What is CONVERTIBLE FOREIGN EXCHANGE (CFE)?
Convertible Foreign Exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made there under.
Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 Notification No. FEMA 14(R)/2016-RB dated May 02, 2016
1. Manner of Receipt in Foreign Exchange : –
(1) Every receipt in foreign exchange by an authorized dealer, whether by way of remittance from a foreign country or by way of reimbursement from his branch or correspondent outside India against payment for export from India, or against any other payment, shall be as mentioned below:
(A) Members of the Asian Clearing Union
(i) Bangladesh, Myanmar, Pakistan, Sri Lanka & Republic of Maldives –
(a)Receipt for export of eligible goods and services by debit to the Asian Clearing Union Dollar account and / or Asian Clearing Union Euro account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the Asian Clearing Union Dollar account and / or Asian Clearing Union Euro Account of the authorized dealer maintained with the correspondent bank in that member country ;
(b)Receipt may also be made in any freely convertible currency in all other cases.
c) In respect of exports from India to Myanmar, payment may be received in any freely convertible currency or through ACU mechanism from Myanmar.
(ii) Nepal and Bhutan –
(a) Receipt may be in Rupees
(b) Receipts for export of goods to Nepal may be made in free foreign exchange,
Provided the importer resident in Nepal has been permitted by the Nepal Rashtra Bank to make payment in free foreign exchange. However such receipts shall not be routed through the ACU mechanism.
(iii) Islamic Republic of Iran
(a) Receipt for export of eligible goods and services, in any freely convertible currency and / or in accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time.
(b) Receipt in any freely convertible currency and / or in accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time in all other cases.
(B) All countries other than those mentioned in A above
I. Receipt in rupees from the account of a bank situated in any country other than a member country of the Asian Clearing Union.
II. Receipt in any freely convertible currency.
2. (a) In respect of an export from India, receipt shall be made in a currency
appropriate to the place of final destination as mentioned in the declaration form irrespective of the country of residence of the buyer.
(b) Any other mode of receipt of export proceeds for an export from India in accordance with the directions issued by the Reserve Bank of India to authorized dealers from time to time.
(3) Authorised dealers have been permitted to allow receipts for export of goods/ software to be received from a Third party (a party other than the buyer) as per the guidelines issued by the Reserve Bank.
2. Manner of Receipts in certain cases : –
(1) Notwithstanding anything contained in Regulation 3, receipt for export may also be made by the exporter as under, namely :
(i) in the form of a bank draft, cheque, pay order, foreign currency notes/ travelers cheque from a buyer during his visit to India, provided the foreign currency so received is surrendered within the specified period to the authorized dealer of which the exporter is a customer ;
(ii) `
(iii) (ii) by debit to FCNR/ NRE account maintained by the buyer with an Authorised Dealer or an Authorised Bank in India;
(iv) in rupees from the credit card servicing bank in India against the charge slip signed by the buyer where such payment is made by the buyer through a credit card;
(v) from a rupee account held in the name of an Exchange House with an authorized dealer if the amount does not exceed fifteen lakh rupees per export transaction or an amount prescribed by RBI, in consultation with Government of India in this reg.
(vi) In accordance with the directions issued by the Reserve Bank to Authorised Dealers, where the export is covered by the arrangement between the Central Government and the Government of a foreign country or by the credit arrangement entered into by the Exim Bank with a financial institution in a foreign state;
(vii) in the form of precious metals i.e. gold/ silver/ platinum equivalent to value of jewellery exported by Gem & Jewellery units in Special Economic Zones and Export Oriented Units on the condition that the sale contract provides for the same and the value is declared in the relevant EDF.
(2) In addition to 4 (1) (i) & (iii) above, any person resident in India may also receive any payment for other than exports by means of postal order issued by a post office outside India or by a postal money order issued by such post office.
As per Notification No. FEMA 9 /2000-RB dated 3rd May 2000 A person shall be deemed to have repatriated the realized foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorized dealer.
Compiled & Prepared by- Ms. Jeenia Monga, Articled Intern, Parshotam & Associates, Chartered Accountants, fema@parshotamandassociates.com.
Author Bio
I have a client located in Israel and in order to receive payment from the client if I use Transferwise or Paypal or Razor pay etc. would that still be considred Convertible foreign exchange and my services as “Export if services”. I am a cyber security consultant and want to understand the best method to receive payments which doesn’t subject me or my foreign clients to GST. Also to understand the best method to receive money so that I don’t loose too much on exchange rates and charges.