Foreign Exchange Management Act

advertisement
Foreign Exchange
Management Act
(FEMA)
Jyotsna Chaturvedi
Senior Associate
MAHESHWARI & CO.
Advocates & Legal Consultants
Mobile No. 9911724161
E-mail: [email protected]
1
FERA & FEMA



Object to conserve
and prevent misuse
Violation was Criminal
Offence and was non
compoundable
It was a draconian
police law



To facilitate external
trade and payments
Violation is a
offence
and
compoundable
civil
is
It is a civil law
2
FEMA OVERVIEW


FEMA has in total 49 sections in which section 1 to 9 are substantive
and the rest sections are procedural/administrative.
Section 46 of the Act grants power to Central Government to makes
rules and section 47 of the Act grants power to RBI to make
regulations to implements its provisions and the rules made there
under.

RBI is entrusted with the administration and implementation of
FEMA

Every Rules and Every Rule and Regulation made under this Act
shall be laid before each house of parliament
3
Some Important Definitions
"authorized person" means an authorized dealer,
money changer, off-shore banking unit or any other
person for the time being authorized under the Act to
deal in foreign exchange or foreign securities

“person resident in India" means-


a person residing in India for more than one hundred and
eighty-two days during the course of the preceding financial
year but does not include
a person who has gone out of India or who stays outside
India, in either case4
Some Important Definitions
Contd.




for or on taking up employment outside India, or
for carrying on outside India a business or vocation outside
India, or
for any other purpose, in such circumstances as would
indicate his intention to stay outside India for an uncertain
period;
a person who has come to or stays in India, in either case,
otherwise than


for or on taking up employment in India, or
for carrying on in India a business or vocation in India, or
for any other purpose, in such circumstances as would
indicate his intention to stay in India for an uncertain period;
5
Some Important Definitions
Contd.




any person or body
incorporated in India,
corporate
registered
or
an office, branch or agency in India owned or
controlled by a person resident outside India,
an office, branch or agency outside India owned or
controlled by a person resident in India;
"person resident outside India" means a person who is
not resident in India;
6
Some Important Definitions Contd.

"foreign exchange" means foreign currency and includes,


deposits, credits and balances payable in any foreign currency,
drafts, travelers cheques, letters of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency,
drafts, travelers cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency;
7
Some Important Definitions Contd.




"person" includesan individual,
a Hindu undivided family,
a company,

a firm,

an association of persons or a body of individuals, whether
incorporated or not,

every artificial juridical person, not falling within any of the
preceding sub-clauses, and

any agency, office or branch owned or controlled by such
person;
8
NRI & PIO
NRI is a person resident outside India who is a citizen
of India



PIO means a citizen of any country other than
Bangladesh or Pakistan, if:
held anytime an Indian Passport
either of his parents or grand parents were citizen of
India
the person is a spouse of an Indian origin or of a
person referred above
9
Facilities available to NRI & PIO



Bank Accounts: NRE A/C, FCNR A/C, NRO A/C
Repatriation Limit: upto USD 1 million per year from
NRO Account
Housing Loans: can obtain Housing Loans for purchasing
property in India
10
Acquisition of Immovable
Property by NRI & PIO in India

Permitted to purchase Residential and Commercial Property without
RBI’S Permission

No Limitation on the Number / size of the Property

Purchase of Agricultural Land/ Plantation Property/ Farm Houses
requires RBI Permission

PIO should not be a citizen of Pakistan , Bangladesh , Sri Lanka ,
Afghanistan , China , Iran , Nepal , Bhutan

Citizen of above Countries not permitted to acquire Immovable
Property except by way of Lease for less than five years without
permission of RBI
11
Acquisition by NRI & PIO in India
Contd.
Payment can be made by NRI / PIO out of
n
n
Funds remitted to India through normal banking
channel or
Funds held in NRE / FCNR / NRO account
maintained in India
No payment can be made either by traveler's
cheque or by foreign currency notes and also
no payment can be made outside India.
12
Difference between FEMA &
Income Tax Provisions
One major distinction is in Income tax
unlike FEMA purpose of stay is not
relevant and only the period of stay is
relevant
13
Types of AccountsNRE (Non Resident External)






It’s a Rupee Account
Amount Principal as well Interest is freely repatriable
Transfer from/to FCNR A/c permitted
Any form of Account is maintainable
Term Deposit permitted minimum for one and maximum
for three years
Nomination/ Joint Holding can be done in name of /with
non resident
Disadvantages:
If Rupee depreciates savings of person counted in USD
depreciates
14
Types of AccountsNRO (Non Resident Ordinary)






It’s a Rupee Account
Current incomes in the account is freely repatriable
Principal amount is repatriable upto USD 1 million Dollar
subject to applicable taxes
Any form of Account is maintainable
Term Deposit permitted minimum for one and maximum
for three years
Nomination/ Joint Holding can be done in name of /with
resident also
Disadvantages:
If Rupee depreciates savings of person counted in USD
depreciates
15
Foreign Currency Non Resident
Account

Maintained in Foreign Exchange

No loss or gain due to fluctuations

Both Principal & Interest are repatriable

NRI can open this account

Residents of Pakistan and Bangladesh requires prior RBI approval

Joint Account only with NRI is permissible

Can be opened with funds remitted from outside India through normal
Banking Channels and those are of repatriable nature
16
FOREIGN EXCHANGE
FEMA prohibits:
 Dealing in or transfer of Foreign Exchange or Foreign Security to
any person other than Authorised Person



Make any payment otherwise through an authorized person to or for
the credit of any person resident outside India in any manner
receive otherwise through an authorized person, any payment by
order or on behalf of any person resident outside India in any
manner.
enter into any financial transaction in India as consideration for or in
association with acquisition or creation or transfer of a right to
acquire, any asset outside India by any person
17
Exemptions




possession of foreign currency or foreign coins by any
person up to such limit as the Reserve Bank may specify
foreign currency account held or operated by such
person or class of persons and the limit up to which the
Reserve Bank may specify
foreign exchange acquired or received before the 8th
day of July, 1947
foreign exchange held by a person resident in India up
to such limit as the Reserve Bank may specify, if such
foreign exchange was acquired by way of gift or
inheritance from a person referred above
18
Exemptions Contd.


foreign exchange acquired from employment, business,
trade, vocation, services, honorarium, gifts, inheritance
or any other legitimate means up to such limit as the
Reserve Bank may specify
such other receipts in foreign exchange as the Reserve
Bank may specify
19
Repatriation
“Repatriate to India" means bringing into India the realized
foreign exchange and


the selling of such foreign exchange to an authorized
person in India in exchange for rupees, or
the holding of realized amount in an account with an
authorized person in India to the extent notified by the
Reserve Bank,
It includes use of the realized amount for discharge of a
debt or liability denominated in foreign exchange
20
Manner of Repatriation
It can be done in the following manner:



Sell it to Authorised Person in India in exchange for
Rupees
Retain in an account with an authorised dealer
Use it for discharge of a debt or liability denominated in
foreign exchange in the manner specified by RBI
21
Surrender


Any Foreign Exchange earned by a person other than
person resident in India not used for permissible
purposes should be surrendered within 60 days of such
acquisition / purchase
However if acquired for Foreign Travel within 90 days if
the exchange is in currency and coins and 180 days if it
is in traveler’s cheque or if the same is acquired by
person resident in India
These provisions are not applicable to Foreign Currencies
of Nepal and Bhutan
22
Manner of receipt in Foreign
Exchange
Payment for Export can be received :

in form of Draft, cheque, foreign currency
notes/traveler’s cheque etc. provided the foreign
currency so received is surrendered within the specified
time period

by debit to FCNR /NRE Account

In rupees from the credit card servicing bank in India
where payment is made via credit card
23
Manner of receipt in Foreign
Exchange Contd.




From a rupee account held in the name of exchange house with an
authorised dealer if the amount does not exceed Rs 2 lacs
In the form of precious metals
Payment can be received in cash from Foreign Travelers in India if
the same foreign exchange is duly surrendered
RBI also permits offsetting of export proceeds against import
payables etc. after obtaining prescribed certificate from CA/Cost
Accountant in this regard
24
Manner of payment in Foreign
Exchange


Payment shall be made in a currency appropriate to the
country of shipment of goods
Drawal of Foreign Currency means drawal from an
authorised person and includes opening of letter of
credit, use of international credit card etc. which has an
effect of creating foreign exchange liability
25
Current Account Transactions


Any person may sell or draw foreign exchange to or from
an authorized person if such sale or drawal is a current
account transaction.
The Central Government may, in public interest and in
consultation with the Reserve Bank, impose such
reasonable restrictions for current account transactions
as may be required from time to time.
26
Current Account Transactions
Contd.
The definition is inclusive and any expenditure which is not a capital
account transaction will be current account transaction. It includes:

payments due in connection with foreign trade, other current
business, services, and short-term banking and credit facilities in the
ordinary course of business

payments due as interest on loans and as net income from
investments

remittances for living expenses of parents, spouse and children
residing abroad, and

expenses in connection with foreign travel, education and medical
care of parents, spouse and children
27
Current Account Transactions
Few Examples





Payment for imports of goods
Remittance of interest on investment made and
funds borrowed from abroad after tax
deductions
Remittance of Dividend if the investment was
allowed without any condition
Booking with Airlines/Shipping
Salary/remuneration to Foreign Directors subject
to restrictions in any other law
28
Release of Exchange for Travel
The following do not require any approval from RBI:



Upto USD 10,000 or equivalent in one financial year for
one or more pvt visits abroad (nepal and Bhutan being
exempted )
Upto USD 25,000 for business visits
Upto USD 1,00,000 for person going to abroad for
employment, education (yearly) and for medical
Treatment
29
Business and Commercial
Remittance Abroad




Foreign Technology Agreements are permitted except in
High Priority Industries
Payment can be made on lump sum or Royalty based on
sales or by issue of Equity Shares after deducting TDS
There are no limitations on royalty payment and
payment of Technical Fees
No collaboration permitted in Lottery, Gambling etc.
30
Restrictions on Current Account
Transactions
The following requires prior approval of RBI:

Gifts and Donations above USD 5000

Corporate Donation above 1 % of Foreign Exchange Earning during 3
previous years or USD 5 million, whichever is less

Commission to Agents abroad for sale of residential/commercial plots in
India above 5 % of Inward Remittance or USD 25000 , whichever is higher

Consultancy Charges paid abroad for more than USD 1 million

Reimbursement of Pre-incorporation expenses above 5% of FDI or USD 1
lac whichever is higher
31
Prohibited Current Account
Transactions

Drawal of exchange for travel to or with residents of Nepal/Bhutan

Commission on export to JV/WOS abroad

Commission on Rupee Trade

Call back Charges

Remittance out of Lottery, racing etc.

Bogus Prizes / Fictitious Schemes etc.
32
Import of Goods & Services
Import of Goods and Services is also a Current Account Transaction
and is freely permitted however few procedures are required to be
followed as

Obtaining of Import License if required

Opening of Letter of Credit

CA Certificate for deduction of TDS for payment made outside

Gold may be imported by nominated agencies/banks on
consignment basis
33
Export of Goods & Services



Exporter should make proper Declaration in prescribed
forms to Authorised Dealers
Declaration is not required in case Trade Samples,
Baggage, Gifts less than 5 lacs etc.
Export of Goods on following requires prior approval



Lease/hire
Counter Trade
Export on Elongated Credit Terms
34
Capital Account Transactions

"capital account transaction" means a transaction which alters the
assets or liabilities, including contingent liabilities, outside India of
persons resident in India or assets or liabilities in India of persons
resident outside India, and includes transactions like:






Changes in Assets/ Liabilities
Transfer/ issue of security
Borrowing/ Lending
Export, import or holding of currency or currency notes
Giving guarantee
Capital Account Transaction are deemed to be prohibited unless
permitted and Current Account Transactions are deemed to be
permitted unless prohibited
35
Foreign Direct Investment
(FDI)
36
Investing in India
Automatic Route
Government Route
(FIPB)
General Rule
No prior Permission Required
Only informing RBI within 30 days
of issue and reciept of funds
Prior Permission Required
MAHESHWARI & CO.
Advocates & Legal Consultants
37
Who can make FDI?



Person Resident outside India except of
Pakistan
Entity incorporated outside except
Pakistan & Bangladesh
Person Resident of Bangladesh & entities
incorporated there can make investment
in India in form of shares and conv.
Debentures with prior approval of RBI
38
Industrial Policy towards Foreign
Investment
FDI in shares is permitted 100% in all industries
except the following:
 Proposals requiring Industrial License
 Investment exceeding 24% inn SSI reserved
items
 Investment in Defense sector upto 26%
 Foreign collaborator having previous tie up
 Acquisition in shares of existing Company
 Prohibited Sectors
39
Prohibited Sectors












Retail Trading (except single brand retailing)
Atomic Energy
Lottery Business
Gambling Betting etc.
Business of chit fund
Nidhi Company
Trading in TDRs
Activity /sector not opened for private sector investment
Agriculture except few prescribed
Plantation except tea plantation
Real Estate Business except few prescribed
Manufacture of Cigars, cigarettes etc.
40
Activities requiring Government
Approval












Petroleum Sector
Investing Companies in Infrastructure and Service Sector
Defense & Strategic Industries
Atomic Minerals
Print Media
Broadcasting
Postal Services
Courier Services
Establishment & operation of Satellite
Development of Integrated Township
Tea Sector
Asset Reconstruction Company
41
Penalties for Contravention under
FEMA



The Penalty could be up to thrice the sum
involved where amount is quantifiable
If the Amount is not quantifiable , penalty upto
Rs 2 lacs can be imposed
If contravention is of continuing nature, further
penalty up to Rs 5000 per day during which the
contravention continues can be imposed
42
THANK YOU!
43
Download