f FOREIGN EXCHANGE MANAGEMENT ACT As India moves towards a more open economy with greater links to the rest of the world, there was a need to modernize the regulations governing foreign exchange transactions. Accordingly, the Indian Government repealed the Foreign Exchange Regulation Act, 1973 (FERA) and replaced it with a new Foreign Exchange Management Act (FEMA 1999), effective from 1* June 2000. The FEMA consolidates and amends the law relating to foreign exchange to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. It extends to the whole of India. It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India and. also to any contravention thereunder committed outside India by any person to whom this act applies. 1 TEBE some nictiticirs or rma © @ Ic prohibits foreign exchange dealings undertaken other than through an ‘authorized person’. It also makes it clear that if any person residing in India receives any forex payment (without there being a corresponding inward remittance from abroad) the concerned person shall be deemed to have received the from a non-authorized person. — @ There are certain fe which are totally prohibited under (up to the specified limit prescribed an ‘authorized person’ without ia (RBI) Some transactions can Government of India.FOREIGN EXCHANGE MANAGEMENT ACT 4 Presently, there are 8 types of current account transactions (remittances), which are prohibited, and therefore no transaction can be undertaken relating to these. These are as under: 1, Remittance out of lottery winnings. | 2. Remittance of income from racing/riding etc. or any other hobby. 3. Remittance for purchase of lottery tickets, banned/proscribed mag- azines, football pools, sweepstakes, etc. 4, Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian com- panies. 5, Remittance of dividend by any company to which the requirement of dividend balancing is applicable. exports under Rupee State Credit Route, 6. Payment of commission on 9% of invoice value of exports of tea and except commission up to 10 tobacco. "7, Payment related to “Call Back Services” of telephones. 8. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme, FEMA and the related rules gi was earlier a Resident of India (ROL ign security or immovable property ih keris 'a Rid YS en to a Resident who inherits such security or . fall freedom to a Resident in India who )) to hold or own or transfer any for- situated outside India and acquired ised for purpose other'than for which is otherwise permitted AyFOREIGN EXCHANGE MANAGEMENT ACT Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available ¢4 corporates, partnership firms, HUF, Trusts, etc. © The limit of USD 2,50,000 per Financial Year (FY) under the LRS Scheme also includes/subsumes remittances for current account tran: Private visit; gift/donation; going abroad on employment maintenance of close relatives abroad; business trip; abroad; studies abroad) available to resident individuals under Para | of, Schedule III to Foreign Exchange Management (Current Account Trans. actions) Amendment Rules, 2015 dated May 26, 2015. Release of foreign exchange exceeding USD 2,50,000, requires prior permission from the Reserve Bank of India. sactions (viz, 5 emigration, medical treatment @ EEFC and RFC account holders are permitted to freely use the funds held in the accounts for payment of all permissible current account transactions, @ The rules for foreign investment in India and Indian investment abroad are also comprehensive, transparent and permit Indian companies engaged in certain specified sectors to acquire shares of foreign companies engaged in similar activities by share swap. or exchange through issue of ADRs GDRs up to certain specified limits, © FEMA is a civil law unlike FERA. Contravention under FEMA will be dealt with through civil procedures, Unlike in FERA, the burden of proof under FEMA will be on the enforcement agency and not on the implicat- ed. FEMA describes an elaborate redressal machinery for total justice and . fairness to the implicated while deciding on the question of contravention. of 2 o dynamic regulation by Reserve Bank of India €s are covered by RBI Master Directions dated = Credit extended for imports of goods, permis- reign Trade Policy of the DGFT, directly by the financial institution for maturity up to fiveFOREIGN EXCHANGE MANAGEMENT ACT ® years from the date of shipment is referred to as ‘trade credit’ for imports. Depending on the source of finance, such trade credit will include suppliers credit or buyers’ credit. Suppliers’ credit relates to credit for imports in - @ India extended by the overseas supplier, while Buyers’ credit refers to __Joans for payment of imports in to India arranged by the importer from a bank or financial institution outside India. (8) Amount and tenor - Trade credit period for import of non-capital goods can be upto one year ftom the date of shipment or upto the operating gycle whichever is lower Trade credit period for import of capital goods can be upto five years from the date of shipment with ab initio contract petiod of 6 (six) months. AD banks are permitted to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year from the date of shipment. For import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and up to five years from the date of shipment. No roll-over/ extension will be permitted beyond the permissible period. AD banks shall not approve trade credit exceeding USD 20 million per _ import transaction. a (© Alkin-cost’ ceilings - The ‘linea? ceilings, at present, are as under 2 The current all-in-cost ceilings are as under 1 fee, upfront fee, management ct and legal expenses, if any. vter of comfort in favour of etters of Credit/guar-FOREIGN EXCHANGE MANAGEMENT ACT antees/Letter of Undertaking (LoU)/Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to one year for import of all non-capiral goods permissible under Foreign Trade Policy (except gold, palladium, etc) and up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of 7 such Letters of credit/guarantees/LoU/LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. The AD banks are not permitted to issue Letters of Credit/Guarantees/ Letter of Undertaking (LoU)/Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. In case the request for Trade Credit does not comply with any of the RBI stipulations, the importer needs to obtain approval from the Central Office of RBI. Quarterly reporting: AD Category I banks are also required to furnish data on issuance of guarantees/Letters of Undertaking/Letter of Comfort by all its branches, in a consolidated statement, at quarterly intervals to the Foreign Ex- change Department, External Commercial Borrowings Division, Reserve Bank of India, Central Office. — FEMA Regulations have an immense impact in International Trade transactions and modes of payment. RBI releases regular notifications and circulars, outlining its clarifications and modifications related to various sections of FEMA. These can be acc I website at hetp://www.tbi.org.in/and should be referred to clarification is required with regard to interpretation tions.