1 Fema, 1999

Chapter 1 FEMA, 1999
Chapter 1: 1.1
Foreign Exchange
Management Act, 1999
Learning Objective as Per ICAI of this chapter
 The meaning of person resident in India for the purposes of the Foreign Exchange Management Act, 1999
 The meaning of Current and Capital Account Transactions
 The penalties imposed and the adjudication process
Concept of FEMA (++)
History (+++)
Situation of Foreign
exchange reserve had
1947 1991 fallen to $ 1.1bn

1973
FERA commenced.
Problem of Balance
of Payment arrived
FERA Restructured.
Converted in rigorous
1991 Liberalisation in
India & Removal of
for British. framework a stringent law Trade barriers
1991-1993
Liberalisation in India.
Which created atmosphere
the and earned the foreign
1999
exchange for India
Creation of FEMA.
Because existing law is very
2011
stringent for liberalised India. Effect of FEMA Foreign
exchange reserve increased
to $314.74Bn.
© CA Darshan D. Khare
Need for the Act (ICAI)

1.2 The change in the economic scenario with world trade free across the globe, necessitated the need for inviting
foreign exchange resources to the country. To facilitate world trade and easy and regulated inflow and outflow
of foreign exchange, the Foreign Exchange Management Act, 1999 (FEMA) was enacted. This Act has paved way
for consolidation and management of foreign exchange reserves for the country.
The difference between FERA and FEMA are as follows (+++)

Headings FERA FEMA
Any offence under FERA, was a criminal Here, the offence is considered to be a civil
Offence Under offence, punishable with imprisonment offence only punishable with some amount
Law as per code of criminal procedure, 1973 of money as a penalty. Imprisonment is
prescribed only when one fails to pay the
penalty.
Names of No Name 1. Capital account Transaction
transactions / 2. Current Account Transaction
Permission on Transaction is prohibited unless Transaction is permitted unless
transaction permitted. prohibited.
Rigid / Liberal It was rigid law It is liberal law
Rigidity FERA is rigid regarding foreign FEMA is rigid regarding disclosure.
regarding exchange.
Provisions FERA consisted of 81 sections, and was FEMA is much simple, and consist of only 49
more complex sections.
Features Presumption of negative intention These presumptions of Mens-Rea and
(Mens Rea) and joining hands in offence abatement have been excluded in FEMA
(abatement) existed in FERA
Quantum of The monetary penalty payable under Under FEMA the quantum of penalty has
Penalty FERA, was nearly the five times the been considerably decreased to three times
amount involved. the amount involved.
Structure of FEMA, 1999

CHAPTERS Name of Chapter SECTIONS
I Preliminary 1–2
II Regulation and Management of Foreign Exchange 3–9
III Authorised Person 10 – 12
IV Contravention and Penalties 13 – 15
V Adjudication and Appeal 16 – 35
VI Directorate of Enforcement 36 – 38
VII Miscellaneous 39 – 49
Sec 1: Preamble, Extent, Application And Commencement Of FEMA, 1999 (ICAI)(+)

A. Preamble: This Act aims to consolidate and amend the law relating to foreign exchange with the objective of
1. facilitating external trade and payments and
2. for promoting the orderly development and maintenance of foreign exchange market in India.
B. Extent and Application: FEMA, 1999 extends to the whole of India. In addition, it shall also apply to all
branches, offices and agencies outside India owned or controlled by a person resident in India and also to any
contravention there under committed outside India by any person to whom this Act applies.
Accordingly, FEMA does not apply to citizens of India who are outside India unless they are resident of India.
The scope of the Act has been further extended to include branches, offices and agencies outside India. The
scope is thus wide enough because of the emphasis is on the words “Owned or Controlled”. Even
contravention of the FEMA committed outside India by a person to whom this Act applies will also be covered
by FEMA.
C. Commencement: The Act, 1999 came into force with effect from 1st June, 2000 G.S.R. 371(E), dated 1.5.2000. 1.3
-= BOMBERS =-
1. Whether FEMA, 1999 applicable to person resident outside India if he is doing transaction in
Rupees?
Ans:
Export and import of Indian currency and currency notes
a) Any person resident in India,
i.
ii.
iii.
b) Any person resident outside India, not being a citizen of Pakistan or Bangladesh, and visiting India,
i.
ii.
c) Export and Import of currency to or from Nepal and Bhutan

A person may-
i.
ii.
1.4
iii.
d) No person shall take or send out of India the Indian coins which are covered by the Antique and Art
Treasure Act, 1972.
Explanation:
'Commemorative Coin' includes coin issued by Government of India Mint to commemorate any specific
occasion or event and expressed in Indian currency.
Sec 2: Definitions (ICAI)

(m) "Foreign currency"
Foreign Currency means any currency other than Indian currency.
2(q) “Indian Currency” means currency which is expressed or drawn in Indian rupees but does not include special
bank notes and special one rupee notes issued under section 28A of the Reserve Bank of India Act, 1934.
In world there 196 countries but of which 50 countries do not have their own currency (Tiwan is considered as
separate country which is disputed). Which means in world there are 146 currencies. Which means 145 currencies
in word are foreign currency for India.
(n) "Foreign exchange"

Foreign Exchange means foreign currency and includes-
deposits, credits and balances payable in any foreign currency, drafts, traveller's cheques, letters of credit or
bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, drafts, traveller's
cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable
in Indian currency.
Foreign Exchange Means Foreign Currency & Includes:
deposits, credits and balances payable in any foreign drafts, traveller's cheques, letters of credit
currency, drafts, traveller's cheques, letters of credit or or bills of exchange drawn by banks,
bills of exchange, expressed or drawn in ₹ but payable in institutions or persons outside India, but
$ (foreign currency). payable in ₹.
For drafts, traveller's cheques, letters of credit or bills of exchange

Head Case 1 Case 2 Case 3 Case 4
Expressed or Drawn
Payable in
Status
(o) "Foreign security"

Foreign Security means any security, in the form of shares, stocks, bonds, debentures or any other instrument
denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where
redemption or any form of return such as interest or dividends is payable in Indian currency.
Foreign Security:
and
Means: any security, in the form of shares, stocks, Includes: securities expressed in foreign currency, but
bonds, debentures or any other instrument where redemption or any form of return such as
denominated or expressed in foreign currency. interest or dividends is payable in Indian currency.
For shares, stocks, bonds, debentures or any other instrument

Head Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Case 8
1.5
Expressed or
Denominated
Redemption in
Return In
(u) Person
includes- (i) An individual,
(ii) A Hindu undivided family,
(iii) A company,
(iv) A firm,
(v) An association of persons or a body of individuals, whether incorporated or not,
(vi) Every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) Any agency, office or branch owned or controlled by such person.
(v) "Person resident in India" (PRI) / (w) "Person Resident Outside India" (PROI)
Person resident in India Means:
1. 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. A person who has gone out of India or who stays outside India, in either case-
i. For or on taking up employment outside India, or
ii. For carrying on outside India a business or vocation outside India, or
iii. For any other purpose, in such circumstances as would indicate his intention to stay outside India for
an uncertain period;
B. A person who has come to or stays in India, in either case, otherwise than-
i. For or on taking up employment in India, or
ii. For carrying on in India a business or vocation in India, or
iii. For any other purpose, in such circumstances as would indicate his intention to stay in India for an
uncertain period;
2. Any person or body corporate registered or incorporated in India,
3. An office, branch or agency in India owned or controlled by a person resident outside India,
4. An office, branch or agency outside India owned or controlled by a person resident in India;
Analysis of Definition of PRI/PROI

1.6
PRI In case of In case of PROI
SP SP
In case of In case of
Person comes to India Person goes out of
NSP NSP
in CFY India in CFY
Carry Carry
Forward Residence in India > 182 days in PFY Forward
If not
Without any further question person will be considered as PROI in CFY.
Residence in India < 182 days in PFY
Individual
1) In PY R < 182 days & in CY:

PROI PROI PROI
SP SP SP
2) In PY R > 182 days & in CY:
PROI PRI PROI
SP SP SP SP SP
PROI PRI PROI PRI PROI
SP NSP
PROI PROI
SP SP NSP
PROI PRI PRI
SP NSP NSP
PROI PROI PROI
SP SP NSP NSP
PROI PRI PRI PRI
1.7
SP NSP NSP SP NSP NSP
PROI PROI PROI PRI PRI PRI
SP NSP SP
PROI PROI PRI
SP SP NSP SP
PROI PRI PRI PROI
Special Cases
2. Whether citizenship is important for determining the residential status under FEMA? (+)
Ans: Citizenship is not the criteria for determining whether or not a person is resident in India.
3. Miss is an airhostess with the British Airways. She flies for 12 days in a month and thereafter a break for 18
days. During the break, she is accommodated of ‘base’, which is normally the city where the airways are
headquartered. However, for security considerations, she was based on Mumbai. During the financial year, she
was accommodated at Mumbai for more than 182 days. What would be her residential status under FEMA?(+)
Ans: Miss stayed in India at Mumbai ‘base’ for more than 182 days in the preceding financial year. The issue here
is whether staying can be considered ‘residing’. FEMA emphasises ‘residing’. ‘Stay’ is a physical attribute, while
‘residing’ denotes permanency. Thus, while Miss may have stayed in India for more than 182 days, it is doubtful
whether she can be said to have ‘resided’ in India for more than 182 days. Further under section 2(v)(a), she would
become resident only if she has come to or stayed in India for employment. It would be doubtful and debatable,
whether by staying at Mumbai base during the break, Miss can be said to have come to stay in India for or on
taking up employment. Hence Miss would continue to be non-resident.
1.8
Bomb-blast in foreign shifted layover to India
4. What is the meaning of Intention to stay for uncertain period? (+)

Ans: The situation can be explained with an example. If there is a leady accompanying her husband who is NRI she
will go abroad but not for any employment or business or vocation; she is just going with her husband as family.
If question is raised that when she will come back, then answer will be uncertain. Then in such case her intention
is to stay outside for uncertain period.
Woman marries to NRI and leaves

India
Residential status of Artificial Person
-= BOMBERS =-
Residential Status 1.9
1. What is difference between residential status of the FEMA, 1999 & Income Tax Act, 1961?
Ans:
Heading Income Tax, 1961 FEMA, 1999
Purpose
Financial
year
Days
Year of
question
Citizenship
2. In case if a person goes out for Education what will be his residential status?
Ans: Education is Non Specified Purpose. Thus the answer will be as follows.
Financial Year In India/Foreign Residential status Residence in that FY
10-11 India
11-12 India
12-13 Foreign
13-14 Foreign
14-15 Foreign
15-16 Foreign
16-17 India
17-18 India
18-19 India
3. What will be residential status of the person going outside India for Education & Job Together?
Ans:
4. Whether Minor have residential status in FEMA?

Ans:
5. What will be status of the unregistered partnership firm formed outside india owned or controlled by
indian partner?
Ans:
Section 3 & 4: Regulation & management of Foreign Exchange (ICAI)

1.10 Dealing in foreign exchange, etc. [Section 3]
Save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special
permission of the Reserve Bank, no person shall-
a. deal in or transfer any foreign exchange or foreign security to any person not being an authorised person;
b. make any payment to or for the credit of any person resident outside India in any manner;
c. receive otherwise through an authorised person, any payment by order or on behalf of any person resident
outside India in any manner.
Explanation— For the purpose of this clause, where any person in, or resident in, India receives any payment
by order or on behalf of any person resident outside India through any other person (including an authorised
person) without a corresponding inward remittance from any place outside India, then, such person shall be
deemed to have received such payment otherwise than through an authorised person;
d. 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.
Explanation.—For the purpose of this clause, “financial transaction” means making any payment to, or for the
credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or
negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt.
Holding of foreign exchange [Section 4]

Except as provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign
exchange, foreign security or any immovable property situated outside India.
Concept of Authority (+)

1. What is authority? Whether it is required in every law?
Law
Main
Authority
Subordinate
Authority
2. What are the points to be considered for 3. What are the points for removal of authority?
appointment of authority?
1.
2.
3.
4.
Sec 10-12: Authorised Person (AP) (ICAI) (+)

Chart for Understanding 1.11
Any Person RBI
RBI will Test
Public Interest Forex Reserve Compliance of Conditions &

Interest Law Directions
RBI will give approval for being Authorised Person
Powers of AP
Money Changer Dealer Off shore Banking

The person who can exchange The person who can deal in The banking unit which can be setup
currency legally like foreign security on behalf of in SEZ to give finance to SEZ
₹ - $ or $ - ₹ Indian Investor developers or industry or finance to
international industry. They are free
from the requirement of CRR, SLR etc
Full-fledged money Restricted money made by RBI.
changer (FFMC) changer (RMC)
Duties of AP
Compliance Permission of RBI While undertaking any transaction:

Comply with such not engage in any transaction A. Take such declaration
general or special without the previous approval B. satisfy himself that the transaction will not
directions or of RBI, involving any foreign involve any contravention
orders as the exchange or foreign security C. person refuses to comply the authorised
Reserve Bank may which is not in conformity with person shall refuse in writing to undertake
give, from time to the terms of his authorisation the transaction.
time. under this section. D. In case of contravention report the matter to
the Reserve Bank.
Contravention & Consequences

1.12
Revocation of authorisation Penalty of Rs. 10,000 + 2000 pd
Questions
M10: The Reserve Bank of India receives a complaint that an authorized person has submitted incorrect
statements and information to the Reserve Bank of India in respect of receipt and utilization of Foreign
Exchange Explain the powers of the Reserve Bank of India with regard to inspection of records of the above
authorized person in respect of the above complaint.
M07, N04: Forex Dealers Ltd, is an Authorized Person within the meaning of Foreign Exchange Management
Act, 1999. Reserve Bank of India issued certain directions to the said Authorized Person to file certain returns
which it failed to file. You are required to state the penal provisions to which the said Authorized Person has
exposed itself.
Provisions
Definition [Sec 2(c)]:"Authorised Person" means
a. an authorised dealer,
b. money changer,
c. off-shore banking unit,
d. any other person for the time being authorised under sub-section (1) of section 10 to deal in foreign exchange
or foreign securities;
Appointment of Authorised Person [Sec 10(1)]:

The Reserve Bank may,
a. on an application
b. authorise any person to be known as authorised person
c. To deal in foreign exchange or in foreign securities.
d. The authorisation shall be in writing and subject to such condition.
Revocation of Authorisation [Sec 10(3)]:

An authorisation granted under sub-section (1) may be revoked by the Reserve Bank at any time if the Reserve
Bank is satisfied that—
a. it is in public interest so to do; or
b. the authorised person has failed to comply with the condition subject to which the authorisation was
granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction
or order made there under.
Provided that no such authorisation shall be revoked on any ground referred to in clause (b) unless the authorised
person has been given a reasonable opportunity of making a representation in the matter.
Duties of AP [Sec 10(4) & (5)]:
An authorised person shall,
 comply with such general or special directions or orders as the Reserve Bank may give, from time to time,
 not engage in any transaction without the previous approval of RBI, involving any foreign exchange or
foreign security which is not in conformity with the terms of his authorisation under this section.
 before undertaking any transaction in foreign exchange on behalf of any person,
A. require that person to make such declaration and to give information required.
B. Reasonably satisfy himself that the transaction will not involve any contravention or evasion of the
provisions of this Act or of any rule, regulation, notification, direction or order made there under.
C. and where the said person refuses to comply with any such requirement or makes only unsatisfactory
compliance therewith, the authorised person shall refuse in writing to undertake the transaction.
D. if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the
person, report the matter to the Reserve Bank.
Powers of RBI [Sec 11]:
Issue of Directions: The Reserve Bank may, for the purpose of securing compliance with the provisions, give to
the authorised persons any direction;
1.13
a. to do any act relating to foreign exchange or foreign security; or
b. to stop from doing any act relating to foreign exchange or foreign security.
Furnish Information:
RBI can demand the information from AP to ensure compliance with act.
Consequence on contravention by AP:

Where any authorised person
a. contravenes any direction given by the Reserve Bank under this Act or
b. fails to file any return as directed by the Reserve Bank,
Then the Reserve Bank may,
a. after giving reasonable opportunity of being heard,
b. impose penalty which may extend to ten thousand rupees and
c. in the case of continuing contravention with an additional penalty which may extend to two thousand
rupees for every day during which such contravention continues.
Inspection and Investigation [Sec 12]:

The Reserve Bank may, at any time,
a. inspect the business of any authorised person;
b. by any officer of the Reserve Bank specially authorised in writing.
For the purpose of
a. obtaining information,
b. verifying the correctness of any statement, information or particulars furnished,
c. securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made
there under.
The AP shall
a. produce such books, accounts and other documents in his custody to inspecting officer.
b. furnish any statement or information relating to the affairs to inspecting officer.
c. Coordinate and assist in all manner to inspecting officer.
-= BOMBERS =-
Authorised Person.
1. What is HAWALA in very basic meaning?
Ans:
Sec 5: Current Account Transaction (+) (ICAI)

1.14 Questions
PM: Explain the meaning of the term “Current Account Transaction” and the right of a citizen to obtain Foreign
Exchange under the Foreign Exchange Management Act, 1999.
Provisions
Sec 2(j): "Current account transaction" means a transaction other than a capital account transaction and
without prejudice to the generality of the foregoing such transaction includes:
i. payments due in connection with foreign trade, other current business, services, and short term banking
and credit facilities in the ordinary course of business,
ii. payments due as interest on loans and as net income from investments,
iii. remittances for living expenses of parents, spouse and children residing abroad, and
iv. expenses in connection with foreign travel, education and medical care of parents, spouse and children;
Prohibited
Permissible with Transactions
approval of CG.
Rule 3 Read with Sch
Rule 4 read with Sch I.
II.
Permissible with
Transaction Does not approval of RBI.
require any approval. Rule 5 read with Sch
III
Prohibited CUT [Rule 3 read with Schedule I](ICAI) (++)

Question
PM,N02: Mr. Ramesh of Nagpur wants to travel to Nepal and for this purpose proposes to draw Foreign
Exchange. Specify.
(i) Can Mr. Ramesh draw any Foreign Exchange for his journey?
(ii) What are the purposes for which Foreign Exchange drawal is not allowed for Current Account
Transaction?
Provisions
-= BOMBERS =-
Prohibited Current Account Transactions.
1. Whether prohibited current account transactions are illegal?
Ans:
Nature of Transaction (ICAI) Reason behind the same (++)

Relating to Nepal and Bhutan: Indian currency is freely accepted in Nepal and 1.15
i. Payment for travel to Nepal and Bhutan. Bhutan. Thus there is no need to withdraw foreign
currency for the same.
ii. Payment for any transaction with person of Nepal
and Bhutan.
Lottery, Racing/ Riding, Banned magazines & others: The government does not supports lottery and
 Remittance out of income from: gambling activities. In addition to this it is luxury
transaction which will not only create the loss of
1. Lottery Winnings. foreign currency but also situation like
2. Racing/Riding or any other hobby. unemployment. And as the foreign exchange is
 Remittance for purchase of: scares resource we cannot use it for luxury or
hobby transaction like lottery.
1. Lottery Tickets
2. Banned/Prescribed magazines,
3. Football pools, sweepstakes, etc.
Winning
Purchase
Payment of commission on export:

i. Export under Rupee State Credit Route
For understanding the "Rupee State Credit Route" you have to go back to end of 90's and early 2000 where
the Indian government was obliged to export goods and services worth 4,000 crore every year to Russia to
discharge India's outstanding loan. But since the exports from India were in excess of the demand in Russia,
the Russian government auctioned Indian rupees at an average 15 per cent discount through the
Vneshconom bank, or the Bank of Foreign Economic Affairs of the Russian Federation (BFEA) to Russian
importers. The Russian government helped the importer in that country, who had bid collectively with
others, to establish letters of credit at this discounted rate. The Indian exporter was not paid in cash, but
only through letters of credit, to be honoured by the negotiating (Indian) banks. For the Indian exporter to
encash them here through the RBI as advising bank, the `export' had to be shown. So in nutshell the Indian
Govt. or RBI paid the exporters who exported the goods to Russia in Rupees and hence the name Rupee
State Credit Route. Only 2 goods are allowed with the 10% of commission in foreign exchange under rupee
state credit route. One is TEA and second TOBACCO
1.16
ii. Export made towards equity investment in joint venture/Wholly owned subsidiaries abroad
of Indian Companies.
Indian companies are allowed to make equity investments in foreign subsidiary / JV by sale of goods and no
commission can be paid on the same. For ex. A ltd. an Indian Company wishes to take equity in B Ltd.(UK).
Now instead of sending money as equity A Ltd. (manufacturer of goods and machines) sends the goods &
machines and books the following entry:
Investment A/c --------- Dr
To, Sales A/c --------------Cr
(Being exports sales vide invoice no. XXXX made in lieu of equity participation in B Ltd.)
Remittance of Dividend
Remittance of dividend by company to which the requirements of Dividend balancing is applicable.
Other transactions:
i. Payment Related to ‘Call Back Services’ of telephone
In order to use a callback service, a subscriber is allocated a unique number in, for example, the US, which must
first be dialled in order to trigger a return call. This is known (in the US) as a Direct Inbound Dialling (DID)
number, or in the UK as a Direct Dial-In (DDI) number. In this case the person in India does not incur any charges
of calling such number as such call does not get connected on given number. Then in fraction of time the return
call comes from same number. The user shall then pick call and dial # and required person’s number and call
will get connected through server. This facility does not generate bill of Indian telecom company but it
generated bill in foreign exchange from foreign server which is need to be paid by user. Now as per TRAI
(Telecom Regulatory Authority of India) such service will damage Indian telecom sector & Also creates
unnecessary foreign exchange expenses for India. So TRAI decided to declare such service as banned and void
in India.
1.17
ii. Remittance of interest income on funds held in Non- Residential Special (Account) Scheme.
When India faced the balance of payment difficulty in 1991 / 92, RBI introduced this new NRI account with a
view to increase our foreign exchange reserves albeit with a higher rate of interest. The account is a term
deposit (fixed deposit) account maintained in rupee.
However, money should be remitted from abroad for opening the account. The funds held in the account were
originally exempted from CRR / SLR requirements and the banks were offering very high rate of interest (as
much as 18%) initially in 1993.
The balance in the account is not reparable. Reserve Bank has withdrawn this scheme since April 1, 2002. Hence,
new accounts cannot be opened after April 2002. Further as part of relaxation in convertibility of rupee, Reserve
Bank now permitted to allow repatriation of funds including interest amount, out of this account.
-= BOMBERS =-
Prohibited Current Account Transactions.
1. How many bank accounts can be there in FEMA?
Ans:
Types of Foreign Currency Accounts (++)

Rupee Accounts (++)
Heading NRO NRE NRNR
Ordinary Non-Resident Rupee Non-Resident Non Resident Non Repatriable
Long Forms Accounts (External) Rupee Deposit Scheme
Accounts
Non-resident ordinary These are again rupee When India faced the balance of
accounts can be opened either accounts. The NRE payment difficulty in 1991 / 92,
Purpose by money received from account can be opened RBI introduced this new NRI
only with money account with a view to increase
abroad in foreign exchange or received from abroad our foreign exchange reserves
out of rupees earned in India. and not from local albeit with a higher rate of
1.18
rupee sources. interest.
The NRO account can be The NRE account can The NRNR account can be
Source of opened with money received be opened only with opened only with money
Money from India & as well as from $ money received from received from abroad and not
received from abroad. abroad and not from from local rupee sources.
local rupee sources.
When an Indian resident goes When Money is The government of India
abroad for job / employment received from outside demanded money from outside
Example his local account will India in this account of India and converted to Rupee
automatically be designated then the money will be with very high rate of interest
into a NRO A/C by bank. automatically on deposit of such foreign
converted in to Rupees currency.
for use.
Repatriation of money outside The funds held in the The balance in the account is
India is normally not allowed. account can be freely not Repatriable. Further as part
Repatriation repatriated outside of relaxation in convertibility of
India without limit and rupee, RBI now permitted to
without any approval allow repatriation of funds
from RBI. including interest amount, out
of this account.
Funds up to USD 1 million (or
equivalent) per financial year
Amount of for the education of your No Limit. USD 0.
Repatriation children, for medical expenses (Not allowed)
for your family and you, etc.
This account can be The joint account There is no restriction on having
Joint maintained jointly with holder should also be a joint NRNR account.
residents & NR. non-resident.
Interest earned on the Interest earned on the Interest earned on the account
Income Tax account is not free from account is free from is not free from income tax.
income tax. income tax.
Types of Savings Bank Account Savings Bank Account The account is a term deposit
account Fixed Deposit Fixed Deposit (fixed deposit) account
Current Account Current Account maintained in rupee.
Min Balance CA: Rs 10,000 CA: Rs 10,000
Required SA: Rs 5,000 SA: Rs 5,000 -
TD: Rs 10,000 TD: Rs 10,000
Whether Reserve Bank has withdrawn
Active or Active Active this scheme since April 1, 2002.
closed
Foreign Currency Accounts (++)

Head FCNR (B) RFC RFC (D) EEFC
Foreign Currency (Non Resident Foreign Resident Foreign Exchange Earners'
Long Forms –Resident) Accounts Currency A/C Currency Foreign Currency
(Domestic) Accounts
accounts
FCNR Accounts can be These are RFC (D) account These accounts can be
opened by receiving accounts of can be maintained by
Purpose the money from abroad resident maintained by residents who happen
in foreign currency or individuals, who any resident to receive money from
out of any money that had come back to individual even abroad in foreign
is permissible for India after being when he had not currency as in the case
remittance abroad. abroad as NRIs for been abroad at of RFC (D) account.
1.19
some time. any time They can be individuals
or corporate like
Exporters.
Receiving the money It is natural that It can be opened However, normally
from abroad in foreign when an NRI / PIO with gift given in EEFC accounts are
currency or out of any comes back to foreign exchange opened by exporters
Source of money that is India for by non-residents out of sale proceeds of
permissible for settlement he / NRIs when they exports. One important
Money
remittance abroad. may bring with visited India or difference of this
him the foreign sent from abroad account from RFC
exchange earned or from unspent account is that EEFC
by him while foreign exchange account can be opened
abroad. remaining after only out of foreign
tour. exchange earned.
They can be maintained Further only up to 50
in four important These accounts per cent of the money
Currency currencies, viz., US can be maintained These accounts received in foreign
Dollar, Pound Sterling, in any foreign can be currency will be
and Japanese Yen. currency of the maintained in allowed to be credited
Presently it can be choice of any foreign into the account and
maintained in the new depositors. currency of the not the full money.
European Currency Further, he/she choice of Reserve Bank varies
"Euro" also. should have come depositors. the percentage of
back to India after money that can be put
April 1992. into EEFC Accounts
depend-ing upon its
policy.
Income Tax Account is taxable Account is taxable Account is Account is taxable
taxable
FCNR Accounts are Exporters can maintain
Types of Term Deposit Accounts. It is type of It is type of this account only in the
account They can be maintained savings account. savings account. form of current
for period ranging from account without any
one year to 3 years. interest.
Min Balance As per directions of RBI. As per directions As per directions As per directions of
Required of RBI. of RBI. RBI.
Whether
Active or Active Active Active Active
closed
Transaction Permissible with approval of CG: [Rule 4 read with Schedule II]
(ICAI) (+)
-= BOMBERS =-
Current Account Transactions CG approval.
1. Why CG approval when the RBI is apex authority in FEMA?
Ans:
Approving Authority Transaction

1.20 Ministry of Human Resource Development Approval for Cultural Tours for any amount of
(Department of Education and Culture) expenditure.
Ministry of Finance Advertisement in foreign print media by State Government or its PSU Exceeding US$
(Department of 10,000. No restriction or approval required for:
Economic Affairs) i. promotion of tourism,
ii. foreign investment and
iii. international bidding
Ministry of a. Remittance of freight of any vessel chartered by PSU.

Surface Transport b. Payment for import through ocean transport by Government Dept/PSU on
(Chartering Wing) CIF basis.
Director General of a. Remittance for Multi model Transport operators making remittance to their agents
Shipping. abroad.
b. Remittance for container detention charges exceeding the rates prescribed by
Director General of Shipping
Ministry of Information & Broadcasting, Remittance of Hiring Charges of Transponders.

Ministry of Communication & Information a. TV Channels
Technology. b. Internet Service providers.
1.21
Ministry of Human Remittance of prize money or sponsorship of sports activity abroad exceeding US$
Resource 100,000.
Development No restriction and approval if payment is made by:
(Department of a. International sports bodies; or
Youth Affairs and b. National level sports bodies; or
Sports) c. State level sports bodies.
Ministry of Finance Remittance for
(Insurance Division) membership of P & I
club.
NOTE: the above transaction (Except last one) does not require the CG approval if the payment is made out of
the funds held in Resident Foreign Currency (RFC) Account of the remitter or funds are drawn out of funds held
in Exchange Earner’ Foreign Currency (EEFC) account of the remitter.
Transaction requiring the RBI’s approval: [Rule 5 Read with Schedule III]
(ICAI)
RBI Approval above Transaction category
1. Gift per Remitter per annum
US$ 5000 per FY 2. Donation per donor per annum
One or more private visits to any country.

US$ 10000 per FY
a. Business travel.
b. Attending a conference or specialised training.
US$ 25000 c. Maintenance expenses of patient going abroad for
medical treatment or check-up abroad.
d. Accompanying as attendant to a patient going
abroad for medical treatment or check-up.
Estimate from a:
a. A doctor in India. Medical Treatment abroad
b. Hospital or doctor
abroad.
Higher of. Commission per transaction, to agents

a. 5% of inward abroad for sale of the residential flats /
1.22
remittance; or commercial plots in India.
b. b. US$ 25,000
US$ 100,000 per year per a. Maintenance expenses of close relative abroad in any other case.
recipient. b. Person going abroad for employment.
Higher of –
a. US$ 100,000 per academic year Studies abroad
b. Estimates from institutions abroad.
Maintenance expenses of close relatives abroad, If the person is resident and not
Net salary after deduction permanently resident in India.
of Tax, Pf and other a. The person is citizen of foreign country other than Pakistan.
deductions. b. The person is citizen of India on deputation to office of branch or subsidiary or
JV in India of such foreign company.
Higher of – Remittance by an entity in India by way of reimbursement of pre-

a. 5% of investment brought in India or incorporation expenses.
b. US$ 100,000
US$ 100,000 or amount prescribed by For

country of emigration. emigration.
1.23
US$ 1,000,000 Remittance for consultancy services produced from

per project outside India.
Remittance for consultancy service produced from

outside India in respect of Infrastructure projects.
US$ 10,000,000 Infrastructure projects means:
per project. 1. Power 5. Industrial park
2. Telecommunication 6. Sea port and airport
3. Railways 7. Water supply,
4. Roads and bridges sanitation & sewage.
Lower of – Donations by corporate for -

a. 1% of the foreign a. Creation of Chairs in reputed educational institutions;
Exchange earnings b. To funds (not being investment fund) promoted by educational institutes; and
during the previous 3 c. Technical institution or body or association in the field of activity of the donor
financial years of the employment.
corporate.
b. US$ 5,000,000
Liberalised Remittance Scheme (ICAI)

Applicability: Only Resident Individual can avail the facility. The facility is not available for Corporates,
partnerships firms, HUF, Trust, etc.
Facility: Facility is for making the remittance up-to US$ 250,000 per FY without any approval of RBI for:
1. Current Account transaction (CUT).
2. Capital Account Transaction (CAT).
3. Combination of both.
Non Applicability: In short the facility is not available for prohibited transactions and transaction requiring the
approval of the CG.
Remittances made ‘Non-cooperative countries and territories’ by Financial Action Task Force (FATF) viz. Cook
Islands, Egypt, Guatemala, Indonesia, Myanmar, Neuru, Nigeria, Philippines and Ukraine.
Transactions for Individual Requiring RBI Approval

Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000
1.24
only.
1. Private visits to any country
2. Gift or donation.
3. Going abroad for employment
4. Emigration
5. Maintenance of close relatives abroad
6. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting
medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for
medical treatment/ check-up.
7. Expenses in connection with medical treatment abroad
8. Studies abroad
9. Any other current account transaction
Further, that for a person who is resident but not permanently resident in India and-
a) is a citizen of a foreign State other than Pakistan; or
b) is a citizen of India, who is on deputation to the office or branch of a foreign company or
subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after
deduction of taxes, contribution to provident fund and other deductions).
For the purpose of this item, a person resident in India on account of his employment or deputation of a specified
duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed
three years, is a resident but not permanently resident:
Actual Text from the LSR Master Direction as per RBI

A. Liberalised Remittance Scheme (LRS) of USD 2,50,000 for resident individuals
1. Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident
individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account
transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF,
Trusts, etc.
2. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
During the period from February 4, 2004 till date, the LRS limit has been revised as under:
3. The Scheme is available to all resident individuals including minors. In case of remitter being a minor, 4the
Form A2 must be countersigned by the minor’s natural guardian.
4. All other transactions which are otherwise not permissible under FEMA and those in the nature
of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not
allowed under the Scheme.
5. The permissible capital account transactions by an individual under LRS are:
a) opening of foreign currency account abroad with a bank;
b) purchase of property abroad;
c) making investments abroad- acquisition and holding shares of both listed and unlisted
overseas company or debt instruments; acquisition of qualification shares of an overseas
company for holding the post of Director; acquisition of shares of a foreign company towards
professional services rendered or in lieu of Director’s remuneration; investment in units of
Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;
d) setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013)
outside India for bonafide business subject to the terms & conditions stipulated in 1.25
Notification No FEMA.263/ RB-2013 dated March 5, 2013;
e) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are
relatives as defined in Companies Act, 1956.
Chart for Understanding
-= BOMBERS =-
Liberalised Remittance Scheme.
1. State the example of LRS for individual limit and LRS limit to be used together?
Ans:
Sr No 1 2 3 4 Total Approval? For ? Reason ?
1 Gift Education Property Donation
$45,000 $1,30,000 $60,000 $10,000
2 Gift Education Property Donation
$45,000 $1,30,000 $60,000 $40,000
3 Gift Education Property Employment
$45,000 $1,30,000 $60,000 $80,000
4 Gift Education Property Employment
$45,000 $1,30,000 $60,000 $1,20,000
5 Gift Education Property Investment
$45,000 $1,30,000 $60,000 $10,000
6 Gift Education Property Investment
$45,000 $1,30,000 $60,000 $30,000
7
Sec 2(e) & Sec 6: Capital Account Transactions (CAT) (ICAI)(+)

"Capital account transaction" means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of person resident in India or assets or liabilities in India of person’s
resident outside India, and includes transactions referred to in sub-section (3) of section 6.
FEMA
Alteration of Assets Alteration of Assets Transactions in 5 transaction

or Liabilities of PRI or Liabilities of PROI section 6(3). prohibited for PROI
situated outside situated in India.
India. © CA Darshan D. Khare
Charts for understanding

1.26
Purchase of
CAT?
Loan from
CAT?
Purchase of
CAT?
Loan from
CAT?
Transaction specified under 6(3)

Type of transactions (ICAI) Anlysis of Transaction (++)
Security
Security
Foreign Security
1) Transfer or issue of any foreign security by a PRI PRI
Transfer / Issue
person resident in India;
Foreign Security
PRI Any Person Foreign Security
Transfer / Issue PRI PROI
Transfer / Issue
Any Person = PRI / PROI
Indian Security
Security PROI PRI
Transfer / Issue 1.27
2) Transfer or issue of any security by a person
resident outside India;
Indian Security
PROI PROI
Any Security
PROI Any Person Transfer / Issue
Transfer / Issue
Foreign Security
PROI PRI
Any Security = Indian / Foreign Security. Transfer / Issue

Foreign Security
PROI PROI
Transfer / Issue
-= BOMBERS =-
Security Indian Security

3) Transfer or issue of any security or foreign PRI PRI
Transfer / Issue
security by any branch, office or agency in India
of a person resident outside India;
PROI's Indian Security
Any Security
Any Person PRI PROI
B/O/A Transfer / Issue
Transfer / Issue
In India
Foreign Security
Any Security = Indian / Foreign Security. PRI PRI
Any Person = PRI / PROI Transfer / Issue
B/O/A = Branch / Office / Agency

PROI's PRI Foreign Security
B/O/A = PRI PROI
Transfer / Issue
In India
Borrowing / Lending
Borrowing / Lending Foreign Currency
PRI PRI
1) Any borrowing or lending in foreign exchange
in whatever form or by whatever name called;
Foreign Currency
Foreign Currency
PRI PROI
Any Person Any Person
Foreign Currency
Any Person = PRI / PROI PROI PROI
-= BOMBERS =-
Borrowing / Lending
2) any borrowing or lending in rupees in whatever form or by whatever name called between a person
1.28
resident in India and a person resident outside India;
Indian Currency
PRI PROI
Deposit
Deposit Indian Currency
1) deposits between persons resident in India PRI PROI
(PRI)and persons resident outside India(PROI).
Foreign Currency
Any Currency PRI PROI
PRI PROI
Currency
Currency
export, import or holding of currency or currency notes;
Immovable Property
Immovable Property
1) transfer of immovable property outside India, Foreign Property
PRI PRI
other than a lease not exceeding five years, by a
person resident in India;
Foreign Property Foreign Property

PRI Any Person PRI PROI
Immovable Property
2) acquisition or transfer of immovable property Indian Property
PROI PRI
in India, other than a lease not exceeding five
years, by a person resident outside India;
Indian Property
PROI Any Person PROI
Indian Property
PROI
Guarantee / Surety
Guarantee / Surety
1) giving of a guarantee or surety in respect of PRI Loan
PROI
Debtor Creditor
any debt, obligation or other liability incurred—
by a person resident in India (PRI) and owed to a PRI or
person resident outside India(PROI) PROI
1.29
Guarantee / Surety Loan

1) giving of a guarantee or surety in respect of PROI Any Person
any debt, obligation or other liability incurred— PRI or
by a person resident outside India(PROI). PROI
Regulation on CAT (ICAI)

The RBI has framed Foreign Exchange Management (Permissible Capital Account Transaction) Rules, 2000. The
regulation has following three parts.
(a) transaction, which are permissible in respect of persons resident in India and outside India.
(b) transaction on which restrictions cannot be imposed; and
(c) transactions, which are prohibited.
Schedule I: Permissible CAT to PRI

Permissible after the regulations specified by RBI are complied.
1. Investment by a person resident in India in foreign securities.
2. Foreign currency loans raised in India and abroad by a person resident in India.
3. Transfer of immovable property outside India by a person resident in India.
4. Guarantees issued by a person resident in India in favour of a person resident outside India.
5. Export, import and holding of currency/currency notes.
6. Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India.
7. Maintenance of foreign currency accounts in India and outside India by a person resident in India.
8. Taking out of insurance policy by a person resident in India from an insurance company outside India.
9. Loans and overdrafts by a person resident in India to a person resident outside India.
10. Remittance outside India of capital assets of a person resident in India.
11. Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad
by a person resident in India.
Schedule II: Permissible CAT to PROI

1.30 Permissible after the regulations specified by RBI are complied.
1. Investment in India by a person resident outside India, that is to say,
i. issue of security by a body corporate or an entity in India and investment there in by a person resident
outside India; and
ii. Investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of persons in India.
2. Acquisition and transfer of immovable property in India by a person resident outside India.
3. Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India.
4. Import and export of currency/currency notes into/from India by a person resident outside India.
5. Deposits between a person resident in India and a person resident outside India.
6. Foreign currency accounts in India of a person resident outside India.
7. Remittance outside India of capital assets in India of a person resident outside India.
CAT on which restrictions cannot be imposed

They are:
(1) For amortisation of loan and
(2) For depreciation of direct investments in ordinary course of business.
Also, restrictions cannot be imposed when drawing is of the purpose of repayments of loan instalments.
Prohibited CAT (ICAI) (++)

The person resident outside India is prohibited from making investments in India in any form, in any company, or
partnership firm or proprietary concern or any entity whether incorporated or not which is engaged or proposes
to engage:
a) In the business of chit fund; [Registrar of Chits or an officer authorised by the state government in this behalf,
may, in consultation with the State Government concerned, permit any chit fund to accept subscription from
Non-resident Indians. Non- resident Indians shall be eligible to subscribe, through banking channel and on
non- repatriation basis, to such chit funds, without limit subject to the conditions stipulated by the Reserve
Bank of India from time to time]
b) As Nidhi company;
c) In agricultural or plantation activities;
d) In real estate business, or construction of farm houses
e) In trading in Transferable Development Rights (TDRs)
Explanation: In “real estate business” the term shall not include shall not include development of townships,
construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs)
registered and regulated under the SEBI (REITs) Regulations 2014.
-= BOMBERS =-
Current Account Transactions CG approval.
1. What is REITS & TDR?
Ans:
Real Estate Investment Trust (++)

1.31
In In
1. The law providing for REITS was enacted by the U.S. Congress in 1960.
2. The law was intended to provide a real estate investment structure similar to the structure mutual
funds provide for investment in stocks.
3. REITs are strong income vehicles because, to avoid incurring liability for U.S. Federal income tax, REITs
generally must pay out an amount equal to at least 90 percent of their taxable income in the form
of dividends to shareholders.
4. As of August 2014, India approved creation of real estate investment trusts in the country.
5. Indian REITs (country specific/generic version I-REITs) will help individual investors enjoy the benefits of
owning an interest in the securitised real estate market. The greatest benefit will be that of fast and easy
liquidation of investments in the real estate market unlike the traditional way of disposing of real estate.
Acquisition & Transfer of Immovable Property (ICAI) (+)

Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018
As per the Notification dated 26th of March, 2018, the Reserve Bank of India makes the Foreign Exchange
Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 with the enforcement
from the date of their publication in the Official Gazette i.e., 26th of March, 2018.
2. Relevant Definitions: In these Regulations, unless the context otherwise requires- ‘Non-Resident Indian
(NRI)’ means a person resident outside India who is a citizen of India;
3. ‘Overseas Citizen of India (OCI)’ means a person resident outside India who is registered as an Overseas
Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955;
4. 'Repatriation outside India' means the buying or drawing of foreign exchange from an authorised dealer in
India and remitting it outside India through banking channels or crediting it to an account denominated in
foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can
be converted in foreign currency;
Acquisition & Transfer of Immovable Property in India (ICAI) (+)

Acquisition and Transfer of Property in India by a Non-Resident Indian or an Overseas
Citizen of India
An NRI or an OCI may—
(a) acquire immovable property in India other than an agricultural property, plantation, or a farm house:
Provided that in case of acquisition of immovable property, payment of purchase price, if any, shall be made
out of
(i) funds received in India through normal banking channels by way of inward remittance from any place
outside India or
(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and
the regulations made by the Reserve Bank.
Provided further that no payment of purchase price for acquisition of immovable property shall be made
either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically
permitted by this clause.
(b) acquire any immovable property in India other than agricultural land/ farm house/ plantation property by
way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as
1.32
defined in section 2(77) of the Companies Act, 2013;
(c) acquire any immovable property in India by way of inheritance from a person resident outside India who
had acquired such property
(a) in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him
or the provisions of these Regulations or
(b) from a person resident in India
(d) transfer any immovable property in India to a person resident in India
(e) transfer any immovable property other than agricultural or plantation property or farm house
an NRI or an OCI
Acquisition of Immovable Property for carrying on a permitted activity

A person resident outside India who has established in India in accordance with the Foreign Exchange
Management (Establishment in India of a branch office or a liaison office or a project office or any other place
of business) Regulations, 2016, as amended from time to time, a branch, office or other place of business for
carrying on in India any activity, excluding a liaison office, may
(a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity;
i. all applicable laws, rules, regulations or directions for the time being in force are duly complied with; and
ii. the person files with the Reserve Bank a declaration in the form IPI as prescribed by Reserve Bank from
time to time, not later than ninety days from the date of such acquisition.
(b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property
acquired in pursuance of clause (a).
Provided no person of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong or
Macau or Nepal or Bhutan or Democratic People’s Republic of Korea (DPRK) shall acquire immovable property,
other than on lease not exceeding five years, without prior approval of the Reserve Bank.
Purchase/ sale of Immovable Property by Foreign Embassies/ Diplomats/ Consulate

Generals
A Foreign Embassy/ Diplomat/ Consulate General may purchase/ sell immovable property in India other than
agricultural land/ plantation property/ farm house provided
(i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase/ sale, and
(ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad
through banking channels.
Joint acquisition by the spouse of an NRI or an OCI:

A person resident outside India, not being a Non-Resident Indian or an Overseas Citizen of India, who is a spouse
of a Non-Resident Indian or an Overseas Citizen of India may acquire one immovable property (other than
agricultural land/ farm house/ plantation property), jointly with his/ her NRI/ OCI spouse.
Provided that
(i) The consideration for transfer, shall be made out of (i) funds received in India through banking channels by
way of inward remittance from any place outside India or (ii) funds held in any non-resident account
maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank;
(ii) No payment for any transfer of immovable property shall be made either by traveler’s cheque or by foreign
currency notes or by any other mode other than those specifically permitted under this clause;
(iii) Provided that the marriage has been registered and subsisted for a continuous period of not less than two
years immediately preceding the acquisition of such property.
(iv) Provided further that the non-resident spouse is not otherwise prohibited from such acquisition
Acquisition by a Long-Term Visa holder

A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those 1.33
countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and Christians who is residing in India and has been
granted a Long Term Visa (LTV) by the Central Government may purchase only one residential immovable property
in India as dwelling unit for self-occupation and only one immovable property for carrying out self-employment
subject to the following conditions:
(a) the property should not be located in and around restricted/ protected areas so notified by the Central
Government and cantonment areas;
(b) the person submits a declaration to the Revenue Authority of the district where the property is located,
specifying the source of funds and that he/ she is residing in India on LTV;
(c) the registration documents of the property should mention the nationality and the fact that such person is
on LTV;
(d) the property of such person may be attached/ confiscated in the event of his/ her indulgence in anti-India
activities;
(e) a copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of Police
(DCP)/ Foreigners Registration Office (FRO)/ Foreigners Regional Registration Office (FRRO) concerned and
to the Ministry of Home Affairs (Foreigners Division);
(f) such person shall be eligible to sell the property only after acquiring Indian citizenship. However, transfer of
the property before acquiring Indian citizenship shall require prior approval of DCP/FRO/FRRO concerned.
Repatriation of sale proceeds.

A person referred to in sub-section (5) of section 6 of the Act, or his successor shall not, except with the prior
permission of the Reserve Bank, repatriate outside India the sale proceeds of any immovable property referred
to in that sub-section.
In the event of sale of immovable property other than agricultural land/farm house/plantation property in India
by a person resident outside India who is a citizen of India or a person of Indian origin, the authorised dealer may
allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:
(i) the immovable property was acquired by the seller in accordance with the provisions of the foreign
exchange law in force at the time of acquisition by him or the provisions of these Regulations;
(ii) the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable
property in foreign exchange received through normal banking channels or out of funds held in Foreign
Currency Non-Resident Account, or (b) the foreign currency equivalent, as on the date of payment, of the
amount paid where such payment was made from the funds held is Non-Resident External account for
acquisition of the property; and
(iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such
properties.
In the event of failure in repayment of external commercial borrowing availed by a person resident in India under
the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000 (Notification No. FEMA 3/2000-RB, dated 3-5-2000) a bank which is an authorised dealer may permit the
overseas lender or the security trustee (in whose favour the charge on immovable property has been created to
secure the ECB) to sell the immovable property on which the said loan has been secured only to a (by the) person
resident in India and to repatriate the sale proceeds towards outstanding dues in respect of the said loan and not
any other loan.
Prohibition on acquisition or transfer of immovable property in India by citizens

of certain countries
No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong
or Macau or Democratic People’s Republic of Korea (DPRK) without prior permission of the Reserve Bank shall
acquire or transfer immovable property in India, other than lease, not exceeding five years.
Provided this prohibition shall not apply to an OCI.
Explanation: For the purpose of this regulation the term “citizen” shall include natural persons and legal entities.
Prohibition on transfer of immovable property in India

1.34 Save as otherwise provided in the Act or Regulations, no person resident outside India shall transfer any
immovable property in India:
Provided that
(i) The Reserve Bank may, for sufficient reasons, permit the transfer, subject to such conditions as may be
considered necessary.
(ii) A bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this
behalf, permit a person resident in India or on behalf of such person to create charge on his immovable
property in India in favour an overseas lender or security trustee, to secure an external commercial
borrowing availed under the provisions of the Foreign Exchange Management (Borrowing or Lending in
Foreign Exchange) Regulations, 2000, as amended from time to time.
(iii) An Authorized Dealer in India being the Indian correspondent of an overseas lender may, subject
to the directions issued by the Reserve Bank in this regard, create a mortgage on an immovable property
in India owned by an NRI or an OCI, being a director of a company outside India, for a loan to be availed
by the company from the said overseas lender. Provided
a) the funds shall be used by the borrowing company only for its core business purposes overseas;
b) in case of invocation of charge, the Indian bank shall sell the immovable property to an eligible
acquirer and remit the sale proceeds to the overseas lender.
(iv) A person resident outside India who has acquired any immovable property in India in accordance
with foreign exchange laws in force at the time of such acquisition or with the general or specific
permission of the Reserve Bank may transfer such property to a person resident in India provided the
transaction takes place through banking channels in India and provided that the resident is not otherwise
prohibited from such acquisition.
Miscellaneous:
Any transaction involving acquisition or transfer of immovable property under these regulations shall be
undertaken:
(a) through banking channels in India;
(b) subject to payment of applicable taxes and other duties/ levies in India.
Saving:
Any existing holding of immovable property in India by a person resident outside India made in accordance with
the policy in existence at the time of such acquisition would not require any modifications to confirm to these
regulations
Export of goods and services (Section 7)
(1) Every exporter of goods shall- (a) furnish to the Reserve Bank or to such other authority a declaration in such
form and in such manner as may be specified, containing true and correct material particulars, including the
amount representing the full export value or, if the full export value of the goods is not ascertainable at the time
of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on
the sale of
Sec 2(l),(zb) & 7: Export of goods and services (ICAI) (+)

Question
PM,M03: Mr. Ramesh is an exporter of goods and services. Explain briefly his duties under Foreign Exchange
Management Act, 1999 with regard to the following:
(i) Furnishing of information relating to such exports.
Provisions
Sec 2(l): “Export”, with its grammatical variations and cognate expressions means;
(i) the taking out of India to a place outside India any goods.
(ii) provision of services from India to any person outside India;
Sec 2(zb): “Service” means service of any description which is made available to potential users and includes
the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, 1.35
chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both,
entertainment, amusement or the purveying of news or other information, but does not include the rendering of
any service free of charge or under a contract of personal service;
Approval of RBI & Procedure
1. Every exporter of goods shall

(a) furnish to the Reserve Bank a declaration in such form and in such manner as may be specified, containing
true and correct material particulars, including the amount representing the full export value or, if the
full export value of the goods is not ascertainable at the time of export, the value which the exporter,
having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market
outside India;
(b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the
purpose of ensuring the realization of the export proceeds by such exporter.
2. The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced
value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is
received without any delay, direct any exporter to comply with such requirements as it deems fit.
3. Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in
such form and in such manner as may be specified, containing the true and correct material particulars in
relation to payment for such services.
Declaration of exports
(1) In case of exports taking place through Customs manual ports, every exporter of goods or software in physical
form or through any other form, either directly or indirectly, to any place outside India, other than Nepal and
Bhutan, shall furnish to the specified authority, a declaration in one of the forms set out in the Schedule and
supported by such evidence as may be specified, containing true and correct material particulars including
the amount representing –
(ii) the full export value of the goods or software; or
(iii) if the full export value is not ascertainable at the time of export, the value which the exporter, having
regard to the prevailing market conditions expects to receive on the sale of the goods or the software in
1.36 overseas market, and affirms in the said declaration that the full export value of goods (whether
ascertainable at the time of export or not) or the software has been or will within the specified period
be, paid in the specified manner.
(1) Declarations shall be executed in sets of such number as specified.
(2) For the removal of doubt, it is clarified that, in respect of export of services to which none of the Forms
specified in these Regulations apply, the exporter may export such services without furnishing any declaration,
but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of
such export, and to repatriate the same to India in accordance with the provisions of the Act, and these
Regulations, as also other rules and regulations made under the Act.
(3) Realization of export proceeds in respect of export of goods / software from third party should be duly
declared by the exporter in the appropriate declaration form.
Exemptions from Declaration

(a) trade samples of goods and publicity material supplied free of payment;
(b) personal effects of travellers, whether accompanied or unaccompanied;
(c) ship’s stores, trans-shipment cargo and goods supplied under the orders of Central Government or of such
officers as may be appointed by the Central Government in this behalf or of the military, naval or air force
authorities in India for military, naval or air force requirements;
(d) goods or software accompanied by a declaration by the exporter that they are not more than twenty-five
thousand USD in value;
(e) by way of gift of goods accompanied by a declaration by the exporter that they are not more than five lakh
rupees in value;
(f) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their re-import
into India after overhauling/repairs, within a period of six months from the date of their export;
(g) goods imported free of cost on re-export basis;
(h) goods not exceeding U.S. $ 1000 or its equivalent in value per transaction exported to Myanmar under the
Barter Trade Agreement between the Central Government and the Government of Myanmar;
(i) the following goods which are permitted by the Development Commissioner of the Export Processing Zones
Electronic Hardware Technology Parks, Electronic Software Technology Parks] or Free Trade Zones to be re-
exported, namely:
(1) imported goods found defective, for the purpose of their replacement by the foreign
suppliers/collaborators;
(2) goods imported from foreign suppliers/collaborators on loan basis;
(3) goods imported from foreign suppliers/collaborators free of cost, found surplus after production
operations;
(j) goods listed at items (1), (2) and (3) of clause (i) to be re-exported by units in Special Economic Zones, under
intimation to the Development Commissioner of Special Economic Zones/ concerned Assistant Commissioner
or Deputy Commissioner of Customs;
(k) replacement goods exported free of charge in accordance with the provisions of Exim Policy in force, for the
time being;
(l) goods sent outside India for testing subject to re-import into India;
(m) defective goods sent outside India for repair and re-import provided the goods are accompanied by a
certificate from an authorised dealer in India that the export is for repair and re-import and that the export
does not involve any transaction in foreign exchange;
(n) exports permitted by the Reserve Bank, on application made to it, subject to the terms and conditions, if any,
as stipulated in the permission.
Indication of importer-exporter code number

The importer-exporter code number allotted by the Director General of Foreign Trade under Section 7 of the
Foreign Trade (Development & Regulation) Act, 1992 shall be indicated on all copies of the declaration forms
submitted by the exporter to the specified authority and in all correspondence of the exporter with the authorised
dealer or the Reserve Bank, as the case may be.
Authority to whom declaration is to be furnished and the manner of dealing with the
declaration 1.37
A. Declaration in Form EDF

(i) The declaration in form EDF shall be submitted in duplicate to the Commissioner of Customs.
(ii) After duly verifying and authenticating the declaration form, the Commissioner of Customs shall
forward the original declaration form/data to the nearest office of the Reserve Bank and hand over the
duplicate form to the exporter for being submitted to the authorised dealer.
B. Declaration in Form SOFTEX

(i) The declaration in Form SOFTEX in respect of export of computer software and audio/video/ television
software shall be submitted in triplicate to the designated official of Ministry of Information Technology,
Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs)
or Special Economic Zones (SEZs) in India.
(ii) After certifying all three copies of the SOFTEX form, the said designated official shall forward the original
directly to the nearest office of the Reserve Bank and return the duplicate to the exporter. The triplicate
shall be retained by the designated official for record.
C. Duplicate Declaration Forms to be retained with Authorised Dealers

On the realisation of the export proceeds, the duplicate copies of export declaration forms viz. EDF and SOFTEX
and Exchange Control copies of the shipping bills shall be retained by the Authorised Dealers.
Evidence in support of declaration

The Commissioner of Customs or the postal authority or the official of Department of Electronics, to whom the
declaration form is submitted, may, in order to satisfy themselves of due compliance with Section 7 of the Act and
these regulations, require such evidence in support of the declaration as may establish that –
(a) the exporter is a person resident in India and has a place of business in India;
(b) the destination stated on the declaration is the final place of the destination of the goods exported;
(c) the value stated in the declaration represents –
(i) the full export value of the goods or software; or
(ii) where the full export value of the goods or software is not ascertainable at the time of export, the value
which the exporter, having regard to the prevailing market conditions expects to receive on the sale of
the goods in the overseas market.
Explanation—For the purpose of this regulation, 'final place of destination' means a place in a country in which
the goods are ultimately imported and cleared through Customs of that country.
Manner of payment of export value of goods
Unless otherwise authorised by the Reserve Bank, the amount representing the full export value of the goods
exported shall be paid through an authorised dealer in the manner specified in the Foreign Exchange
1.38 Management (Manner of Receipt and Payment) Regulations, 2000 as amended from time to time.
Explanation—For the purpose of this regulation, reimport into India, within the period specified for realization of
the export value, of the exported goods in respect of which a declaration was made under Regulation 3, shall be
deemed to be realization of full export value of such goods.
Period within which export value of goods/software/ services to be realised
(1) The amount representing the full export value of goods / software/ services exported shall be realised and
repatriated to India within nine months from the date of export, provided
(a) that where the goods are exported to a warehouse established outside India with the permission of the
Reserve Bank, the amount representing the full export value of goods exported shall be paid to the
authorised dealer as soon as it is realised and in any case within fifteen months from the date of shipment
of goods;
(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised
dealer may, for a sufficient and reasonable cause shown, extend the period of nine months or fifteen
months, as the case may be.
(2) The points are as follows:
(a) Where the export of goods / software / services has been made by Units in Special Economic Zones
(SEZ) / Status Holder exporter / Export Oriented Units (EOUs) and units in Electronics Hardware
Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) as
defined in the Foreign Trade Policy in force, then notwithstanding anything contained in sub regulation
(1), the amount representing the full export value of goods or software shall be realised and repatriated
to India within nine months from the date of export.
Provided further that the Reserve Bank, or subject to the directions issued by the Bank in this behalf, the
authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months.
(b) The Reserve Bank may for reasonable and sufficient cause direct that the said exporter/s shall cease to be
governed by sub-regulation (2); Provided that no such direction shall be given unless the unit has been
given a reasonable opportunity to make a representation in the matter.
(c) On such direction, the said exporter/s shall be governed by the provisions of sub regulation (1), until
directed otherwise by the Reserve Bank.'
Explanation—For the purpose of this regulation, the “date of export” in relation to the export of software in other
than physical form, shall be deemed to be the date of invoice covering such export.
Submission of export documents
The documents pertaining to export shall be submitted to the authorised dealer mentioned in the relevant export
declaration form, within 21 days from the date of export, or from the date of certification of the SOFTEX form:
Provided that, subject to the directions issued by the Reserve Bank from time to time, the authorized dealer may 1.39
accept the documents pertaining to export submitted after the expiry of the specified period of 21 days, for
reasons beyond the control of the exporter.
Payment for the Export

In respect of export of any goods or software for which a declaration is required to be furnished under Regulation
3, no person shall except with the permission of the Reserve Bank or, subject to the directions of the Reserve
Bank, permission of an authorised dealer, do or refrain from doing anything or take or refrain from taking any
action which has the effect of securing –
(i) that the payment for the goods or software is made otherwise than in the specified manner; or
(ii) that the payment is delayed beyond the period specified under these Regulations; or
(iii) that the proceeds of sale of the goods or software exported do not represent the full export value of the goods
or software subject to such deductions, if any, as may be allowed by the Reserve Bank or, subject to the
directions of the Reserve Bank, by an authorised dealer;
Provided that no proceedings in respect of contravention of these provisions shall be instituted unless the
specified period has expired and payment for the goods or software representing the full export value, or the
value after deductions allowed under clause (iii), has not been made in the specified manner within the
specified period.
(iv) Export of services to which no Form specified in these Regulations apply, the exporter may export such
services without furnishing any declaration, (i), (ii) & (iii) above shall apply.
Certain Exports requiring prior approval

Exports under trade agreement/rupee credit etc.
(i) Export of goods under special arrangement between the Central Government and Government of a foreign
state, or under rupee credits extended by the Central Government to Govt. of a foreign state shall be governed
by the terms and conditions set out in the relative public notices issued by the Trade Control Authority in India
and the instructions issued from time to time by the Reserve Bank.
(ii) An export under the line of credit extended to a bank or a financial institution operating in a foreign state by
the Exim Bank for financing exports from India, shall be governed by the terms and conditions advised by the
Reserve Bank to the authorised dealers from time to time.
Delay in Receipt of Payment

Where in relation to goods or software export of which is required to be declared on the specified form and export
of services, in respect of which no declaration forms has been made applicable, the specified period has expired
and the payment therefor has not been made as aforesaid, the Reserve Bank may give to any person who has
sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such
directions as appear to it to be expedient, for the purpose of securing,
(a) the payment therefor if the goods or software has been sold and
(b) the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof into India
as the circumstances permit, within such period as the Reserve Bank may specify in this behalf;
Provided that omission of the Reserve Bank to give directions shall not have the effect of absolving the person
committing the contravention from the consequences thereof.
Advance payment against exports

(1) Where an exporter receives advance payment (with or without interest), from a buyer / third party named
in the export declaration made by the exporter, outside India, the exporter shall be under an obligation to
ensure that –
(i) the shipment of goods is made within one year from the date of receipt of advance payment;
(ii) the rate of interest, if any, payable on the advance payment does not exceed the rate of interest
London Inter-Bank Offered Rate (LIBOR) + 100 basis points and
(iii) the documents covering the shipment are routed through the authorised dealer through whom the
advance payment is received;
Provided that in the event of the exporter's inability to make the shipment, partly or fully, within one year
from the date of receipt of advance payment, no remittance towards refund of unutilized portion of advance
1.40 payment or towards payment of interest, shall be made after the expiry of the period of one year, without
the prior approval of the Reserve Bank.
(2) Notwithstanding anything contained in clause (i) of sub-regulation (1), an exporter may receive advance
payment where the export agreement itself duly provides for shipment of goods extending beyond the period
of one year from the date of receipt of advance payment.
Issue of directions by Reserve Bank in certain cases

(1) Without prejudice to the provisions of Regulation 3 in relation to the export of goods or software which is
required to be declared, the Reserve Bank may, for the purpose of ensuring that the full export value of the
goods or, as the case may be, the value which the exporter having regard to the prevailing market conditions
expects to receive on the sale of goods or software in the overseas market, is received in proper time and
without delay, by general or special order, direct from time to time that in respect of export of goods or
software to any destination or any class of export transactions or any class of goods or software or class of
exporters, the exporter shall, prior to the export, comply with the conditions as may be specified in the order,
namely;
(a) that the payment of the goods or software is covered by an irrevocable letter of credit or by such
other arrangement or document as may be indicated in the order;
(b) that any declaration to be furnished to the specified authority shall be submitted to the authorised
dealer for its prior approval, which may, having regard to the circumstances, be given or withheld or
may be given subject to such conditions as may be specified by the Reserve Bank by directions issued
from time to time.
(c) that a copy of the declaration to be furnished to the specified authority shall be submitted to such
authority or organisation as may be indicated in the order for certifying that the value of goods or
software specified in the declaration represents the proper value thereof.
(2) No direction under sub-regulation (1) shall be given by the Reserve Bank and no approval under clause (b) of
that sub-regulation shall be withheld by the Authorised Dealer, unless the exporter has been given a
reasonable opportunity to make a representation in the matter.
Project exports
(1) Where an export of goods or services is proposed to be made on deferred payment terms or in execution of
a turnkey project or a civil construction contract, the exporter shall, before entering into any such export
arrangement, submit the proposal for prior approval of the approving authority, which shall consider the
proposal in accordance with the guidelines issued by the Reserve Bank of India from time to time.
(2) In case a guarantee is required to be given prior to post award approval, the same may be issued by an
authorized dealer bank/ a person resident in India being an exporting company, for performance of a project
outside India, or for availing of credit facilities, whether fund-based or non-fund based, from a bank or a
financial institution outside India in connection with the execution of such project, provided that the contract
/ Letter of Award stipulates such requirements. Explanation: For the purpose of this Regulation, 'approving
authority' means the EXIM Bank of India or the authorised dealer
Sec 2(y) & 8: Realisation and repatriation of foreign exchange (ICAI) (+)
Question
PM: Mr. Ramesh is an exporter of goods and services. Explain briefly his duties under Foreign Exchange
Management Act, 1999 with regard to the following:
(ii) Realisation and repatriation of foreign exchange on such exports.
M12: BCD Exporters, New Delhi are engaged in export business and are required to realise and repatriate to
India the foreign exchange arising out of export of goods by them. Advise BCD Exporters about the various
exemptions from realizations and repatriation of foreign exchange as per Foreign Exchange Management Act
1999.
Provisions
Sec 2(y): “Repatriate to India” means bringing into India the realised foreign exchange and
(i) the selling of such foreign exchange to an authorised person in India in exchange for rupees, or
(ii) the holding of realised amount in an account with an authorised person in India to the extent notified by 1.41
the Reserve Bank.
(iii) It includes use of the realised amount for discharge of a debt or liability denominated in foreign exchange
and the expression “repatriation” shall be construed accordingly;
Provisions
Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to
any person resident in India, such person shall take all reasonable steps to realise and repatriate to India
such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.
Duty of persons to realise foreign exchange due

A person resident in India to whom any amount of foreign exchange is due or has accrued shall,
save as otherwise provided under the provisions of the Act, or the rules and regulations made
thereunder, or with the general or special permission of the Reserve Bank take all reasonable steps to
realise and repatriate to India such foreign exchange, and shall in no case do or refrain from doing
anything, or take or refrain taking any action, which has the effect of securing:
(a) that the receipt by him of the whole or part of that foreign exchange is delayed; or
(b) that the foreign exchange ceases in whole or in part to be receivable by him.
Manner of Repatriation
On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring into,
or receive in, India and—
(a) sell it to an authorised person in India in exchange for rupees; or
(b) retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve
Bank; or
(c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the
manner specified by the Reserve Bank
A person shall be deemed to have repatriated the realised foreign exchange to India when he receives
in India payment in rupees from the account of a bank or an exchange house situated in any country
outside India, maintained with an authorised dealer.

1.42
Repatriation means bring into, or receive in,
India and use in following manner
CASH DEPOSIT SET-Off

 Sell it to an authorised  Retain or hold it in account  use it for discharge of a debt or
person in India in with an authorised dealer in liability denominated in foreign
exchange for rupees; India to the extent specified exchange to the extent and in the
 Disclose the by the Reserve Bank; manner specified by the Reserve
transaction from  Disclose the transaction Bank;
which it is earned. from which it is earned  Disclose the transaction from where it
is earned & Expended.
Time Period for surrender of FE.
Within 7 Days Within 60

1. Remuneration Days
for services unused
rendered. portion of
2. settlement of foreign Within 90 days Within 180 days
any lawful exchange Any unspent balance on foreign Any unspent balance
obligation. from the date exchange acquired for the purpose on foreign exchange
3. income on assets of its of foreign travel, from the date of acquired for the
held outside acquisition or return of the travel to India if the purpose of foreign
India. purchase by unspent amount is in the form of travel, from the date
4. as inheritance, him. foreign currency notes and coins. of return of the travel
settlement or Or to India if the unspent
gift. In case of any other case of amount is in the form
receipt, from such date of receipt of traveller’s cheque.
Repatriation
Period for surrender of realised foreign exchange means bring
into,if or
A person shall sell the realised foreign exchange to an authorised person within 7 days receive
he has received
such exchange as due or accrued remuneration for services rendered, whether inin, or India
outsideand
India,
useor in
settlement of any lawful obligation or an income on assets held outside India,inorfollowingas inheritance,
settlement or gift and in all other cases within 90 days of its receipt.
manner
A person shall also surrender such unused portion of foreign exchange to an authorised person
within 60 days from the date of its acquisition or purchase by him. Also any unspent balance on foreign
exchange acquired for the purpose of foreign travel should be surrendered within 90 days from the date
of return of the travel to India if the unspent amount is in the form of foreign currency notes and coins
and within 180 days if it is in the form of travellers’ cheque. 1.43
Sec 9: Exemption from realisation and repatriation in certain cases (ICAI) (+)
The provisions of sections 4 and 8 shall not apply to the following, namely:
a. possession of foreign currency or foreign coins by any person.
b. foreign currency account held or operated by such person or
class of persons. Up to the
c. foreign exchange acquired from employment, business, trade, limit
vocation, services, honorarium, gifts, inheritance or any other specified
legitimate means. by RBI
d. such other receipts in foreign exchange as the Reserve
Bank may specify.
e. foreign exchange acquired or received before the 8th day

of July, 1947 or any income arising or accruing thereon which As per General
isheld outside India by any person. or special
permission
f. foreign exchange held by a person resident in India, if such granted by RBI
foreign exchange was acquired by way of gift or inheritance
from a person referred to in clause (e), including any income
arising there from;
Possession and Retention of Foreign Exchange

The Reserve Bank of India has specified the following persons with the limits for possession and retention
of foreign currency by a person resident in India:
 Authorised Persons in accordance with the limits advised by the Reserve Bank;
 Any person may possess foreign coins without no restriction;
 Any person resident in India is permitted to retain in aggregate foreign currency not exceeding
USD2,000 or its equivalent in the form of currency notes/bank notes or travellers cheques acquired
by him;
 A person resident in India but not permanently resident therein is permitted without limit, if the
foreign currency was acquired when he was resident outside India and was brought into India and
declared to the Customs Authorities.
Contravention & Penalties (ICAI) (+)

Sec No Contravention type Penalty
Authorised person contravenes any 
Upto Rs. 10,000.
Section 11 direction by RBI or failure to file any return 
If continuing offence additional penalty upto
as directed by RBI Rs. 2,000 per day.
Of any provision of the Act, or any rule,  Upto three times, the sum involved, if it is
Section 13 regulation, notification, direction or order quantifiable.
or of any condition subject to which an  If not quantifiable upto Rs.2 lacs.
authorisation issued.  If continuing, further penalty upto Rs. 5,000
per day after first day.
If any person is found to have acquired any Penalty
13(1A) & (1C) foreign exchange, foreign security or  3 times sum involved &
immovable property, situated outside
India, of the aggregate value exceeding  confiscation of the value equivalent,

the threshold prescribed under the situated in India, the Foreign exchange,
1.44
proviso to sub-section (1) of section 37A. foreign security or immovable property &
 jail upto 5 years
Failure to pay penalty as above Civil imprisonment.
 where demand is of an amount  Upto 3 years
Section 14 exceeding Rs. 1 crore.
 in any other case  Upto 6 months.
Sec 14 & 16: Procedure for Adjudication (ICAI)

Question
PM: Explain the meaning of the term “Adjudicating Authority” under the Foreign Exchange
Management Act, 1999, the powers available with the said authority to pass order imposing penalty
and enforce the same in relation to violation of any provision of FEMA by Mr. Dubious, a resident in
India.
Provisions
Adjudicating Authority:
1. The CG may, by an order published in the Official Gazette, appoint as many officers as the
Adjudicating Authorities for holding an inquiry against whom a complaint has been made under
sub-section (2). Reasonable opportunity of being heard shall be given for the purpose of imposing
any penalty.
Provided that where the Adjudicating Authority can demand the bond from the person on whom
the penalty has been imposed in case of uncertainty of payment.
2. The CG shall, while appointing the Adjudicating Authorities also specify respective jurisdiction in OZ.
3. AA shall hold an enquiry only upon a complaint in writing made by any officer authorised by a
general or special order by the CG.
4. The said person may appear either in person or take the assistance of a legal practitioner or a
chartered accountant of his choice for presenting his case before the Adjudicating Authority.
5. Every AA shall have the same powers of which are conferred on the Appellate Tribunal under sub-
section (2) of section 28 and—
a. all proceedings before it shall be deemed to be judicial proceedings.
b. shall be deemed to be a civil court.
6. Every AA shall dispose complaint within one year from the date of receipt of the complaint:
Provided that where the complaint cannot be disposed off within the said period, the Adjudicating
Authority shall record periodically the reasons in writing for not disposing off the complaint within the
said period.
7. If the penalty imposed by AA is not paid within 90 days or the default is made in payment the
accused shall be liable to civil imprisonment-
a. Up to 3 yrs if penalty exceeds Rs.1 crore;
b. Upto 6 months in any other case.
Sec 15: Compounding of Contravention (ICAI)

Meaning
Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and
seeking redressal.
Provisions
Compounding Authority: Persons authorized by Central Government under section 15 i.e. lasses of
officers of the Enforcement Directorate and classes of officers of the RBI can act as Compounding
Authority
1. Any contravention under section 13 may, on an application made by the person committing such
contravention, be compounded within 180 days from the date of receipt of application by the 1.45
Director of Enforcement or such other officers of the Directorate of Enforcement and officers of the
Reserve Bank as may be authorised in this behalf by the Central Government in such manner as may
be prescribed.
2. Where a contravention has been compounded under sub-section (1), no proceeding or further
proceeding, as the case may be, shall be initiated or continued, as the case may be, against the
person committing such contravention under that section, in respect of the contravention so
compounded.
Sec 17 & 19: Appeals (ICAI) (+)

Provisions
Appointment of SD:
1. The Central Government shall
2. by notification
3. appoint one or more Special Directors (Appeals)
4. and specify the jurisdiction
5. to hear appeals against the orders of the Adjudicating Authorities.
Appeal 45 days Appeals to SD:
1. against the order of AA.
2. Only if the AA is
a. assistant Director or
b. Deputy Director of enforcement.
3. Appeal shall be made in 45 days.
4. No time limit for disposal.
Appeal to AT:
1. Against the order of SD
2. Against the order of AA if AA is other than-
45 days a. assistant Director or
b. Deputy Director of enforcement.
3. The appeal shall be filed within 45 days.
4. Disposal of appeal within 180 days.
Penalty:
1. The penalty determined by AA or SD shall be deposited.
2. The AT has the discretion to dispense with the payment of the
penalty if AT is of the opinion that, accused shall cause undue
hardship is caused to the accused for deposit of such penalty.
Common Provision:
45 days
1. The opportunity of being heard shall be given to accused.
2. Accused can appoint CA, Lawyer for representing him.
Appeal to High court [Sec 35]:
1. Against order of AT
2. Only on question of law.
3. Within 60 days (delay can be condoned on sufficient cause.)
4. By CG, or accused.
5. Further no appeal can be made to SC in FEMA.
Time Limits (ICAI)

1.46
Section No Obligation Time limit
14 Full penalty to be paid Within 90 days from the date on which
notice for payment of penalty is served.
15 Compounding of Contravention under Within 180 days of receipt of application by
section 13 Directorate of Enforcement.
16 Complaint under section 16(1) to be Within 1 year of receipt of complaint.
dealt by Adjudicated Authority
17 Appeal to Special Director (Appeals) Within 45 days from receipt of order.
19 Appeal to Appellate Tribunal Within 45 days from receipt of order.
19(5) Appeal to be dealt with by Appellate Will try to dispose off the appeal within 180
Tribunal days from receipt of appeal.
35 Appeal to High Court Within 60 days of communication of order
or decision.
Sec 34: Jurisdiction of Civil Court (ICAI)

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which
an Adjudicating Authority or the Appellate Tribunal or the Special Director (Appeals) is empowered by
or under this Act to determine and no injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.
Sec 36-39: Directorate of Enforcement (ICAI)

Directorate of Enforcement (Sec 36)
1. The Central Government shall establish a Directorate of Enforcement with a Director and such other
officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the
purposes of this Act.
2. Without prejudice to provisions of sub-section (1), the Central Government may authorise the
Director of Enforcement or an Additional Director of Enforcement or a Special Director of
Enforcement or a Deputy Director of Enforcement to appoint officers of Enforcement below the
rank of an Assistant Director of Enforcement.
3. Subject to such conditions and limitations as the Central Government may impose, an officer of
Enforcement may exercise the powers and discharge the duties conferred or imposed on him under
this Act.
Power of search, seizure, etc. (Sec 37)
(1) The Director of Enforcement and other officers of Enforcement, not below the rank of an Assistant
Director, shall take up for investigation the contravention referred to in section 13.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may also, by
notification, authorise any officer or class of officers in the Central Government, State Government
or the Reserve Bank, not below the rank of an Under Secretary to the Government of India to
investigate any contravention referred to in section 13.
(3) The officers referred to in sub-section (1) shall exercise the like powers which are conferred on
income-tax authorities under the Income-tax Act, 1961 (43 of 1961) and shall exercise such powers,
subject to such limitations laid down under that Act.
Empowering other officers (Section 38)
(1) The Central Government may, by order and subject to such conditions and limitations as it thinks fit
to impose, authorise any officer of customs or any central excise officer or any police officer or any
other officer of the Central Government or a State Government to exercise such of the powers and
discharge such of the duties of the Director of Enforcement or any other officer of Enforcement
under this Act as may be stated in the order. 1.47
(2) The officers referred to in sub-section (1) shall exercise the like powers which are conferred on the
income-tax authorities under the Income-tax Act, 1961 subject to such conditions and limitations as
the Central Government may impose.
Sec 40: Suspension of operation of this Act (ICAI)

(1) If the Central Government is satisfied that circumstances have arisen rendering it necessary that any
permission granted or restriction imposed by this Act should cease to be granted or imposed, or if it considers
necessary or expending so to do in public interest, the Central Government may, by notification, suspend or
relax to such extent either indefinitely or for such period as may be notified, the operation of all or any of the
provisions of this Act.
(2) Where the operation of any provision of this Act has under sub-section (1) been suspended or relaxed
indefinitely, such suspension or relaxation may, at any time while this Act remains in force, be removed by
the Central Government by notification.
(3) Every notification issued under this section shall be laid, as soon as may be after it issued, before each
House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one
session or in two or more successive sessions, and if, before the expiry of the session immediately following
the session or the successive sessions aforesaid, both Houses agree in making any modification in the
notification or both Houses agree that the notification should not be issued, the notification shall thereafter
have effect only in such modified form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously done under that
notification.
Sec 42: Contravention By Companies (ICAI)

1) Where a person committing a contravention of any of the provisions of this Act or of any rule,
direction or order made thereunder is a company, every person who, at the time the contravention
was committed, was in charge of, and was responsible to, the company for the conduct of the
business of the company as well as the company, shall be deemed to be guilty of the contravention
and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to
punishment if he proves that the contravention took place without his knowledge or that he
exercised due diligence to prevent such contravention.
2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the
provisions of this Act or of any rule, direction or order made thereunder has been committed by a
company and it is proved that the contravention has taken place with the consent or connivance of,
or is attributable to any neglect on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer shall also be deemed to be guilty of
the contravention and shall be liable to be proceeded against and punished accordingly.
Explanation.— For the purposes of this section—
(i) "company" means any body-corporate and includes a firm or other association of individuals;
and
(ii) "director", in relation to a firm, means a partner in the firm.
Sec 43: Death or insolvency in certain cases (ICAI)

Any right, obligation, liability, proceedings or appeal arising in relation to the provision of section 13 shall
not abate by reason of death or insolvency of the person liable under that section and upon such death
or insolvency such rights and obligations shall devolve on the legal representative of such person or the
official receiver or the official assignee, as the case may be:
Provided that a legal representative of the deceased shall be liable only to the extent of the inheritance
or estate of the deceased.
1.48
Sec 44: Bar Legal proceedings (ICAI)

No suit, prosecution or other legal proceeding shall lie against the Central Government or the Reserve
Bank or any officer of that Government or of the Reserve Bank or other person exercising any power or
discharging any functions or performing any duties under this Act, for anything in good faith done or
intended to be done under this Act or any rule, regulation, notification, direction or order made
thereunder.

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1 Fema, 1999

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Chapter 1 FEMA, 1999

Concept of FEMA (++)

1947 1991 fallen to $ 1.1bn

Need for the Act (ICAI)

The difference between FERA and FEMA are as follows (+++)

Structure of FEMA, 1999

Sec 1: Preamble, Extent, Application And Commencement Of FEMA, 1999 (ICAI)(+)

c) Export and Import of currency to or from Nepal and Bhutan

Sec 2: Definitions (ICAI)

(n) "Foreign exchange"

Foreign Exchange Means Foreign Currency & Includes:

For drafts, traveller's cheques, letters of credit or bills of exchange

(o) "Foreign security"

For shares, stocks, bonds, debentures or any other instrument

Analysis of Definition of PRI/PROI

Without any further question person will be considered as PROI in CFY.

Residence in India < 182 days in PFY

1) In PY R < 182 days & in CY:

SP NSP NSP SP NSP NSP

PROI PROI PROI PRI PRI PRI

9) In PY R > 182 days & in CY:

Bomb-blast in foreign shifted layover to India

4. What is the meaning of Intention to stay for uncertain period? (+)

Woman marries to NRI and leaves

Residential status of Artificial Person

4. Whether Minor have residential status in FEMA?

Section 3 & 4: Regulation & management of Foreign Exchange (ICAI)

Holding of foreign exchange [Section 4]

Concept of Authority (+)

Sec 10-12: Authorised Person (AP) (ICAI) (+)

Any Person RBI

RBI will Test

Public Interest Forex Reserve Compliance of Conditions &

RBI will give approval for being Authorised Person

Money Changer Dealer Off shore Banking

Compliance Permission of RBI While undertaking any transaction:

Contravention & Consequences

Revocation of authorisation Penalty of Rs. 10,000 + 2000 pd

Appointment of Authorised Person [Sec 10(1)]:

Revocation of Authorisation [Sec 10(3)]:

Powers of RBI [Sec 11]:

Consequence on contravention by AP:

Inspection and Investigation [Sec 12]:

Sec 5: Current Account Transaction (+) (ICAI)

Prohibited CUT [Rule 3 read with Schedule I](ICAI) (++)

Nature of Transaction (ICAI) Reason behind the same (++)

Payment of commission on export:

Types of Foreign Currency Accounts (++)

Foreign Currency Accounts (++)

Approving Authority Transaction

Ministry of a. Remittance of freight of any vessel chartered by PSU.

Ministry of Information & Broadcasting, Remittance of Hiring Charges of Transponders.

One or more private visits to any country.

Higher of. Commission per transaction, to agents

Higher of – Remittance by an entity in India by way of reimbursement of pre-

US$ 100,000 or amount prescribed by For

US$ 1,000,000 Remittance for consultancy services produced from

Remittance for consultancy service produced from

Lower of – Donations by corporate for -

Liberalised Remittance Scheme (ICAI)

Transactions for Individual Requiring RBI Approval

Actual Text from the LSR Master Direction as per RBI

Chart for Understanding