Fema
- Rules and Regulations - Summary
Part I - Rules and Regulations, of interest to Foreign
Investors
Current
Account Transactions
(GSR
381 E dated 3rd May, 2000)
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
provisio 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.
Drawal
of foreign exchange for the following purposes in terms
of Rule 3 of GSR381 and Schedule 1 specified therein
is prohibited:
-
Remittance out of lottery winnings; Remittance of
income from racing/riding, etc. or any other hobby;
Remittance for purchase of lottery tickets, banned/prescribed
magazines, football pools, sweepstakes, etc.; Payment
of commission on exports made towards equity investment
in Joint Ventures/Wholly Owned Subsidiary abroad
of Indian companies; Remittance of dividend by any
company to which the requirement of dividend balancing
is applicable; Payment of commission on exports
under Rupee State Credit Route; Payment related
to "Call Back Services" of telephones;
Remittance of interest income on funds held in Non-resident
Special Rupee Scheme a/c; or
-
Travel to Nepal or Bhutan; or
-
A transaction with a person resident in Nepal or
Bhutan. This prohibition may be exempted by RBI
subject to terms and conditions, by special or general
order.
Exchange
facilities for transactions included in Schedule II
to the Rules may be permitted by authorised dealers
provided the applicant has secured the approval from
the Ministry / Department of Government of India indicated
against the transactions.
Under rule 5 no person shall draw Foreign Exchange unless out
of such person Resident Foreign Currency Account for
a transaction included in Schedule III attached thereto
without prior approval of the Reserve Bank of India
i.e.
(1)
Release of Exchange exceeding US$ 10,000 or its equivalent in
one calendar year for One or more private visits to
any country (except Nepal and Bhutan)
(2)
Gift Remittances exceeding US$ 5,000 per remitter/donor per
annum
(3)
Donations exceeding US$ 5,000 per remitter/donor per annum
(4)
Exchange facilities exceeding US$ 1,00,000 for person going
abroad for employment
(5)
Exchange facilities exceeding US$ 1,00,000 for emigration or
exceeding the amount prescribed by country of emigration
(6)
Remittance for maintenance of close relatives abroad:-
(a)
Exceeding net salary (after deduction of taxes, contribution
to Provident Fund and other
deductions) of a person who is resident but not
permanently resident in India and the citizen of Foreign
state other than Pakistan
(b)
Exceeding US$ 1,00,000 per year per recipient in all other cases
(7)
Release of Foreign Exchange exceeding US$ 25,000 to a person
irrespective of period of stay for business travel or
attending conference or specialized training or for
maintenance expenses of a patient going abroad for medical
treatment or checkup abroad or for accompanying as attendant
to a patient going abroad for medical treatment / check
(8)
Release of Foreign Exchange for meeting expenses for medical
treatment exceeding US$ 1,00,000 or its equivalent.
(9)
Release of Foreign Exchange for studies abroad exceeding the
estimates from the institution abroad or US$ 1,00,000
per academic year which is higher
(10)
Release of Foreign Exchange towards commission to agent abroad
for sale of residential flats / commercial plots in
India exceeding the limits of US$ 25,000 or 5% of the
inward remittance per transaction whichever is higher
(11)
Remittance towards consultancies services exceeding US$ 1,000,000
(One million dollars) per project for any consultancy
services procured from outside India
(12)
Remittance towards purchase of Trade Marks / Franchise
(13)
Remittance exceeding US$ 1,00,000 by an entity in India by way
of reimbursement of pre-incorporation expenses
Subject
to certain conditions, restrictions imposed by Rule 4
and 5 shall
not apply to payments of Foreign Exchange out of Exchange
Earnings Foreign Currency (EEFC) account of the remitter.
Also vided Govt. notification 33 of 15th
January, 2003 nothing contained in Rule 5 shall apply
to the use of International Credit Card for making payments
by a person towards meeting expenses while such person
is on a visit outside India.
The
existing procedure to be followed by Indian companies
for entering into collaboration arrangements with overseas
collaborators would continue.
There
would be no restriction regarding receipt of advance
payment or back-to-back letter of credit for merchanting
trade transactions.
IIn
terms of Notification GSR 386(E) regarding .Borrowing
or Lending in Foreign Exchange, 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.
Remittances
of surplus freight / passage collections by shipping
airline companies or their agents, remittances by break
bulk agents, multi-modal 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.
Permissible
Capital Account Transactions
(GSR
384 E) dated 3rd May, 2000)
(Capital
account transaction means a transaction which alters
the assets or liabilities, including contingent liabilities
(a) outside India of persons resident in India; or (b)
in India of persons resident outside India, and includes
transactions referred to in Section 6(3) of FEMA, 1999).
In
terms of these Regulations investment in India by a
person resident outside India in any 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.
Following
Capital Account Transactions are permissible:-
- By
persons resident in India: - According to Schedule
I, following tranactions are permitted:
For Investment in foreign securities; Foreign currency loans
raised in India and abroad; Transfer of immovable property
outside India; Guarantees issued in favour of a person
resident outside India; Export, import and holding of
currency/currency notes; Loans and overdrafts (borrowings)
from a person resident outside India; Maintenance of
foreign currency accounts in India and outside India;
Taking out of insurance policy from an insurance company
outside India; loans and overdrafts to a person resident
outside India, Remittance outside India of capital assets;
Sale and purchase of foreign exchange derivatives in
India and abroad and commodity derivatives abroad.
Save as otherwise provided in the Act, Rules
and Regulations no person shall undertake or sell or
draw Foreign Exchange to / from an authorised person
for any Capital account transaction provided that subject
to the provisions of the Act and Rules and Regulations
a resident individual may draw from an authorised person
Foreign Exchange not exceeding US$ 25,000 per calendar
year from a capital account transaction specified in
Schedule I. Where
the drawl of Foreign Exchange for a capital account
exceeds US 25,000/- per calendar year the limit specified
in the regulations relevant to the transaction shall
apply. Provided
further that no part of the above referred Foreign Exchange
of US$ 25,000 drawn shall be used for remittance to
countries notified as non cooperative countries and
territories by Financial Action Task Force (FATF) from
time to time and communicated by RBI to all concerned.
- By
persons resident Outside India: - According to Schedule
II, the following transactions are permitted:
For
Investment in India; Acquisition and transfer of immovable
property in India; Guarantee in favour of, or on behalf
of, a person resident in India; Import and export of
currency/currency notes into/from India; Deposits between
a person resident in India and a person resident outside
India; Foreign currency accounts in India; Remittance
outside India of capital assets in India.
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