The Foreign Exchange Management (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA), 1973. FEMA came into force with effect from 1st June, 2001.
- This Act Extends to Whole of India and Branches, offices & agencies outside India owned or controlled by a person resident in India, Not Applicable to citizens of India unless they are resident of India. (Section 1)
Objectives of the Act:
- To Facilitate External Trade and Payments.
- Promote the Orderly Development & Maintenance of foreign exchange market in India.
(Section3)- A Charging Section
Except as Provided in FEMA or with general or special permission of Reserve Bank of India no Person Shall:-
- Deal in or transfer any Foreign Exchange or Foreign security to any person not being an Authorized person
- Make any payment to or for the credit of any person resident outside India in any manner;
- Receive Otherwise Through an authorized person, by any person or on behalf of any person resident outside India in any manner.
Capital & Current Account Transactions under the gamut of Foreign Exchange Management Act (FEMA)
- Capital Account Transactions: As per Section 2(e) read with Section 6(3), Transactions which alters assets or liabilities (including contingent liabilities) Outside India of Persons resident of India or In India of Persons resident outside India. Act contain rules relating to current account transactions, which are as under:
- Prohibited Transactions
- Permissible Transactions
- No Restriction Transactions.
Furthermore, there are Rules relating to
- Export of Goods & Services
- Acquisition of Immovable Property
- Lending & borrowing in Foreign currency
- Current Account Transactions: As per Section 2(j), A Transaction other than a capital account transactions. Act contain rules relating to current account transactions, which are as under:
- Prohibited –Schedule I items & transactions with Nepal/Bhutan.
1) Lottery Winnings 2.Commission on Exports towards Equity investment in WOS/JV 3.Call Back of Services.
2) Prior approval of Government of India – schedule II.
1. Undertaking Cultural Tours 2. Remittance towards hiring of Transponder charges by TV channels & I.S.P. Providers.
2. Prior approval of Reserve bank of India – schedule III.
→ USD 25.000 per person per visit for Business travel.
→ Estimate of institution or USD 100.000 on account of studies abroad
→ For maintenance of close relatives abroad
→ 100% net salary o(a person'(for Indian citizen on deputation)
→ USS 100.000 per year per receipt.
→ USS 1.000.000 per project tor consultancy
→ USS 100,000 or 5% of reimbursement of pre-incorporation expense .
→ US$ 5,000 per remitter p.a. for gift.
→ US$ 10,000 per person p.a. for holiday travel.
Acquisition of Immovable Property Rules
|By Indian Citizen Resident outside India.
Acquire or Transfer any Immovable Property other than
- Agricultural or Plantation Property
- Farm House to an Indian Citizen or a person of Indian origin, resident outside India.
|By a Person of Indian Origin
Acquire or Transfer any Immovable Property other than Agricultural or Farm House, But Payment should be
- Out of funds received in India through normal banking channels
- Non-resident Account
- Payment shouldn’t be made out of traveller’s cheque, foreign currency or other mode other than those specified.
By a Person Resident outside India
No person resident in India shall acquire or transfer any Immovable property situated outside India without general or special permission of the Reserve Bank
Nothing contained in the above said regulations shall apply to the property-
- Held by person resident in India who is a national of a foreign state.
- Acquired by a person resident in India on or before 8th July, 1947 and continued to be held with Reserve bank of India permission.
Acquiring Property by way of Gift/Inheritance
A person of Indian origin resident outside India may acquire property by Gift& inheritance from a person resident outside India if
- A person had acquired the property in accordance with FEMA provisions.
- Person permitted to transfer immovable property other than agricultural land/farm house/plantation property
Repatriation of Sale Proceeds of Immovable Property
A Citizen of India or Person of Indian origin can repatriate sale proceeds of Immovable property, provided following conditions are satisfied:
- Immovable property was acquired by seller in accordance with foreign exchange laws existing at that time.
- The sale takes place after 3 years from date of acquisition or date of payment of final consideration, whichever is later.
- The Amount doesn’t exceed the amount paid for acquisition of that property. (In case of Residential property, the repatriation is restricted to two properties only).
- Furnish Declaration of Goods or software in any form, whether directly or indirectly to any place outside India(except Nepal & Bhutan). In the forms set out as per FEMA Rules. Forms must be submitted to Authorised dealers.
- Declaration Forms
- Form GR – Declaration in respect of export of software in physical form.
- Form SDF – To be completed in duplicate for export declared to Customs office which have EDI system for processing shipping bills.
- Form PP- To be completed in duplicate for export by post
- Form SOFTEX- To be completed in triplicate for declaration of export of software otherwise in physical form.
Export of Goods & Services
Period of Export Realisation
- The Export Amount should be Repatriated within 12 months.(Except in Case of SEZ & Status Holder Exporter).
- Also, Time limit is 15 Months in case of Exports to warehouse established outside India.
Certain Exports Requiring Approval
- Exports of Goods on Lease/Hire(For more than 5 Years Period).
- Exports under Trade agreement/Rupee credit.
- Export under Credit by EXIM Bank.
- Herein, Exporter should Ensure that:
- Shipment is made within 1 Year.
- The rate of interest doesn’t exceed LIBOR rate +100 basis points.
- Documents are routed through Authorised Dealers.
Realisation & Repatriation of Foreign Exchange
As per Section 8, when foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to repatriate & realise to India such Foreign exchange within such period and in manner provided by Reserve Bank of India.
Exemptions from Realization & Repatriation in certain cases:
- Possession of foreign currency/coins up to limit prescribed by RBI.
- Foreign Exchange received or acquired before 8th July, 1947.
- Foreign exchange acquired from employment, business, trade, vocation, services, honorarium & gifts.
- Other Receipts as RBI (Reserve Bank of India) may specify.
Non-Resident External Account: An Account Maintained as per FEMA Rules, which can be opened by proceeds of foreign exchange remittance from abroad or foreign currency notes or travellers cheque or by transfer from an existing NRE A/c, FCNR A/c of same person. It enjoys Exemption under Section 10(4) of Income Tax Act, 1961.
FCNR (Foreign Currency Non- Resident A/c’s): Account which can be opened in six designated foreign currencies by proceeds of foreign exchange remittance or transfer from NRE A/c with maturity period up to 5 Years. On maturity, both principal & interest can be withdrawn in Indian or foreign currency.
Non Resident(Ordinary) Rupee Account: When Person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment or for carrying on business or vocation outside India, then his existing account would be designated as a Non- Resident(Ordinary) Account.
Resident Foreign Currency A/c : The Resident Foreign Currency A/c can be maintained out of foreign Exchange:
- Received as pension or superannuation
- Realised on conversion of assets
- Received or acquired as gift or inheritance
- Received as proceeds of Life insurance policy settled in Foreign currency from an Insurance Company in India.
Certification’s By CA’s
- Form 83 –Report of Loan Agreement details to the Authorised Dealer.
- ECB 2-Reporting of actual transactions of ECB (External Commercial Borrowings) for every month.
- Manner of arriving at prices of Shares issued to a person resident outside India.
- Reports to be filed by an Indian Company who has arranged issue of GDR/ADR.
- Repatriation of current income like rent, Dividend, pension, Interest etc. of Non- Resident Indians who do not maintain an NRO accounts in India…
- Liaison Offices / Branch office should submit Annual Activity Certificates from Chartered Accountants.
- Check Compliances under FEMA rules & regulations & RBI circulars.
- Consultancy with regard to
- Realisation & repatriation of Foreign Exchange
- Taxation Aspects.
- Issue of FCCB (Foreign Currency Convertible Bonds) American Depository Bonds (ADR’s), Global Depository Receipts (GDR’s).
- Borrowing & Lendingin Foreign Exchange
- Representation before Authorities…
- Obtaining Government & R.B.I. approval, wherever required.
- Assistance to Non- Residents in Respect of :
- Person Intending to have Investments
- Set up Business
- Non- Resident Returning back to India & Emigrating NRI.