Summary: This is a general article highlighting practical points on compliance under the Foreign Exchange Management Act (FEMA). It states that the size of a foreign transaction does not determine compliance requirements and emphasises timely compliance for cross-border transactions, including overseas investments, foreign loans, share capital receipts, and share transfers. The article stresses timely filing of forms such as FC-GPR, FC-TRS, ECB-2, FLA, and APR, and lists indicative due dates, including allotment within 60 days of receipt of funds, FC-GPR within 30 days of allotment, FLA by 15 July, APR by 31 December, and ECB-2 by the 7th of the following month. It also outlines documentation such as investor KYC, FIRC, board resolutions, valuation reports, share certificates, approvals, and acknowledgements. The article recommends obtaining professional advice, maintaining proper records, and obtaining valuation reports from a Merchant Banker or Chartered Accountant. It further discusses delayed filings resulting in Late Submission Fee (LSF), compounding of non-compliances subject to stated conditions, RBI inspections, and cautions that commitments exceeding the yearly Liberalised Remittance Scheme (LRS) limit on a deferred payment basis may result in non-compliance.
Here are some important points about FEMA which reminds how important it is to have a timely and adequate compliance of FEMA.
1. The size of transaction does not matter– You may think it was just a small foreign transaction and can be ignored or can be looked after later on. But remembers, even a transaction as small as USD 1, may bring a series of non compliances for you and you may land in resolving them. So be cautious when you make a small overseas investment, open a company outside India while on travel visa, there are proper provisions and compliances to be done.
2. FEMA has a great memory- FEMA remembers every rupee invested, every transactions and every filings. Your every transaction is under lenses and require timely compliances.
3. Received Foreign Money, pleased do the compliances immediately- As soon as you receive share capital in your company’s bank account, or transfer shares from resident to non-resident and vice versa, or received a foreign loan, or did any other cross boarder transactions, make sure you file those form FC-GPR, FC-TRS, ECB-2 within the due date to make the transaction compliance under FEMA. Any delay may make you non- compliant causing lot of inconvenience later on.
4. Rely on the experienced professional– You just can not rely on some google search for the compliances. Please take proper advise of experienced professional for the correct guidance. You just can not say that you found something on google search and now relying on that.
5. Dates are important– following the proper due dates as mentioned under the guidelines- some important dates and due dates-
-allotment to be done within 60 says from the date of receipt of funds;
-form FC-GPR to be filed within 30 days from the allotment date;
-FLA to be filed by 15th July
-APR to be filed by 31st December
-ECB-2 to be filed by 7th of the next month.
6. Back story behind the form FC- GPR- Every FC-GPR has a story behind the scene-
-Receipt of funds
-6 pointer KYC of the investors
-FIRC
-Board meeting
-Allotment of shares
-Valuation Report
-Share certificates
-All the above are very important in terms of the proper compliances.
7. Money received is not equal to compliances completed-
You just can not relax on- Oh, the money finally got credited in the account. No, it is just the beginning. Once the money is credited in the account, your compliances starts. Contact your bank immediately for the KYC and the FIRC. Do your board meeting and allot the shares and then file form FC-GPR with all attachments.
8. Compounding are also in the scene- if you missed the compliances, can go for compounding, which is a six month process and it requires payment of some penalty to regularise the non-compliances. But remember, you can not compound the same non-compliance within a period of 3 years from the date of your current compounding.
9. Investment overseas, Loan from Overseas, Investment inward- These all require documentation and money received is not your only job.
10. Keep adequate documentations not only the excel sheets- When you do any transaction under FEMA, keep all your documents- the KYC, the FIRC, the valuation reports and the FLA acknowledgments received, the approvals and all. Keeping only the calculations in excel is not going to justify the compliances.
11. RBI Inspections- Trust me, when RBI comes for inspection, they need all proper compliances, not surprises is expected by them which can be viewed very seriously. So keep all your surprises for cricket and not for FEMA.
12. Transaction triggers compliances- Once you do any cross boarder transactions, the FEMA comes into picture and you can not avoid it by pressing Cont+Z.
13. Importance of Valuation Report- Valuation Report is not a decorative plant. It is very important in FEMA filing. For FEMA purpose, you can take a valuation report either from a Merchant Banker of from a Chartered Accountant. Don’t forger to obtain a valuation report.
14. Delayed filings- Accept the truth that- every delayed filing start with the thought- We still have time….. and believe me, the time passes in no time and you are left with a delayed filing resulting in payment of LSF.
15. Investment under LRS- The biggest surprise- You liked a property in Dubai, cost US$ 1 Million and you know well, you can investment US$ 250,000 per year and you purchase the property on an EMI if US$ 250,000 per year. Feels safe? No non compliance??? Wrong… you have committed more than your yearly limit, even if you are paying only US$ 250,000 within the allowable limit. Don’t get surprised, when you receive a notice from ED for breach of your yearly limit… you can not commit to pay even on deferred payment basis for more than your yearly limit.
*****
Disclaimer: This article has been prepared in good faith and on personal experience. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.
(Author – Sonika Bharati, FCS, LL.B. is a Company Secretary based at New Delhi and can be contacted at sonika.bharati@gmail.com)
Author Bio
