TMI BlogForeign Exchange Management Act, 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... all foreign exchange transactions taking place with effect from 1 st 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 The Foreign Exchange Regulation Act, 1973 stands repealed from 1 st June 2000. 2.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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods may be advised that for the time being until new sets of GR/PP forms are printed they may use the existing GR/PP forms by suitably modifying the undertaking/declarations contained therein on the lines of undertaking/declarations contained in the revised GR/PP forms attached to the Schedule 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Remittances for transactions included in Schedule III may be permitted by authorised dealers upto the ceilings prescribed therein. 7. For removal of doubts, it is clarified that i. The existing procedure to be followed by Indian companies for entering into collaboration arrangements with overseas collaborators would continue. ii. There would be no 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these regulations investment in India by a person resident outside India in any company or partnership firm or proprietary concern which is engaged in the business of Chit Fund or as a Nidhi Company or in Agricultural or Plantation activities or in Real Estate business (other than development of townships, construction of residential / commercial premises, roads or bridges) or construction 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 Exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atriation/repatriation basis subject to terms and conditions specified therein by issue of non-convertible debentures. These provisions correspond to the provisions of erstwhile Notification No.FERA 213/99-RB dated 1st November 1999 [cf. paragraph 10C.7(ii) and 10C.15 of the ECM]. (iv) Regulation No. 6 provides for restrictions on use of borrowed fund. (v) Regulation No. 7 provides for general permission to authorised 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 instructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in paragraph 14B.10 of ECM. C) Schedule 3 Non-Resident Ordinary Rupee (NRO) Account Scheme The terms and conditions subject to which authorised dealers may open and maintain NRO accounts have been specified in this schedule, which are similar to those contained in Part A Section I of Chapter 13 of ECM, except that the ceiling on permitting overdraft in such accounts has been dispensed with. Authorised dealers may permit overdraft in such accounts as 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 2000. In terms of these Regulations, acquisition or transfer of any immovable property outside India by a person resident in India would require prior approval of Reserve Bank except in the following cases (i) Property held outside India by a foreign citizen resident in India; i. Property acquired by a person on or before 8th July 1947 and held with the permission of Reserve Bank; ii. Property acquired by way of gift or inheritance from persons referred to in (ii) above; iii. Property purchased out 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 3 rd 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds/claims can be credited to the foreign currency account maintained abroad or to RFC account with an authorised dealer in India. If, however, such life insurance policy is in force for not less than 3 years, the premium due thereon can be paid by remittance from India through an authorised dealer. In such cases the amount of maturity proceeds or claims have to be repatriated to India within seven days from receipt thereof. 9. Foreign Exchange Management (Remittance of Assets) Regulation, 2000 Notification No.FEMA 13/2000-RB dated 3rd May, 2000 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se by way of purchase subject to the conditions mentioned in clause (a) of the Regulation; b. acquire any immovable property other than agricultural land/plantation property/farm house by way of gift from an Indian citizen resident outside India or from a PIO; c. acquire property by inheritance subject to the conditions stipulated in clause (c) of the Regulation; d. transfer by way of sale any immovable property other than agricultural/plantation property or a farm house by way of sale to a person resident in India; e. transfer agricultural land/farm house or plantation property by way of 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/plantati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires prior approval of Reserve Bank. (ii) In terms of Regulation No.4, Reserve Bank has granted general permission to an Indian citizen or a PIO [as defined in Regulation 2(vi)] resident outside India to make investment by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis subject to conditions mentioned therein. (iii) In terms of Regulation No.5, general permission has also been granted to a firm or proprietary concern to make payment in rupees to or for credit of the non-resident Indian or a person of Indian origin the amount invested in the said firm/concern and income 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 3 rd 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 curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial years. Explanation : The ceiling will include contribution to the capital of the overseas JV/WOS, loan granted to the JV/WOS, and 50% of guarantees issued to or on behalf of the JV/WOS. c. The investment should be in a foreign entity engaged in the same core activity [as defined in clause (d) of Regulation No. 2] carried on by Indian company; d. The Indian party should have earned net profit during preceding three accounting years. e. The Indian party should not have been on Reserve Bank s caution list or under investigation by Enforcement Directorate. f. All transactions relating to a joint venture/wholly owned subsidiary should be routed through a branch of an authorised dealer to be designated by the Indian party. (5) Such an investment may be funded out of one or more of the following sources :- i. Balances held 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been specified in Regulation No.12. The declaration forms and other documents specified in this Regulation should be routed through the designated branch of an authorised dealer. (11) The Indian party before giving consent to the decisions relating to subject matters specified in clauses (a), (b) (c) of sub-regulation (1) of Regulation No.13 obtain the permission of Reserve Bank under the circumstances specified in that sub-regulation. (12) Acquisition of a foreign company through bidding or tender procedure Authorised dealers have been permitted to remit earnest money deposit or issue a bid bond guarantee on behalf of an Indian party for acquisition of a foreign company through bidding and tender procedure and also allow subsequent remittances subject to the provisions of Regulation No. 14. (13) Obligation of Indian Party The Indian party which has made direct investment abroad under these 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 Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing cases a. Acquisition of qualification shares for becoming a director of a company outside India. b. Purchase of rights shares of a company outside India India provided the consideration therefor does not exceed US$ 10,000 in a block of five calendar years. c. Purchase of shares of a JV/WOS abroad by employees/directors of an Indian promoter company in the field of software subject to the conditions specified in proviso to clause (c) of Regulation No. 21(1). d. Purchase of foreign securities under ADR/GDR linked stocke option schemes by resident employees of Indian software companies including working directors provided purchase consideration does not exceed US$ 50,000 or its equivalent in a block of five calendar years. (21) Reserve Bank would, on application permit Mutual Funds in India to purchase foreign securities subject to such terms and conditions as it may stipulate. 15. Foreign Exchange Management (Transfer or Issue 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debentures by a person resident outside India as under i. for transfer of shares/convertible debentures held by a person resident outside India other than NRI/OCB to any person resident outside India, provided that the transferee should have obtained permission of Central Government if he had any previous venture or tie up in India through investment in any manner or a technical collaboration or trade mark agreement in the same field or allied field in which the Indian company whose shares are being transferred is engaged; ii. NRIs/OCBs are permitted to transfer shares or convertible debentures of Indian company to another NRI/OCB; iii. A person resident outside India is permitted to transfer shares/debentures of an Indian company to a resident by way of gift. (8) (i) Transfer of any security by a person resident in India to a person resident outside India would require approval of Reserve Bank. (ii) For transfer of existing shares/convertible debentures of an Indian company by a resident to a non-resident by way of sale, the transferor should obtain an approval of the Central Government and thereafter apply to Reserve Bank. In such cases the Reserve Bank may permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its capital to persons resident outside India. The remittance of dividend in respect of such shares would be permissible only when the company secures registration as an Export/Trading/Star Trading House. (iv) A SSI Unit which is not engaged in activity or manufacture of items included in Annexure A to this Schedule may issue shares to non-residents upto 24 percent of its capital. Such a company is permitted to issue shares beyond 24 per cent subject to ceilings specified in Annexure B if (a) it gives up SSI status and (b) it is not engaged or does not propose to engage in manufacturing of items reserved for SSI sector. (v) EOUs or units in Free Trade Zones or in Software/Electronic Hardware Technology Parks are permitted to issue shares to persons resident outside India beyond 24 percent subject to compliance with ceilings indicated in Annexure B . (vi) Issue of shares by an Indian company to a person resident outside India which are not covered by the provisions of sub-paragraph (i) to (v) above would require approval of SIA or FIPB. (vii) An Indian company is permitted to issue fresh shares to the depository abroad for the purpose of raising resources through AD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be restricted to 5 per cent of the equity capital or 5 per cent of the paid up value of each series of convertible debentures within the overall ceiling of 24 percent or 40 percent as applicable for FIIs for the purpose of Portfolio Investment Scheme. C. Schedule 3 - Portfolio Investment Scheme for NRIs/OCBs on repatriation/non-repatriation basis There is no change in the existing scheme for portfolio investment by NRIs/OCBs on repatriation/non-repatriation basis except that the requirement of grant of approval by designated branch of an authorised dealer valid for a period of 5 years at a time has been dispensed with. D. Schedule 4 Purchase/sale of shares and convertible Debentures by NRIs/OCBs on non-repatriation basis There is no change in the existing procedures/regulations for purchase and sale of shares/convertible debentures by NRIs/OCBs on non-repatriation basis. E. Schedule 5 Purchase and sale of securities other than Shares/debentures by non-residents There are no major changes in the regulations or procedure applicable for purchase and sale of other securities by NRI/OCBs on repatriation/non-repatriation basis and by FIIs on repatriation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts in terms of Regulation No.18. These proposals would be considered by the authority concerned in accordance with the guidelines issued by Reserve Bank in Memorandum PEM as amended from time to time. 7. Pending issue of further instructions authorised dealers may be guided by the provisions of following paragraphs of Chapter 6 of ECM 6A.1(i) Trade and Exchange Control 6A.4 Numbering of forms (except VP/COD) 6A.5 Importer-exporter code number 6A.8 Exports under Trade Agreements/Rupee Credits 6A.9 Protection against transit risks under FOB, C F etc. contracts 6A.13 Counter Trade arrangements 6A.14 Export of goods on lease hire etc. 6A.16 Project exports and service exports 6A.17 Export on elongated credit terms (except that Form ECT has been dispensed with. The application giving full particulars may be made on the applicant s letter head) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 foreign exchange due or accrued as remuneration for services rendered or in settlement of any lawful obligation or an income on assets held outside India or as inheritance, settlement or gift should be sold to an authorised person within a period of seven days of its receipt and in all other cases within 90 days of its receipt. iv) In terms of Regulation No. 6(1) any person who has drawn exchange for any purpose but has not utilised it for the same or any other purpose permissible under the provisions of the Act or rules or regulations made thereunder should surrender such foreign exchange or unutilised foreign exchange to an authorised person within a period of 60 days from the date of acquisition. Where, however, exchange was drawn for travel abroad, the unutilised exchange in excess of the limit upto which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 project or civil construction contract abroad; f. by a student going abroad for studies or a person who is on a visit to a foreign country; g. by a person going abroad to participate in an exhibition/trade fair. 3. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000 Notification No.FEMA 11/2000-RB dated 3rd May, 2000 In terms of provisions of Section 9 of the Act, the Reserve Bank has specified the limit for possession and retention of foreign currency by a person resident in India, under these Regulations. a. Authorised persons have been permitted to possess foreign currency and coins in accordance with the limits, if any, advised to them by the Reserve Bank. b. There is no restriction on possession of foreign c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The procedure to be followed by the applicant and the authorised dealer and the documents to be furnished with the applications have been explained in Schedule III. (v) There is no change in the existing regulations relating to the forward contracts, other derivative products or hedging of commodity price risk. 6. Foreign Exchange Management (Receipt and Payment to a person resident outside India) Notification No.FEMA 16/RB-2000 dated 3rd May 2000 i) In pursuance of provisions of Section 3 of the Act the Reserve Bank has granted general permission to any person to receive any payment a. made in rupees by order or on behalf of a person resident outside India during his stay in India by converting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 3 rd 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 guided by the following provisions of the Exchange Control Manual Chapter Paragraph No. Subject matter 1. 1.4 Authroised dealers in foreign exchange 1.5 Authorised Co-operative/Commercial Banks (These banks will now be permitted to also maintain NRSR Accounts) 1.6 Authorised Money Changers 1.7 Revocation of licences/authorisation granted by Reserve Bank 1.16 Marking of document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3D.17 Reporting of transactions by Exchange Bureaux 4 4.1 to 4.8 Provisions relating to authorised dealer s dealings with Reserve Bank 5 Part A5A1 to 5A11 Rupee accounts of non-resident banks Part B5B.1 to 5B.6 Inter-bank dealings Annexure Guidelines for foreign exchange exposure limits to authorised dealers 7 7A.1(i) and (ii) General 7A.2 Import licences 7A.4 Manner of rupee payment 7A.5 Letter of authority 7A.6 Attestation of invoices by authorised dealers 7A.7 Form A1 7A.8 Imports financed in rupees 7A.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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