TaxTMI 
TaxTMI 
Foreign Exchange Management Act, 1999
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions, since 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 The Foreign Exchange Regulation Act, 1973 stands repealed from 1^st June 2000. 2.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 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 kn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chedule, 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 authori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 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 I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....side 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/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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontribution 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 inves....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ission 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 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 its....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 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 :- &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sfer 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 permit the transfer subject to such terms and conditions including the price at which sale 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 pers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ADR or GDR mechanism subject to the conditions specified in paragraph No. 4 of the Schedule. (viii) The price of shares to be 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 Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id 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 basis. Annexure III Regulations relating to export of goods and services Foreign Exchange Management (Export of goods and services) Regulations, 2000 - Notification 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontracts 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) 6A.18 Forfaiting 6B.1(i) } } Disposal of copies of GR form 6B(1)(ii) } 6B.2 Shut out/short shipments 6B.3 Exports by air 6B.5 Export by barges/country crafts/road transport 6C.1 Countersignature of PP form 6C.2 Delay in submission of shipping documents 6C.3 Check list for scrutiny of forms 6C.4 Transfer of documents ( Refer to Regulation No.12 ) 6C.5 Trade discount 6C.6 Advance payments against exports 6C.7 Part drawings 6C.8 Consignment exports 6C.9 Despatch of shipping documents 6C.10 Handing 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 acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e regulations seek to regulate opening and maintenance of foreign currency accounts in or outside India by a person resident in India. ii) Except to the extent provided in the Act, and Rules or regulations made thereunder, opening and maintenance of a foreign currency account in India or outside India by a person resident in India would require approval of Reserve Bank. iii) In terms of sub-section (h) of Section 6 of the Act a person who has acquired foreign currency when he was resident outside India or who has inherited foreign exchange from a person who was resident outside India, has been permitted to hold, own, transfer the foreign currency so acquired. iv) In terms of Regulation No. 4 a person resident in India who receives foreign exchange has been permitted to maintain Exchange Earners' Foreign Currency Account with an authorised dealer in India subject to the terms and conditions specified in the Schedule. v) In terms of Regulation No. 5, Reserve Bank has granted general permission to residents to 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-R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ought into India and declared to Customs authorities where such declaration was required to be made. 4. Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 - Notification No.FEMA 14/2000-RB dated 3rd May, 2000 i) These Regulations specify the manner of receipt and payments or methods of receipt and payment which correspond to the provisions contained in paragraphs 2.5 and 2.6 of the ECM ii) There is no change in the existing regulations relating to the methods of receipt of foreign exchange and payment of foreign exchange. iii) Pending issue of further directions/instructions authorised dealers may be guided by the provisions of the following paragraphs of ECM. 2.1 Permitted currencies 2.2 Authorised dealers' responsibility in regard to other currencies 2.3 Choice of contracting currencies in international transactions. 2.4 Authorised dealers' foreign currency accounts 2.7 Payment in approved/conforming manner 2.8 Asian Clearing Union 2.9 Memorandum of Procedure (ACM) 2.10 Channelling through ACU obligatory 5. Foreign Exchange Management (Foreign Exchange derivative contracts) Regulations, 2000 - Notification No.FEMA ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....extending hospitality to a person resident outside India; b. to a person resident outside India for purchase of gold or silver imported by such person in accordance with the provisions of any order issued by Central Government under the Foreign Trade (Development and Regulation) Act, 1992 or under any law or rules or regulations in force. iii) General permission has also been granted to a company in India to make payment of sitting fees or commission or remuneration or travel expenses to and from or within India to its whole time director who is on a visit to India for company's work subject to the terms and conditions mentioned in paragraph 3 of the Notification. 7. Transactions with Nepal and Bhutan Notification No.FEMA 17/RB-2000 dated 3rd May 2000 The Reserve Bank has directed that the restrictions imposed in clauses (b), (c) and (d) of Section 3 relating to making payment to or for credit of any person resident outside India, or receiving otherwise through an authorised person any payment by order or on behalf of a person resident outside India, or entering into any financial transactions in India as consideration for or in association with acquisition or creation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3D.3 Purchases against Currency Declaration Form 3D.4 Encashment Certificates 3D.5 Purchase on Authorised Dealer's own responsibility 3D.6 Import of Foreign Currency notes 3D.8 Reconversion of Indian currency 3D.9 Sales to Foreign Tourists 3D.9A Providing Foreign Currency Travellers Cheques and notes to the Master/Captain of foreign vessels against inward remittance 3D.11 Sales to other authorised dealers, Exchange Bureaux and Money Changers 3D.12 Rates of Exchange 3D.13 Display of exchange rates 3D.14 Regulation of authorised dealers' sales to travellers 3D.15 Export of surplus currency notes and coins 3D.16 Records to be maintained by Exchange Bureaux 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 ....