FEMA Provision Pertinent to Resident Individuals

We live in a ‘global village’. This is true for Indians today, more than ever before. The tribe of Indians with financial linkages to the world is growing exponentially. We travel overseas frequently, for work and vacations too. Indian students are found all over the globe. Many of us have close relatives working and residing abroad. Economic liberalization has further propelled this growth. Traveling abroad, purchase of immovable property abroad, holding overseas bank accounts, investments in foreign securities, etc. is no more limited to HNIs but is within the realm of the common man. In all these instances, exchange of currency is involved.

Foreign Exchange transactions in India or by persons resident in India are governed by Foreign Exchange Management Act, 1999. The purpose of this article is to understand the relevant provisions of FEMA pertaining to resident Individuals.

Persons Resident in India (PRI): If a person has stayed in India for more than 182 days during preceding financial year (FY), then he would be called as PRI. There are few exceptions to this rule. This does not apply if one has gone out of India (or stay outside India) for the below specified purposes: 

• Taking up employment
• Carrying out a business/Vocation
• Any purpose that indicates one’s intention to stay abroad for an uncertain period.

If a person leaves India for above specified purposes, then he becomes Person Resident Outside India (PROI), the day he leaves India, even if he has stayed in India for more than 182 days during preceding financial year.

Similarly, if a person comes to India for any of above specified purposes, he would be considered as PRI, the day he arrives in India, even though he has not stayed for more than 182 days in India in preceding financial year.

Person Resident Outside India: A person would be called as Person Resident Outside India(PROI) if he is not a Person Resident in India (PRI) .

NRI means a person resident outside India (PROI) who is Indian citizen.

“Overseas Citizen of India or OCI” means an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under section 7A of Citizenship Act, 1955.

Important Points on Residential Status:

• Citizenship is not a criterion.
• A person may have more than one residential status in the same year in FEMA.
• In Income Tax Act, residential status of a person is decided after completion of the year, while in FEMA, it is decided based upon the current status.
• Though financial year is not be defined in FEMA. prima facie, it means April to March.
• Stay in parts be summed up for arriving period of stay.
• Length of period is not important for employment, business or vocation and uncertain period of stay.

Illustration

What should not be done by PRI:

• Deal in or transfer any foreign exchange or foreign security to any person not being an authorized person. For instance, buying unspent foreign currency from a friend, who has just returned from US, would be a contravention of FEMA. Savier Poonolly (PRI), passenger for Bangkok by Singapore Airlines, was intercepted by the Intelligence Officer of Customs and was found to be in possession of currency notes of more than USD 55,000. He accepted purchasing foreign currency from local market without giving any declaration. He was arrested and the foreign currency was confiscated. Further a penalty of Rs. 5 lacs was imposed under Customs Act.(Commissioner of Customs vs Savier Poonolly Madras High Court 2014).
• To make any payment (Indian/Foreign Currency) to or on behalf of any PROI. For example, making payment of premium of Indian insurance policy of NRI brother, would be a contravention.
• Receive otherwise through an authorized person, any payment (whether in IC/FC) by order or on behalf of any PROI in any manner. For instance, receiving foreign currency/Indian currency in India from relative in abroad through hawala dealer or even through one’s friend who has visited the country where relative resides, would be a contravention. During patrolling Rs. 2 lacs in cash was found to be in possession of Balhar Chand, Balwinder Kumar & Avtar Singh. Further cash of Rs. 10 lacs was recovered from their house. During interrogation, they claimed to have received this money from their brothers in Dubai through hawala dealer. Penalty of Rs. 4 lacs was imposed under FEMA. (Balhar Chand And Others vs State of Punjab And Others on 1 July, 2008)
• Enters into financial transaction in India for acquisition or creation or transfer of right to acquire any asset outside India by any person. For instance, transaction of remitting money from India through hawala dealer for delivering equivalent foreign currency in US/UK would be a contravention, as by doing this PRI is creating assets outside India for which financial transaction is being undertaken in India.

Except as provided in FEMA, rules or regulations made thereunder, no PRI should purchase/sale/own any foreign exchange (FE), foreign security or any immovable property situated outside India.

Current Account Transaction: 

• Current account transaction means other than capital account transaction and includes:
• • Payment pertaining to foreign trade, other current business/services and short-term credit & banking facilities.
  • Interest on loan and income from investment.
  • Remittance for living expenses of parents, spouse and children aboard.
  • Foreign travel, education and medical care of parents, spouse and children.
• Any person may sell/draw foreign exchange (FE) to/from authorized person for current account transactions.
• It is governed by Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended time to time.
• Current account transaction is a permitted unless specifically prohibited. Permitted transactions requires RBI approval for resident individuals beyond LRS prescribed limit of USD 250,000 per FY. However, this limit is cumulative limit includes remittance for permissible capital account transactions as well.
• Foreign exchange is not permissible to be drawn for the following purposes:
• • Prohibited transactions as specified in Schedule I.
  • Travel to Nepal/Bhutan.
  • Transactions with residents in Nepal/Bhutan. RBI, on request, may permit transactions in foreign exchange with resident in Nepal & Bhutan subject to terms and conditions.

Prohibited Current Account Transaction {Schedule I}

• Remittance out of lottery winning.
• Remittance of income from race/riding/other hobby.
• Remittance for purchase of lottery tickets, banned magazines, football pools, sweepstakes etc. Remittance for lottery like scheme in different names (money circulation, prize money or awards) are also prohibited.
• Payment of commission on exports made towards equity in JV/WOS abroad.
• Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
• Commission on exports made under Rupee State Credit Route other than commission <=10% on exports of tea/tobacco.
• Payment related to “Call Back Services” of telephones.
• Remittance of interest income from Non-Resident Special Rupee (Account) Scheme.

Remittance for prohibited current account transaction is not possible even from RFC/EEFC account. 

Permitted Current Account Transaction by Resident Individuals under LRS:  Remittance within limit of USD250,000 per financial year by resident individual is permissible. Remittance beyond USD 250000   in a financial year would be subject to RBI approval.

• Private visits to any country (except Nepal and Bhutan).
• Gift or donation.
• Going abroad for employment.
• Emigration
• Maintenance of close relatives abroad.
• Travel for business/attending conference/ specialized training/for meeting expenses for meeting medical expenses/check-up abroad/for accompanying as attendant to a patient going abroad for medical treatment/check-up.
• Expenses in connection with medical treatment abroad.
• Studies abroad.
• Any other current account transaction.

In case of emigration, medical expenses & study abroad, AD bank is empowered to allow additional withdrawal of FE by resident individual if it is required by a country of emigration, medical institute offering treatment or the university.

Seba Babu Moopan made remittance of USD 271k under LRS, which was beyond permissible limit of USD 250k. The contravention, of making remittance beyond permissible limit without permission of RBI, was regularized by way of compounding on payment of Rs. 59k (CA 4961/2019).

Gift under LRS from PRI to PRI is not permissible. Vinit Beriwala, a resident individual, made a gift in foreign currency to his parents, who were also resident individual, under LRS. The contravention was regularized through compounding on payment of Rs. 96k (CA 4813/2018).

Shares of Indian company cannot be purchased out of remittance made under LRS. Mahendra Kumar Sanghi purchased, the shares of an Indian company from Mauritius based holding company, using funds held in overseas account, which was remitted under LRS by giving declaration that funds will be utilized for investment in shares of overseas company. The contravention was regularized through compounding on payment of Rs. 111k (CA 4446/2017).

Capital Account Transactions is a transaction that alters:

• Assets and liabilities including contingent liabilities, outside India of PRI or
• Assets and liabilities in India of PROI

and

• Includes transactions referred to section 6(3) (Omitted by the Finance Act, 2015, with effect from a date yet to be notified) 

Gift Whether Current or Capital Account Transaction?

PRI may sell or draw foreign exchange, for capital account transaction specified in below schedule, within the limit specified in regulations relevant to transaction.

Permissible Capital Account Transactions by Resident Individuals

{Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000}

• Investment in foreign securities.
• Foreign currency loans raised in India/abroad.
• Transfer of immovable property outside India.
• Guarantees issued in favor of PROI.
• Export, import or holding of currency/currency notes.
• Loan/borrowings from PROI.
• Maintenance of foreign currency account in India/outside India.
• Taking out insurance policy from insurance company outside India.
• Loans/overdraft to PROI.
• Remittance outside India of capital asset.
• Sale/purchase of foreign exchange derivatives in India/abroad and commodity derivatives abroad

Limits of Capital Account Transactions by PRI:

• Resident individual may, draw foreign exchange up-to USD 250,000 per financial year for a permissible capital account transaction as specified above and current account transaction. This is cumulative limit in a financial year for capital and current account transactions together.
• For drawing foreign exchange, for permissible capital account transaction, beyond LRS limit (exceeding USD 250,000 per financial year), the limit specified in regulations relevant to the transaction will apply.
• No remittance, directly or indirectly for capital account transaction to countries notified as non-co-operative countries and territories by Financial Action Task Force (FATF) is permissible.

Prohibition on Capital Account Transactions by PRI:  No capital account transaction should be undertaken with person who is either citizen or resident or an entity of Democratic People Republic of Korea without government approval.

Purchase of Immovable Property outside India by Resident Individuals:

• Purchase of immovable property outside India, is permissible subject to remittance of upto USD 250k per financial year per resident individual under LRS.
• Clubbing of LRS remittance with close family member, is permissible for purchase of immovable property, provided family members are co-owners in property.
• In case value of immovable property exceeds LRS limits of all the family members, then only option is to accumulate funds overseas by making remittance through LRS and then purchase the property.
• No credit facilities by banks for any capital account transaction is allowed. Residents can’t borrow overseas also without RBI approval.
• Property can’t be purchased in countries identified as Non-Cooperative Countries by FATF.
• On sale of the property, acquired outside India through remittance under LRS, there are no compulsions to repatriate the funds to India.
• Property purchased through LRS by resident individual can be acquired by way of gift/inheritance by another resident Individual. Under that circumstances, funds must be repatriated to India on sale of such property by a person who has acquired this by way of gift/inheritance.

Investment in Overseas Securities by Resident Individuals:

• Investment in securities overseas by resident individual is permissible within the specified limit of LRS (USD 250k per financial year).
• Remittance not possible to Non-Co-operative Countries & Territories declared by FATF.
• No compulsion to repatriate money back to India on sale of such investment.

Transfer of Shares of an Indian Company by Resident Individual to PROI or vice versa : Sale of shares of an Indian company from PRI to PROI, intending to have shares on repatriation basis, is permissible under Foreign Exchange Management (Non-Debt Instruments) Rules 2019, subject to entry route, sectoral cap, pricing guidelines, attendant conditionalities, documentation and reporting requirement.

In case of transaction of sale/purchase of shares of an Indian company between PROI on repatriation basis and PRI, Form FC-TRS must be filed within 60 days of transfer of shares or receipt / remittance of funds whichever is earlier. Onus of reporting is on resident transferor / transferee or PROI holding shares on a non-repatriable basis.

Sathish Madhukar Katre sold equity shares of an Indian company to PROI, a company incorporated in Mauritius. Form FC-TRS was submitted with a delay of around 11 months as against prescribed period of 60 days. The contravention was regularized through compounding on payment of Rs. 56k (CA 966/2019).

Penmetcha Krishnam Raju, a resident individual (PRI) acquired equity shares of an Indian company from NRI in 2016. As per regulation, resident individual should submit Form FC-TRS along with documents prescribed therein to RBI within 60 days from the date of transfer shares. The onus of submission of the form FC-TRS is on resident transferor/transferee. In this case FC-TRS was submitted by PRI in 2018 and contravention of delay in submission of Form FC-TRS was regularized through compounding on payment of Rs. 53 (CA HYD 372).

Paturi Srinivasa Rao sold equity shares held by him in an Indian company to non-resident company, incorporated in Singapore. He received excess consideration of Rs. 180K which was refunded by him with a delay of more than 1 year. The contravention, of delay in refund, was regularized through compounding on payment of Rs. 56k approx. (CA HYD 480/2019).

Overseas Direct Investment (ODI) by Resident Individual under Automatic Route through LRS

• Investment in overseas operating JV / wholly owned subsidiary (WOS) is permissible, only by way of equity or compulsorily convertible preference shares, subject to limit as prescribed under LRS (USD 250k per financial year). Loan cannot be given to overseas JV/WOS by resident individual under LRS.
• JV / WOS must be engaged in bona-fide business activity other than Real Estate / banking / financial services.
• ODI should not be in “Non-Co-operative Countries and Territories” as per FATF.
• Resident individual should not be on RBI Caution/Defaulters’ list
• Investment made out of EEFC / RFC account will also be restricted to above limit of LRS. Hence even investment made out of EEFC/RFC will not have an impact of increase in limit.
• ODI under LRS is permissible for Operating JV/WOS only. No step-down subsidiary to be acquired/set up by such overseas JV/WOS.
• Valuation/reporting/post investment changes reporting are same as applicable to Indian party.
• No write-off is allowed in case of divestment by resident Individuals.
• Divestment proceeds should be repatriated to India within 60 days.
• Share certificates must be received within 6 months from the date of remittance.
• Remittance for ODI to be made through designated branch of AD Bank only.

Nitin Jayantilal Mankad made an investment in overseas JV and contravened on routing of the remittance of ODI through a non-designated AD Bank, delay in submission of APR and delay in submission of Form ODI. These contraventions were regularized through compounding on payment of Rs. 1.66 lacs (CA 4980/2019).

Ramanujam & Family, resident individuals (PRI), made remittance of SGD 233,600 on Oct 2007 and SGD 116,800 on Oct 2010 under LRS to overseas JV in Singapore towards equity investment @ share price SGD 1 each. Investment in overseas JV (ODI) by resident individual was permitted only for operating entity, vide Notification No. FEMA 263/RB-2013 dated 5th March 2013 effective from 5th August 2013. Accordingly, Investment by resident individual in Overseas JV prior to March 2013, was contravention of Regulation, another contravention was investing in overseas entity other than operating entity. The total investment was divested by Ramanujam family at Rs. 30.8 Cr @ valuation of USD 13.49 per share to Indian company without seeking prior approval of RBI. These contraventions were compounded on payment of Rs. 16.5 Cr, highest ever in case of Individual since the compounding orders being uploaded on RBI website i.e. 2016. The undue gains were worked out on basis of assuming return on equity in India @ 30% per annum (CA 4593 TO 4595/2017).

Opening of Foreign Currency Account (FCA) Overseas by Resident Individuals: {Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations 2015}

• A resident individual can open a FCA with a bank outside India for holding funds being remitted under LRS.
• A PRI, in abroad for studies, may open a FCA with a bank outside India during his stay there. On student’s return to India after completion of studies, the account should be closed else will be deemed to have opened under LRS.
• A PRI on a visit to a foreign country may open a FCA with a bank outside India during his stay there. The balance in the account should be repatriated to India on return to India.
• A person going abroad to participate in an exhibition/trade fair may open a FCA with a bank outside India for crediting the sale proceeds. The balance should be repatriated to India within one month from the date of closure of the exhibition/trade fair.
• A foreign citizen, but resident in India employed with an Indian company, permitted to have FCA overseas. Similarly, Indian citizen, being an employee of a foreign company, on deputation to the office or branch or subsidiary or JV or group company in India, can have FCA overseas.

Arvind Singh Mewar opened foreign currency account with bank in UK during his visit to overseas and continued these FCA accounts even after his return to India. He also received fees as senior advisor from an Indian company directly in UK account and the same was not fully repatriated by him. He further extended a loan to non-resident company from FCA. Lending in foreign exchange by resident individual to a non-resident entity from theses FCA held outside India otherwise than in accordance with Regulations under FEMA, is contravention. All the contraventions were regularized through compounding on payment of Rs. 3.3 lacs and Rs. 1.5 lacs (CA 4623 & 4624 /2018).

Arun Mammen, ex MD of MRF, along-with his brother opened various foreign bank accounts overseas with a view to pursue advisory & consulting services abroad which was a contravention of regulation. No PRI should open, hold or maintain FCA overseas except otherwise permitted under FEMA, rules or regulations made thereunder. Theses FCA were later-on closed and the balances in the accounts were repatriated to India. The contraventions done by him and his brother were regularized through compounding on payment of Rs. 69 lacs each (CA 4444 & 4445/2017).

Loan in INR by Resident Individual to NRI/OCI: Resident individuals can extend loan to relative NRI/OCI who are relatives, subject to below conditions:

• It should be interest free loan with minimum maturity of 1 year.
• Overall limit of such loan by resident individual to relative NRI/OCi in FY restricted to limit under LRS (USD 250K per FY)
• Utilization: Personal requirement/for business in India.
• Loan not be utilized for investment in prohibited activities for PROI
  • Chit fund,
  • Nidhi,
  • Agricultural Land or Real Estate Business or Construction of Farm-House,
  • Trading in TDR.
• Loan amount be credited to NRO Account of NRI/PIO.
• Loan amount not to be remitted outside India.
• Repayment of loan: Out of foreign inward remittance or by debit to NRO/NRE /FCNR or out of sale proceeds of shares/ securities/ immovable property against which loan was sought.

It may be noted that lending to NRI/OCI in foreign currency by resident Individual is not permissible and would require RBI approval.

Borrowing in INR by Resident Individual from NRI/OCI: PRI, not being a company incorporated in India, may borrow in INR from a relative NRI/OCI. Borrowed funds should not be used for restricted end uses (real estate business, agricultural/plantation, trading in TDR, nidhi or chit Fund). The amount should also not be used for investment or for on-lending. However, RBI may permit borrowers to use the borrowed amount for on lending to infrastructure sector or to keep them in fixed deposits with banks in India, pending utilization for permissible end-uses.

Terms & Conditions:

• Borrowing should be on a non-repatriation basis.
• Amount of loan should be received either by foreign inward remittance or by debit to NRE/ NRO/FCNR(B)/NRNR/NRSR account.
• Period of loan not to exceed 3 years.
• Rate of interest not to be more than 2% above bank rate prevailing on the date of availment of loan.
• Payment of interest and repayment of principal to be made only to NRO account of the lender.

Basant Gurnani, a resident individual, borrowed money in INR from NRI. The loan was interest free and was received from NRO account of NRI. As per regulation, INR loan from NRI should be paid back in three years. In this case, the loan repayment was delayed. The contravention was regularized through compounding on payment of Rs. 1.6 lacs (CA 4537/2017).

Faizan Aziz borrowed funds in INR from NRI and used the funds for acquiring shares of an Indian company. As per regulations, the borrowed money cannot be used for investment or restricted end use purposes. The contravention was regularized through compounding on payment of Rs. 8k (CA 3960/2016).

Borrowing in Foreign Currency from NRI/OCI by Resident Individuals: Individual resident in India may borrow upto USD 250,000/- or its equivalent, or any other amount as decided by RBI time to time, from relatives outside India and subject to specified terms and conditions (Interest free loan, minimum maturity period of 7 year, amount to be received by way of foreign inwards remittance/out of NRE/ FCNR account of NRI/OCI, amount should not be used for restricted end use).

Borrowing in foreign currency by Resident Individuals for Study abroad: Resident individual studying abroad may raise loan outside India not exceeding USD 250,000/- for education fees abroad and maintenance.

Gifts by Resident Individuals to NRI/OCI:

Gift in INR to NRI/OCI: Rupee gift to NRI/OCI, who is a close relative of the resident individual by way of crossed cheque /electronic transfer is permissible. Amount may be credited to NRO a/c of NRI/OCI. Gift amount should be within the overall limit prescribed under LRS i.e USD 250K per financial year.

Gift in FC to NRI/OCI: Permissible upto LRS limit of USD 250k per FY.

Gift of Shares of Indian Company to NRI/OCI: – Permissible with prior approval of RBI subject to below:

• Donee Eligible to hold equity instrument under Foreign Exchange Management (Non-debt Instruments) Rules, 2019
• Value <= 5% of Paid-Up Capital/each series of Debenture/Mutual Fund Scheme. This limit is cumulative from a donor to a particular donee.
• Donor & Donee to be relative {u/s 2(77) of the Companies Act}.
• Gift not resulting in breach of sectoral cap.
• Value of security (current + already gifted to any PROI in FY) should not exceed USD 50,000.
• Other conditions as be imposed in public interest by Central Government

Vijay P Uttarwar transferred 2,50,000 equity shares of Re.1 each of an Indian company as gift to a non-resident in 2016 without RBI approval. Gift of shares of Indian company to NRI/OCI are subject to prior approval of RBI only. Post facto approval was granted by RBI in March 2018. Contravention was regularized through compounding on payment of Rs. 51K (CA 4856/2018).

Gift of Immovable Property in India to NRI/OCI: Gift of immovable property in India (other than agricultural land, farmhouse, plantation property) by resident individual to NRI/OCI who is relative u/s2(77) of the companies Act 2013 is permissible.

It may be noted that gift from relative is not chargeable to tax in hands of donor/donee.

Gifts from NRI/OCI to Resident Individual:

• Gift from specified relative NRI/OCI in form of cheque or property is permissible and is exempt from tax.
• Gift by NRI/OCI in form of cash, cheque or property to resident Individual who is not relative is permissible and not chargeable to tax provided the value does not exceed Rs. 50K. If value exceeds Rs. 50K, then it would be chargeable to tax in the hands of receiver as per applicable Income Tax slab.
• Gift by NRI/OCI to resident individual at the time of marriage or through will, both donor or donee are exempt from the tax irrespective of fact whether they are relative or not.

Gift of Foreign Security to Resident Individuals by PROI: Permissible.

Pratibha Agarwal, received foreign security as gift from her husband, a resident individual (PRI). As per regulation, a resident individual may acquire foreign securities by way of gift from a PROI. In this case, shares were received by resident individual (PRI) as gift from a resident India (PRI), thereby contravening the regulations. The contravention was regularized on payment of Rs. 67k (CA 4958/2019).

How much Indian Currency can be taken out by PRI while going abroad?

Travelling to Nepal & Bhutan:

• Any amount in denomination of currency notes upto Rs. 100.
• 25000/- in currency notes of denomination of Rs. 200, Rs. 500 or Rs. 2000.

Travelling to Other Countries:

• 25000 Indian currency notes of any denomination
• may take or send outside India commemorative coins not exceeding two coins each.

How much Foreign Currency can be taken out by PRI while going abroad:

Resident Individuals may take out

• Cheques drawn on foreign currency account
• Foreign exchange obtained by him by drawal from an authorized person in accordance with the provisions of FEMA/rules & regulations made thereunder;

Person may also take out of India, the FE possessed by him in accordance with the Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015 i.e. USD 2000 per person. It may be noted that resident Individual is permitted under LRS for remittance of USD 250K per FY for current account transaction & permissible capital account transaction.

Foreign Currency Notes that can be released by AD:

• Travelers going for Haj/ Umrah pilgrimage: upto USD 250,000 in cash or up to the cash limit as specified by Haj Committee of India,
• Travelers going to Iraq and Libya: Foreign currency notes and coins not exceeding USD 5000.
• Travelers going to the Islamic Republic of Iran, Russian Federation and other Republics of Common Wealth of Independent States: upto USD 250,000 in the form of foreign currency notes or coins.
• Travelers going to any other place: Allowed to purchase foreign currency notes / coins only upto USD 3000 per visit.

Please note that the above limit is only for currency notes and coins.

Dinesh Kumar Gupta, who was due to travel to Hongkong via Bangkok, was intercepted by officer of Air Intelligence unit at Netaji Subhas Chandra Bose International Airport, just before boarding the flight. During search, he was found to be in possession of USD 33,000. He was not able to explain the legitimate source of getting the currency. He was arrested and the currency was confiscated. A penalty of Rs. 3 lacs was imposed for attempt to illegally export of foreign currency in contravention of Customs Act. Further, a penalty of Rs. 15 lacs was imposed u/s 13 of FEMA (UOI vs R.C. Fabrics, WP 1930 of 2011 Calcutta High Court).

How Much Foreign Currency can be kept?

By Resident Individuals:

i) Foreign coins without any limits,

ii) Foreign currency notes, bank notes, not exceeding USD 2,000 or its equivalent in aggregate provided:

a) it was acquired by him during visit outside India by way of services not arising from business in or anything done in India.

b) Unspent amount of FE acquired by him from AD for travel abroad.

c) Acquired as gift on visit to place outside India.

d) Acquired as gift from a PROI on visit to India.

By PRI but not permanently resident:

May hold the foreign currency in form of currency notes, bank notes, and traveler’s cheque if same was acquired, held or owned by him when he was PROI and has been brought into India in accordance with the Regulations under the act.

For above purpose ‘not permanently resident‘ means a PRI for employment of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed three years.

Period for surrender of Received/Realized/Unspent/Unused Foreign Currency by Resident individuals:

Resident Individual must surrender received/ realized/ unspent/ unused foreign exchange (whatever form currency notes, and Traveler’s cheques, etc.) to authorized person within a period of 180 days from the date of such receipt/ realization/ purchase/ acquisition or date of his return to India.

However, resident individual is free to retain foreign exchange up to USD 2,000, in any form (currency notes or credit to their RFC (Domestic) Accounts (USD 2000 is a cumulative limit) etc). The above is not applicable for the foreign exchange of Nepal or Bhutan.

Suresh Taneja, group CFO of Triveni Engineering and Industries Ltd, regularized the contravention of delays in surrendering the unspent foreign currency. The unspent foreign currency beyond prescribed limit of USD 2,000 was found in his possession during search and seizure by Income Tax Department which was surrendered by him to AD and contravention of delays in surrendering unspent foreign currency was regularized through compounding on payment of Rs. 1.8 lacs (CA 4966/2019).

It’s important to be cautious on compliances of FEMA. Non-compliance leads of penalty, u/s 13 of FEMA 1999, upto 300% of the sum involved in the contravention, if the amount is quantifiable or upto Rs. 2 lacs if the amount is not quantifiable. In case of continuing contravention, further penalty upto Rs. 5000 per day can be imposed. 

If any contravention has taken place in past, it would be advisable to opt for compounding of contravention. Compounding is being done at much lesser amount as compared to penalty. Once compounding is done and timely payment is made as per compounding order, then contraventions is regularized and no further penalty or proceedings on contravention so compounded can be undertaken by RBI/ED.

About Author:

Vikas Maheshwari, FCA, Founder of VM Consulting & Advisory, engaged in interpreting FEMA, PMLA and laws relating to Black Money and Benami Properties. He has more than 3 decades of professional experience and has served at various senior position including CFO, Global Treasury Head etc. in MNCs. Author can be reached at below coordinates:

Email: [email protected]

Mobile: +91 98811 36320