Foreign Exchange Management (Debt) And (Non-Debt) Regulations, 2019 Read With (Non-Debt) Amendment Regulations, 2019
A STEP TOWARDS STREAMLINING THE INVESTMENT PROCESS IN INDIA
To bring in line the changes as proposed in the Finance Act, the Ministry of Finance vide its Notification (S.O. 3732(E)) dated October 17, 2019 notified the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the Reserve Bank of India (RBI) notified the Foreign Exchange Management (Debt Instruments) Regulations, 2019 and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 vide its notification no. FEMA 396/2019-RB dated October 17, 2019.
This article intends to highlight the amendments made to the erstwhile the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 (“TISPRO”) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, by way of presenting the following:
The Ministry of Finance further notified the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2019 on December 5, 2019 to bring in line with the provisions of Press Note No. 4 (2019 Series) as issued by Ministry of Commerce & Industry Department for Promotion of Industry and Internal Trade which were not incorporated in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
Classification of instruments.
|Debt Instruments (RBI)||Non- Debt Instruments(MOF)|
REASON BEHIND SEGREGATION OF POWERS BETWEEN THE CENTRAL GOVERNMENT AND THE RBI:
The amendments majorly deals with the segregation of power between the Central Government and the RBI pursuant to the investment by foreign entities in various capital instruments under the FEMA. The Central Government is empowered with framing of rules and regulations under debt instruments and the RBI is empowered with framing of rules and regulations under non-debt instruments.
The reason behind segregation of powers between the Central Government and the RBI is to ease the process of reporting of any foreign investment and to de-clog the RBI for the matters pertaining to the FEMA reporting. The segregation is aimed at boosting the investments in India. Further, the division in powers will bring about clarity in submission of returns by the investors pertaining to the foreign investments.
KEY TAKEAWAYS OF THE FOREIGN EXCHANGE MANAGEMENT DEBT AND NON-DEBT RULES, 2019 READ WITH THE FOREIGN EXCHANGE MANAGEMENT (NON-DEBT) AMENDMENT RULES, 2019
MAJOR HIGHLIGHTS OF DEFINITIONS:
a) all investments in equity instruments in incorporated entities: public, private, listed and unlisted;
b) capital participation in LLP;
c) all instruments of investment recognised in the FDI policy notified from time to time;
d) investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvIts);
e) investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest more than fifty per cent in equity;
f) junior-most layer (i.e. equity tranche) of securitisation structure;
g) acquisition, sale or dealing directly in immovable property;
h) contribution to trusts; and
i) depository receipts issued against equity instruments;
any other instruments other than mentioned above shall be included in the term “Debt Instrument”
OTHER IMORTANT POINTS COVERED UNDER THE RULES:
The clear distinguish between the Non-debt and Debt instruments under the said rules and the segregation of the powers between the Central Government and the RBI will bring about more clarity and transparency in the reporting of foreign investment transactions.
Further, there are few loopholes in the new Debt and Non-Debt Rules, 2019 pertaining to the reporting provisions as compared to the erstwhile TISPRO which was more crystal clear with the reporting provisions of foreign investments.
Disclaimer- The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, We assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. We assume no responsibility for the consequences of use of such information. In no event shall we shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information. This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.
Founder- Jaya Sharma & Associates
Associate- Jaya Sharma & Associates