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TMI BlogForeign Exchange Management Act, 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 1st June 2000, will be governed by the provisions of the Foreign Exchange Management Act, 1999, Rules, Regulations, Notifications/directions or orders made or issued thereunder. The Foreign Exchange Regulation Act, 1973 stands repealed from 1st June 2000. 2. The synopsis of the important provisions of the Rules made by Government regulating certain current account transactions and Regulations made by the Reserve Bank under various provisions of the Act have been given in the Annexures as under :- Annexure I - Rules relating to Current Account transactions Annexure II - Regulations relating to Capital Account transactions Annexure III - Regulations relating to export of goods and services Annexure IV - Other regulations/notifications issued by Reserve Bank 3. Pending issue of further instructions authorised dealers may be guided by the existing provisions of the Exchange Control Manual referred to in 'Annexure V' as also in other Annexures to this circular. 4. In terms of Section 10(1) of the FEMA, 1999 Reserve Bank is empowered to authorise any person to be known as authorised person to deal in foreign exchange as an authorised dealer or money chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Foreign Exchange Management (Export of goods and services) Regulations, 2000. 9. Authorised dealers may bring the contents of this circular to the notice of their constituents concerned. 10. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and these shall come into force from 1st June 2000. Any contravention or non-observance of these directions is subject to the penalties prescribed under the Act. Yours faithfully, B. Maheshwaran Chief General Manager Annexure I Remittance for Current Account Transactions Government of India Notification No.GSR(381)E dated 3rd May 2000 1. In terms of provisions of Section 5 of Foreign Exchange Management Act, any person may sell or draw foreign exchange to or from an authorised dealer if such sale or withdrawal is a current account transaction. The proviso to Section 5 empowers Government of India, in public interest and in consultation with the Reserve Bank to impose reasonable restrictions on certain current account transactions. 2. The Government of India have accordingly issued a Notification No.GSR 381(E) dated 3rd May 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restriction regarding receipt of advance payment or back to back letter of credit for merchanting trade transactions. iii. In terms of Notification No.FEMA 3/2000-RB i.e. Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000 approval of Reserve Bank would be required for importers availing of Supplier's Credit beyond 180 days and Buyer's Credit irrespective of the period of credit. iv. Transactions relating to import of shipstores into bond for supply to Indian/foreign flag vessels, Indian Naval ships, foreign diplomatic personnel will no more be regulated by Reserve Bank. v. Remittance of surplus freight/passage collections by shipping/airline companies or their agents, remittances by break bulk agents, multimodal transport operators, remittance of freight pre-paid on inward consolidation of cargo, operating expenses of Indian airline/shipping companies etc. may be permitted by authorised dealers after verification of documentary evidence in support of the remittance. 8. The Reserve Bank will not prescribe the documentation which should be verified by the authorised dealers while permitting remittances for various transactions, particularly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of farm houses or trading in Transferable Development Rights (TDRs) is prohibited. Schedule I to the Regulations specifies the permissible classes of Capital account transactions of a person resident in India and Schedule II specifies the permissible classes of such transactions by a person resident outside India. The extent upto which such transactions can be undertaken by a person resident in India or by a person resident outside India, the terms and conditions subject to which such transactions can be undertaken by such persons have been specified in Regulations made under various clauses of Sub-section (3) of Section 6 of the Act, as also under Section 47 of the Act which provides powers to Reserve Bank to make Regulations to carry out the provisions of the Act. 2. Foreign Exchange Management (Issue of Security in India by a branch, office or agency of a person resident outside India) Regulations, 2000 - Notification No.FEMA 2/2000-RB dated 3rd May 2000. In terms of the above Regulations any transfer or issue of any security or a foreign security in India by a branch, office or agency in India of any person resident outside India which is not covered by the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dealers to grant rupee loans to NRIs against security of shares or immovable property in India subject to the conditions specified therein (corresponding to the provision of paragraph 10D.2(i) of the ECM.) (vi) Regulation No. 8 provides for grant of rupee loans by authorised dealer or housing finance institutions approved by National Housing Bank to NRIs for acquisition of residential accommodations subject to the terms and conditions referred to therein (corresponding to paragraph 10D.2(ii) and (iii) of the ECM). (vii) Regulation No. 11 provides for permitting an overdraft by an authorised dealer in rupee accounts of its overseas branches/correspondents/Head office not exceeding five hundred lakhs in aggregate. Authorised dealers may follow the instructions contained in paragraph 5A.10 of the ECM, in this regard. (viii) Any borrowing or lending in rupees by a person resident in India from/to a person resident outside India which is not covered by the provisions of the Act or Rules or these Regulations would require approval of Reserve Bank. 5. Foreign Exchange Management (Deposit) Regulations, 2000 - Notification No.FEMA 5/2000-RB dated 3rd May, 2000 These regulations rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per their discretion and commercial judgement. D) Schedule 4 - Non-Resident (Non-Repatriable) Rupee (NRNR) deposit scheme The terms and conditions subject to which such deposit accounts can be opened by authorised dealers in the name of any non-resident are specified in this schedule which are similar to those contained in Part C of Chapter 13 of ECM. Such accounts can be opened by any non-resident. E) Schedule 5 - Non-Resident (Special) Rupee (NRSR) Account Scheme The terms and conditions subject to which authorised dealers can open and maintain NRSR account in the name of any NRI/PIO are specified in this schedule, which are same as contained in Part A - Section II of Chapter 13 of ECM. In terms of the provisions of this Schedule, NRSR accounts will also be allowed to be opened and maintained by banks authorised to maintain accounts of non-residents, subject to the provisions of the Schedule. F) Schedule 6 - Acceptance of deposit by a company in India from NRIs on repatriation basis A company incorporated in India including NBFC registered with Reserve Bank has been granted general permission to accept deposits from NRIs on repatriation basis subject to terms and condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of funds held in RFC account. General permission has also been granted to a person resident in India for transfer of a property acquired by him in terms of sub-paragraph (iii) & (iv) above to his relative as specified in the Explanation to Regulation No.5, who is also a person resident in India. 7. Foreign Exchange Management (Guarantees) Regulations, 2000 - Notification No.FEMA 8/2000-RB dated 3rd May 2000 (i) In terms of these Regulations, except with the permission of Reserve Bank, giving a guarantee or a surety or undertaking any transaction which has the effect of guaranteeing a debt or obligation or other liability owed by a person resident in India to or incurred by a person resident outside India, requires approval of Reserve Bank except where issue of such a guarantee or surety is permissible under the Regulations. (ii) General permission has been granted by Reserve Bank to authorised dealers to issue guarantees in respect of transactions specified in Regulation No. 4. (iii) In terms of Regulation No.5 general permission has also been granted to - a. Indian exporters executing projects for giving performance guarantees and guarantees for availing of credit facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 Remittance of capital assets in India held by a person whether resident in or outside India would require approval of the Reserve Bank except to the extent provided in the Act or Rules or Regulations made under the Act. (i) Under the existing provisions (paragraph 11D.5 of ECM) remittance of assets by foreign nationals not permanently resident in India, on their retirement from India were allowed by Reserve Bank in instalments. Similarly, foreign born widows of Indian nationals were also permitted by Reserve Bank to transfer their assets by remittance from India in instalments (cf. Paragraph 11D.6 of ECM). (ii) In terms of Regulation No.4, authorised dealers have been permitted to allow remittance of assets of a person referred to in sub-Regulation (2) who has retired from India or who has inherited assets from a person who was a resident of India, or remittance of assets in India of a foreign born widow of an Indian national resident outside India in annual instalments of ₹ 20 lakhs subject to the terms and conditions mentioned therein. (iii) Authorised dealers have been permitted to allow remittance of balance amount held in a bank account by a foreign student after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift or sale to an Indian citizen resident in India. (v) A branch or office in India of a foreign entity other than a liaison office has been permitted to acquire immovable property which is necessary for or incidental to the activity carried on in India by such branch or office subject to the terms and conditions mentioned in Regulation No.5. Such property can also be mortgaged to an authorised dealer as a security for any borrowing by a branch or office. (vi) Authorised dealers have been permitted to allow remittance of sale proceeds of property other than agricultural/plantation property or a farm house to an Indian citizen resident outside India or a PIO as defined in clause (c) of Regulation No.2 who has sold the property in India subject to the terms and conditions stipulated in Regulation No. 6. (vii) A person who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan requires approval of Reserve Bank for acquisition or transfer of property in India other than lease not exceeding 5 years, in terms of Regulation No.7. 11. Foreign Exchange Management (Establishment in India of a branch or office or other place of Business) Regulations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me accruing on such investment by way profit to such person. (iv) There is no change in the existing regulations governing such investment by NRIs/PIOs in a firm/proprietary concern on non-repatriation basis. 13. Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 - Notification No.FEMA 6/RB-2000 dated 3rd May, 2000 The Regulations relate to export and import of Indian currency and foreign currency from/into India. 2. There is no change in the existing regulations for export/import of Indian currency/foreign currency from/into India contained in Part G of Chapter 6 and Part D of Chapter 7 of ECM except that - i. A person is permitted to take out of India while on a visit to a foreign country other than Nepal or Bhutan Indian currency notes upto ₹ 5000 in aggregate. Such a person is also permitted to bring back in Indian currency notes not exceeding ₹ 5000 while returning to India (Earlier these limits were ₹ 1000/-). ii. Regulations for export and import of Indian currency to/from Nepal are applicable to Bhutan also. 14. Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2000 Notification No.FE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in EEFC account of Indian party; ii. By remittance from India upto the extent of 25 per cent of Indian party's net worth as on the last audited balance sheet; iii. Utilisation of 50 per cent of proceeds of foreign currency funds raised through ADR/GDR issues. Where the investment is entirely funded out of balances in EEFC account and/or out of proceeds of ADR/GDR issues the conditions referred to in clause (c) & (d) of paragraph 4 will not apply. (6) Investment out of funds raised through ADR/GDR issues An Indian party is permitted to make direct investment without any monetary limit to the extent of 50 per cent of funds raised through ADRs/GDRs (inclusive of any investment already made out of proceeds of ADRs/GDRs), in terms of Regulation No.6(6). (7) Investment in Financial Sector Where the Indian party seeks to make investment in an entity outside India engaged in financial sector it should also fulfil the conditions specified in Regulation No. 7. (8) Investment under swap or exchange of shares arrangement An Indian party engaged in any of the sectors included in Schedule I to these Regulations is permitted to acquire shares of a company outside India which is also en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese Regulations is under obligation to (a) receive shares certificate or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity and (c) submit the documents/Annual Performance Report to Reserve Bank, as specified in Regulation No.15. (14) Transfer of shares by way of sale Sale of shares of JV/WOS abroad held by an Indian party would require prior approval of Reserve Bank, in terms of Regulation No.16. (15) The Indian party has been permitted to pledge the shares of JV/WOS to an authorised dealer or a financial institution in India for availing of any credit facility for itself or for the JV/WOS abroad. (16) Any investment made in terms of Regulations contained in Part I should be reported to Reserve Bank in form ODA as specified in the relevant Regulations. Part II - Investment in foreign securities other than by way of direct investment (17) An Indian company or a body corporate which has obtained necessary approval of Government of India, Ministry of Finance, Department of Economic Affairs has been permitted to issue Foreign Currency Convertible Bonds (FCCBs) to a person resident outside India. Such a company or bod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Security by a person resident outside India) Regulation, 2000 - Notification No.FEMA 20/2000-RB dated 3rd May 2000 These regulations seek to regulate investment in India by persons resident outside India i.e. issue of any security by an Indian entity to a person resident outside India and purchase, sale of Indian securities by a person resident outside India. (2) For the purpose of these Regulations the investment in India by person resident outside India has been divided in five categories and the regulations applicable have been specified in respective schedules, as under :- Schedule 1 - Investment under Foreign Direct Investment Scheme Schedule 2 - Investment by Foreign Institutional Investors under Portfolio Investment Scheme Schedule 3 - Investment by NRIs/OCBs under Portfolio Investment Scheme Schedule 4 - Purchase and sale of shares by NRIs/OCBs on Non-repatriation basis Schedule 5 - Purchase and sale of securities other than shares or Convertible debentures of an Indian company byPersons resident outside India (3) Citizens of Bangladesh, Pakistan or Sri Lanka resident outside India and entities in Bangladesh or Pakistan are not permitted to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be made. (iii) Any other transfer not covered by the abovereferred provisions or the provisions of the Schedules would require the prior approval of Reserve Bank for which the application should be made on Form TS1. For arriving at the sale price of the shares in such cases the procedure indicated in Regulation 10B.2 should be followed. 9. Reserve Bank has granted general permission for remittance of net sale proceeds (net of applicable taxes) of a security sold by a person resident outside India provided - a. the security is held on repatriation basis; b. security is sold on recognised stock exchange or the Reserve Bank's permission for sale of security and remittance of sale proceeds has been obtained and ; c. a NOC/Tax Clearance Certificate from Income Tax authorities or an undertaking/declaration as per the provisions of paragraph 3B.10 of ECM has been produced. (10) The various Schemes available to persons resident outside India for investment in Indian securities contained in the schedules are explained below. A. Schedule 1 - Foreign Direct Investment Scheme (i) Reserve Bank's automatic route An Indian company which is not engaged in the activity or manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued by the Indian company to persons resident outside India should be in accordance with the provisions of paragraph No. 5 of the schedule. (ix) The remittance of dividend to the persons resident outside India by an Indian company which is engaged in any of the industries in the consumer sector specified in Annexure 'E' or any other activity to which dividend balancing requirement under the Industrial Policy notified by Government of India is applicable, would be subject to the provisions of paragraph No. 6 of the Schedule. (x) The rate of dividend on preference shares issued by an Indian company to a person resident outside India should not exceed 300 basis points over State Bank of India's prime lending rate, in terms of paragraph No.7 of the Schedule. (xi) The consideration for issue of shares to persons resident outside India under this scheme should be received either by way of inward remittance through normal banking channels or out of funds held in NRE/FCNR accounts of NRI/OCB investor. (xii) The Indian company issuing shares to non-residents under this scheme should submit to Reserve Bank, reports as specified in paragraph 9 of the schedule. (xiii) Reserve Bank's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation No.FEMA 23/2000-RB dated 3rd May, 2000 1. In terms of Section 7 of the Act the Reserve Bank has been empowered to regulate receipt of payments for goods or services exported from India by prescribing a form of declaration. Accordingly, the Reserve Bank has in terms of the abovereferred regulations prescribed the following forms for declaration of goods/software as specified in the schedule annexed to the Regulations:- i) Form GR ii) Form SDF iii) Form PP iv) Form SOFTEX These forms are almost similar to the existing form GR, SDF, PP and SOFTEX except that the declaration/undertaking to be furnished by the exporter has been suitably modified. Form VP/COD has been dispensed with. 2. Though the Act provides powers to Reserve Bank to specify a form for declaration for export of services, no such form has been prescribed. In this connection, attention is drawn to Sub-Regulation (3) of Regulation No. 3. 3. Regulation No.4 specifies the categories of exports for which a declaration need not be completed . The exemptions, among others, include - a. export of goods/software nor exceeding ₹ 25,000 in value. b. export by way of gift not exceeding Rs.one lakh in value. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng over negotiable copy of bill of lading to master of vessel/trade representative 6C.11 Export Bills register 6C.12(i) Follow up of overdue bills 6C.12 (ii) XOS statements 6C.13 A Reduction in invoice value on account of pre-payment of usance bills 6C.13 B Reduction in value 6C.14 Write off of unrealised bills 6C.15 Change in buyer/consignee 6C.17 Shipments lost in transit 6C.18 Payment of claims by ECGC 6C.19 Return of documents to exporters Part D of Chapter 6 Export of software Annexure IV Other Regulations 1. Foreign Exchange Management (Realisation, repatriation and surrender of foreign exchange) Regulations, 2000 - Notification No.FEMA 9/2000-RB dated 3rd May 2000 i) In terms of Regulation No. 3 a person resident in India to whom any foreign exchange is due or has accrued is under duty to take reasonable steps to realise and repatriate to India such foreign exchange unless an exemption has been provided in the Act and rules or regulations made thereunder or under the general or special permission of Reserve Bank. ii) The manner of repatriation of foreign exchange has been specified in Regulation No.4 . iii) Regulation No. 5 provides that any forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain Resident Foreign Currency Accounts with an authorised dealer in India out of sources of receipt of foreign exchange mentioned in clauses (a) to (d) of sub-Regulation (1). There is no restriction on utilisation of funds in RFC accounts. vi) General permission has been granted to foreign airline or shipping companies or their agents in India to open foreign currency account with an authorised dealer subject to the conditions mentioned in Regulation 6. vii) General permission has also been granted to the following categories of persons to maintain foreign currency accounts with a bank outside India subject to the conditions mentioned in Regulation 7, a. by an authorised dealer with its correspondents/branches/Head Office outside India; b. by a branch outside India of an authorised dealer with a bank outside India for carrying on normal banking business outside India; c. by Indian shipping or airline company; d. by Life Insurance Corporation of India or General Insurance Corporation of India for the purpose of carrying on life/general insurance business outside India; e. by an exporter who is exporting goods and services on deferred payment terms or executing a turnkey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foreign Exchange Management (Foreign Exchange derivative contracts) Regulations, 2000 - Notification No.FEMA 25/RB-2000 dated 3rd May 2000 (i) Except to the extent permitted in the Regulations any person resident in India or outside India proposing to enter into a foreign exchange derivative contract would require prior permission of Reserve Bank. (a) The persons resident in India may enter into forward contracts with an authorised dealer for the transactions and subject to the terms and conditions mentioned in Part A of Schedule 1. (b) A person resident in India may enter into a foreign exchange derivative contract other than forward contract for the transactions and subject to the terms and conditions mentioned in Part B of Schedule I. (iii) Categories of persons resident outside India mentioned in Schedule II are permitted to enter into forward contracts with an authorised dealer in India to hedge the transactions specified in that Schedule subject to the terms and conditions mentioned therein. (iv) The applications for hedging of commodity price risks are required to be made to Reserve Bank for prior approval through the International Divisions of an authorised dealer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India will not be applicable for any transaction entered into in Indian rupees by or with (a) citizen of India, Nepal or Bhutan resident in Nepal or Bhutan, (b) a branch in Nepal or Bhutan of a company or corporation in India or Nepal or Bhutan or (c) a branch in Nepal or Bhutan of a partnership firm or otherwise of citizens of India, Nepal and Bhutan. 8. Permission to buy foreign exchange from Post Office In India in the form of Postal Order or Money Order Notification No.FEMA 18/RB-2000 dated 3rd May 2000 The Reserve Bank has in pursuance of clause (a) of Section 3 of the Act granted general permission to any person to buy foreign exchange from any post office in India in the form of postal order or money order. 9. Definition of currency Notification No.FEMA 15/2000-RB dated 3rd May 2000 The Reserve bank has in pursuance of clause (h) of Section 2 of the Act notified debit cards, ATM cards or any other instrument which can be used to create a financial liability as currency. Annexure V Pending issue of further directions authorised dealers may be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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