9911796707
TMI BlogREGULATION OF DEBT INSTRUMENTSX X X X Extracts X X X X X X X X Extracts X X X X ..... REGULATION OF DEBT INSTRUMENTS - By: - Mr. M. GOVINDARAJAN - FEMA - Foreign Exchange Management - Dated:- 5-12-2019 - - Debt instruments Section 6(1)(b) of Foreign Exchange Management Act, 1999 ( FEMA 1999 ) provides that the Reserve Bank of India ( RBI for short) may, in consultation with the Central Government specify any class or classes of capital account transactions, involving debt instruments, which are permissible. Section 6(7) of FEMA, 1999 defines the term debt instrument as such instruments as may be determined by the Central Government in consultation with the RBI. Power to make regulations Section 47(2)(a) gives powers to the RBI to make regulations which may pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide for the permissible classes of capital account transactions involving debt instruments determined, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or regulation of such capital account transactions. In exercise of the powers conferred by section 6(2)(a) and section 47 of FEMA, 1999 the RBI made the regulation called as The Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 which came into effect from 01.06.2000. The said regulations was superseded by another regulation made by RBI vide Notification dated 07.11.2017 called as The Foreign Exchange Management (Transfer or issue of Security by a Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson Resident Outside India) Regulations, 2017 . These regulations are also superseded by another regulation called as Foreign Exchange Management (Debt Instruments) Regulations, 2019 which came into effect from 17.10.2019. Which are Debt instruments? According to the regulations the following are the debt instruments- dated Government securities/ treasury bills; non-convertible debentures/ bonds issued by an Indian company; commercial papers issued by an Indian company; units of domestic mutual funds or Exchange-Traded Funds which invest less than or equal to 50% in equity; Security Receipts issued by Asset Reconstruction Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies; debt instruments issued by banks, eligible for inclusion in regulatory capital; Credit enhanced bonds; Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 6 of these Regulations; Securitized debt instruments, including any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitization of asset/s with banks, Financial Institutions or NBFCs as originators; Rupee denominated bonds/ units issued by Infrastructure Debt Funds; Municipal Bonds. Restrictions on investments The regulations imposed restrictions on investments by a person resident o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside India. Regulation 3 provides that no person resident outside India shall make any investment in India. However an investment made in accordance with the FEMA, 1999 or rules or regulations made there under and held on the date of commencement of these regulations (17.10.2019), shall be deemed to have been made under these regulations. All the provisions of these regulations are applicable to such investments. The RBI may, on an application made to it permit a person resident outside India, for sufficient reasons, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary. Restrictions on receiving investment These r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulations also imposes restrictions on- an Indian entity; or a mutual fund; or a venture capital fund [a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 .]; or a firm; or an association of persons; or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investments in its books. The RBI may, on an application made to it and for sufficient reasons, permit the above entities to receive any investment in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a person resident outside India or to record such investment subject to such conditions as may be considered necessary. Permission for making investment These regulations permit the resident outside India, a Foreign portfolio investor, Non resident Indians, Overseas citizens of India, foreign central banks or a multilateral Development Bank for purchase and sale of securities in India. Foreign Portfolio Investor Regulation 2(g) defines the expression Foreign Portfolio Investor as a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 . An FPI may purchase the debt instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on repatriation basis subject to the terms and conditions specified by the Securities and Exchange Board of India and the RBI. FPIs may offer such instruments as permitted by the RBI from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts. The amount of consideration for purchase of instruments by FPIs shall be paid out of inward remittance from abroad through banking channels or out of funds held in a foreign currency account and/ or Special Non-Resident Rupee account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 . The foreign currency account and SNRR account shall be used only and exclusively for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions under this Schedule. A person resident outside India Regulation 5 provides for a person resident outside India for making investment under permission of RBI. Any investment made by a person resident outside India shall be subject to the entry routes, the investment limits and the attendant conditions for such investments. A person resident outside India may be permitted to purchase or sell debt instruments. He may trade in all exchange traded derivative contracts approved by Securities and Exchange Board of India from time to time subject to the limits prescribed by Securities and Exchange Board of India and conditions. He may enter into contract in any derivative transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to conditions laid down by the RBI from time to time. Where a Scheme of Arrangement for an Indian company has been approved by National Company Law Tribunal/Competent Authority, the Indian company may issue non-convertible redeemable preference shares or nonconvertible redeemable debentures out of its general reserves by way of distribution as bonus to the shareholders resident outside India, subject to the following conditions- the original investment made in the Indian company by a person resident outside India is in accordance with these Regulations and the conditions specified in the relevant Schedule; the said issue is in accordance with the provisions of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the terms and conditions, if any, stipulated in the scheme approved by National Company Law Tribunal/ Competent Authority have been complied with; the Indian company shall not engage in any activity/sector in which investment by a person resident outside India is prohibited. A person resident outside India who has purchased instruments may sell/ redeem the instruments subject to such terms and conditions as may be specified by the RBI and the Securities Exchange Board of India. The sale/ maturity proceeds (net of taxes) may be remitted abroad or credited to an account opened with the prior permission of the RBI. NRI or OCI Non-Resident Indian is an indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual resident outside India who is a citizen of India. Overseas Citizen of India is an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under section 7(A) of the Citizenship Act, 1955. Permission may be given to NRI or OCI either on repatriation basis or non repatriation basis. A NRI or OCI may, without limit, purchase the following instruments on repatriation basis- Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds or Exchange-Traded Funds which invest less than or equal to 50 percent in equity; Bonds issued by a Public Sector Undertaking in India; Bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued by Infrastructure Debt Funds; Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 6 of these Regulations. An NRI or an OCI may purchase on repatriation basis debt instruments issued by banks, eligible for inclusion in regulatory capital. An NRI may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority, provided such person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable. NRI/ OCIs may offer such instruments as permitted by the RBI from time to time as collateral to the recognized Stock Exchanges in India for their transactions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange traded derivative contracts. An NRI or an OCI may, without limit, purchase on non-repatriation basis, dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds or Exchange-Traded Funds which invest less than or equal to 50% in equity, or National Plan/ Savings Certificates. An NRI or an OCI may, without limit, purchase on non-repatriation basis, listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 6 of these Regulations. An NRI or an OCI may, without limit, on non-repatriation basis subscribe to the chit funds authorized by the Registrar of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its or an officer authorized by the State Government in this behalf. The amount of consideration for purchase of instruments by NRIs or OCIs on repatriation basis shall be paid out of inward remittances from abroad through banking channels or out of funds held in NRE/FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 . The amount of consideration for- purchase of instruments by NRIs or OCIs on non-repatriation basis; and subscriptions to the National Pension System by NRIs shall be paid out of inward remittances from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO account maintained in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the Foreign Exchange Management (Deposit) Regulations, 2016 . The amount of consideration for purchase of instruments by other non-resident investors shall be paid out of inward remittances from abroad through banking channels . The sale/ maturity proceeds (net of taxes) of instruments held by FPIs may be remitted outside India or may be credited to the foreign currency account or SNRR account of the FPI. The net sale/ maturity proceeds (net of taxes) of instruments held by NRIs or OCIs, may be- Credited to the NRO account person concerned where the instruments were held on non-repatriation basis; Credited to the NRO account person concerned where the payment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purchase of the instruments sold was made out of funds held in NRO account, or Remitted abroad or at the NRI/ OCI investor's option, credited to his NRE/ FCNR (B)/ NRO account, where the instruments were purchased on repatriation basis. Permission to foreign central banks Foreign Central Banks, Multilateral Development Banks or any other entity permitted by the RBI, may purchase or sell dated Government Securities/treasury bills, as per terms and conditions specified by the RBI. The amount of consideration for purchase of Government dated securities by a Foreign Central Bank or a Multilateral Development Bank shall be paid out of inward remittances from abroad through b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking channels or out of funds held in an account opened with the specific approval of the RBI. Taxes All transaction under these regulations shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties/ levies in India. Remittance of sale proceeds No remittance of sale proceeds of a debt instrument held by a person resident outside India shall be made otherwise than in accordance with these Regulations and the conditions. An authorized dealer may allow the remittance of sale proceeds of a debt instrument (net of applicable taxes) to the seller of such instrument resident outside India, if- the instrument w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held by the seller on repatriation basis; and RBI s approval has been obtained in other cases for sale of the instrument and remittance of the sale proceeds thereof. An authorized dealer may allow remittances, both inward and outward, related for permitted derivatives transactions. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
