriation basis subject to the terms and conditions specified in this schedule.
General permission has been granted to Indian companies to accept deposits from NRIs/OCBs by issue of a commercial paper subject to certain terms and conditions.
General permission has also been granted for retention of funds raised through external commercial borrowings or raising of resources through ADRs/GDRs in deposit with a bank outside India pending their utilisation or repatriation in India.
General permission has been granted to residents for purchase/acquisition of foreign securities i.e. investment by a person resident in India in shares and securities issued outside India. -
a. out of funds held in RFC account;
b. issued as bonus shares on existing holding of foreign currency shares; and
c. sale of shares/securities so acquired.
For the purpose of regulating the investment in India by person resident outside India, such investments have been divided in following five categories and the regulations applicable have been specified.
Schedule 1 - Investment under Foreign Direct Investment Scheme
Schedule 2 - Investment by Foreign Institutional Investors under Portfolio Investment Scheme
Schedule 3 - Investment by NRIs/OCBs under Portfolio Investment Scheme
Schedule 4 - Purchase and sale of shares by NRIs/OCBs on Non-repatriation basis
Schedule 5 - Purchase and sale of securities other than shares or Convertible debentures of an Indian company by Persons resident outside India
For transfer of existing shares/convertible debentures of an Indian company by a resident to a non-resident by way of sale, the transferor should obtain an approval of the Central Government and thereafter apply to Reserve Bank. In such cases the Reserve Bank may permit the transfer subject to such terms and conditions including the price at which sale may be made.
Reserve Bank has granted general permission for remittance of net sale proceeds (net of applicable taxes) of a security sold by a person resident outside India provided -
a. the security is held on repatriation basis;
b. security is sold on recognised stock exchange or the Reserve Bank's permission for sale of security and remittance of sale proceeds has been obtained and;
c. NOC/Tax Clearance Certificate from Income Tax authorities or an undertaking/declaration as per the provisions of paragraph 3B.10 of ECM has been produced.
(III) Regulations relating to export of goods and services
In terms of Section 7 of the Act the Reserve Bank has been empowered to regulate receipt of payments for goods or services exported from India by prescribing a form of declaration. Accordingly, the Reserve Bank has in terms of the above referred regulations prescribed the following forms for declaration of goods/software as specified in the schedule annexed to the Regulations: -
i) Form GR
ii) Form SDF
iii) Form PP
iv) Form SOFTEX
These forms are almost similar to the existing form GR, SDF, PP and SOFTEX except that the declaration/undertaking to be furnished by the exporter has been suitably modified. Form VP/COD has been dispensed with.
Exemptions however has been granted under following cases
a. export of goods/software not exceeding Rs.25, 000 in value.
b. export by way of gift not exceeding Rs one lakh in value.
c. Export of goods not exceeding US$ 1000 or its equivalent per transaction to Myanmar under Barter Trade agreement.
Export proceeds are required to be realised within a period of 6 months from the date of shipment. In the case of exports to a warehouse established abroad with the approval of Reserve Bank, the proceeds have to be realised within 15 months from the date of shipment. The requirement of repatriation of proceeds on due date has been dispensed with. An enabling provision has been made in this regulation to delegate powers to authorised dealers to allow extension of time.
Export of goods on elongated credit terms beyond six months requires prior approval of Reserve Bank.
(IV) Other Regulations
A person resident in India to whom any foreign exchange is due or has accrued is under duty to take reasonable steps to realise and repatriate to India such foreign exchange unless an exemption has been provided in the Act and rules or regulations made thereunder or under the general or special permission of Reserve Bank.
Any foreign exchange due or accrued as remuneration for services rendered or in settlement of any lawful obligation or an income on assets held outside India or as inheritance, settlement or gift to a person resident in India should be sold to an authorised person within a period of seven days of its receipt and in all other cases within 90 days of its receipt.
Any person who has drawn exchange for any purpose but has not utilised it for the same or any other purpose permissible under the provisions of the Act or rules or regulations made thereunder should surrender such foreign exchange or unutilised foreign exchange to an authorised person within a period of 60 days from the date of acquisition. Where, however, exchange was drawn for travel abroad, the unutilised exchange in excess of the limit upto which foreign exchange is permitted to be retained, should be surrendered to an authorised person within 90 days from the date of return of the traveller to India if unspent exchange is in the form of foreign currency notes and within 180 days if it is in the form of travellers cheques.
The Reserve Bank has specified the limit for possession and retention of foreign currency by a person resident in India, under these regulations -
There is no restriction on possession of foreign coins by any person
Any person resident in India is permitted to retain in aggregate foreign currency not exceeding US$ 2000 or its equivalent in the form of currency notes/bank notes or travellers cheques acquired by him from approved sources.
The Reserve Bank has granted general permission to any person to receive any payment -
a. made in rupees by order or on behalf of a person resident outside India during his stay in India by converting the foreign exchange into rupees by sale to an authorised person.
b. made by means of a cheque drawn on a bank outside India or a bank draft or travellers cheques issued outside India or made in foreign currency notes directly, from out of India provided the cheques, drafts or foreign currency is sold to an authorised person within seven days of its receipt.
c. by means of a postal order or postal money order issued by a post office outside India.
Reserve bank has also granted general permission to a person resident in India to make payment in rupees -
a. for extending hospitality to a person resident outside India;
b. to a person resident outside India for purchase of gold or silver imported by such person in accordance with the provisions of any order issued by Central Government under the Foreign Trade (Development and Regulation) Act, 1992 or under any law or rules or regulations in force.