Part 6 - FEMA and International Taxation - PDF Flipbook

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FEMA &
INTERNATIONAL 59th year of continuous publication
TAXATION BCAS
PART-6 Referencer
2021-22

Architecture

Lothal

Meenakshi Temple
Sanchi Stupa

Konark Sun Temple Qutb Minar

वाArchitecture ु कला

India is one of the oldest civilizations on the planet, with the most diverse heritage and cultural history. India
has assimilated different cultures over millennia and this is clearly visible in the different architectural styles
one can see across India. This is reflected in the fact that out of UNESCO’s 830 World Heritage Sites, 26 are
Indian.

The Indus Valley Civilization saw planned cities built in the 26th century BCE and one of the most ancient
cities and docks in the world can still be seen at Lothal in Gujarat. The Great Stupa at Sanchi was
commissioned in the 3rd Century BCE by Mauryan Emperor Ashoka and is believed to house ashes of the
Buddha.

The Sun Temple at Konark is an intricate structure portraying the chariot of the Sun God complete with 24
carved wheels, pulled by seven horses and guarded by two lions at the entrance.

The Meenakshi temple at Madurai estimated to be ~2500 years old has 14 gopurams or gateway towers and
33,000 sculpture. The Ajanta & Ellora caves are the finest examples of rock-cut caves and were built between
the 2nd century BCE and 6th century CE.

FEMA and International Taxation

FEMA and International Taxation

Contents Page

Subject 6.1
Foreign Exchange Management Act, 1999 6.1
1. Introduction 6.2
2. Residential Status under FEMA 6.5
3. Capital & Current Account Transactions 6.8
4. Bank Accounts in India 6.14
5. Investment in India 6.15
6. Acquisition and transfer of Immovable property in India 6.17
7. Branch / Liaison / Project Office in INDIA 6.21
8. Trade Transactions – Import & Export 6.32
9. Borrowings from Non-residents 6.39
10. Overseas Direct Investments 6.42
11. Cross Border Merger Regulations 6.42
12. Acquisition and Transfer of Immovable Property outside India 6.42
13. Branch / Liaison / Project Office outside India 6.44
14. Compounding & Contravention under FEMA
15. Miscellaneous 6.46
Foreign Contribution (Regulation) Act, 2010 6.46
1. Introduction 6.46
2. Applicability 6.46
3. Foreign Contribution 6.47
4. Restrictions on Accepting FC 6.47
5. Restrictions on acceptance of foreign hospitality 6.47
6. Registration of the Association 6.48
7 Accounts & Audit 6.48
8. Total Ban on acceptance of Foreign Contribution & Hospitality 6.49
9. Restriction on Administrative Expenses 6.49
10. Speculative Activity 6.49
11. Transfer of FC to other Registered or Unregistered Persons
12. Restriction in the utilisation of Foreign Contribution 6.iii

BCAS
Referencer
2021-2022

FEMA and International Taxation

13. Inspection & Seizure 6.49

14. Penalty 6.49

15. Declaration of receipts of foreign contribution 6.50

16. Change of designated bank account, name, address, aim, objects or key members of 6.50
the association

17. All FCRA services online 6.50

18. Registration to be suspended 6.51

19. Surrender of Registration Certificate 6.51

International Taxation

Taxation of Non-Residents 6.52

Transfer Pricing 6.69

Equalisation Levy 6.84

Form 15CA/15CB 6.87

Multilateral Instrument – An introduction 6.90

Double Taxation Avoidance Agreements 6.94

6.iv BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Foreign Exchange Management Act, 1999

1. Introduction b. A Hindu Undivided Family (HUF)
The Foreign Exchange Management Act, 1999
(FEMA) deals with cross-border investments, c. A Company
foreign exchange transactions and transactions
between residents and non-residents. It has come d. A Firm
into force from June 1, 2000.
e. An association of persons or body of
The operation of FEMA is akin to any other individuals, whether incorporated or not
commercial law. However as compared to
most other commercial laws FEMA is one f. Every artificial juridical person not falling in
of the smallest, having only 49 Sections. If any of the above sub-clauses
guidelines, rules etc. are followed, then the
person can undertake most transactions without g. Any agency, office or branch owned or
any approvals. If proposed transactions fall controlled by such person.
outside the guidelines, one will have to obtain
necessary prior approvals. The consequence of 2. Residential Status under FEMA
any violation is a penalty and if the penalty is not Resident: If an individual stays in India for more
paid within the specified time, then there can be than 182 days during the preceding financial year,
prosecution. he will be treated as a person resident in India.
There are a few exceptions as under:
FEMA extends to the whole of India. It also
applies to all branches, offices and agencies • If a person goes/stays outside India for
outside India, which are owned or controlled (a) taking up employment, or (b) carrying on
by a person resident in India, in this respect business or vocation, or (c) for any other
FEMA can be said to acquire extra-territorial purpose for an uncertain period; he will be
jurisdiction. treated as a person resident outside India
(non-resident). (It has been clarified that
It is important to note that RBI/GOI issues various students going abroad for further studies will
Notifications, Directions, Press Notes, Guidance, be regarded as non-residents.)
etc. from time-to-time to administer FEMA.
However, in case of conflict between any of them, • If a person who is residing abroad comes
the relevant FEMA Notification will prevail. to/stays in India only for (a) taking up
employment, or (b) carrying on business
What FEMA tries to govern? or vocation, or (c) for any other purpose for
an uncertain period; he will be treated as a
Sr. Types of Asset / Owned or person resident in India. However, there are
No. Transaction entered by differing views in such a case as to whether
the condition of stay of 182 days in India
A) Foreign Exchange/ Person Resident during the previous year will continue to
Security/ Properties in India (PRI) apply.
outside India
The term financial year means a twelve-month
B) Foreign Exchange/ Person Resident period beginning from April 1 and ending on
March 31 next year.
Security/ Properties in Outside India
Following persons (other than individuals) will
India (PRO) be treated as persons resident in India:

A Person includes: • Person or body corporate which is registered
or incorporated in India.
a. An individual

BCAS 6.1
Referencer
2021-2022

FEMA and International Taxation

• An office, branch or agency in India, even if approvals, transactions on capital account cannot
it is owned or controlled by a person resident be undertaken.
outside India.
Current Account Transaction means all
• An office, branch or agency outside India, if transactions, which are not capital account
it is owned or controlled by a person resident transactions. Specifically, it includes:
in India.
i. Business transactions between residents and
The definition is however inadequate to define non-residents.
residential status of a firm, an HUF, a trust or any
entity which does not have to be registered. ii. Short-term banking and credit facilities in the
ordinary course of business.
Conversely, a Non-Resident means a person
who is not a resident in India. iii. Payments towards interest on loans and by
way of income from investments.
3. Capital & Current Account Transactions
Capital Account Transaction means a transaction iv. Payment of expenses of parents, spouse or
which: children living abroad or expenses on their
foreign travel, medical and education.
i. Alters foreign assets and foreign liabilities
(including contingent liabilities) of Indian v. Scholarships/Chairs, etc.
residents.
Primarily there are no restrictions on current
ii. Alters Indian assets and Indian liabilities of account transactions. A person may sell or draw
non-residents. foreign exchange freely for his current account
transactions, except in a few cases where limits
iii. Is a specified transaction as mentioned in have been prescribed (Section 5). The Central
Section 6. Government has the power to regulate current
account transactions. Unless the transaction is
Essentially this is an economic definition and not restricted, FX can be drawn for the same.
an accounting or legal definition. It is intended
to cover cross-border investments, cross-border Current Account Transactions: Unless the
loans and transfer of wealth across borders. RBI transaction falls within the below mentioned
has been empowered to regulate capital account restrictions, FX can be drawn for the same
transactions. Unless the transaction is permitted without any limit.
as per regulations, Foreign Exchange (FX) cannot
be drawn for the same. Residents are permitted to remit up to US $
250,000 for any current and capital account
Capital account transactions though liberalised purpose (except those transactions which are
to a great extent, continue to be regulated – by prohibited altogether). See Table below for
RBI in respect of transactions involving capital/ Current Account Transactions at a brief.
debt instruments and by the Government of India
in respect of other transactions. Unless permitted The details of restrictions on Current Account
by way of notifications and rules or specific Transactions are as follows:

6.2 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Payment / Withdrawal of FX which require prior Transactions which are
approval of RBI prohibited

Release of exchange exceeding the limits under LRS (presently Drawal of forex for travel to
US $ 250,000) in one financial year, for one or more private visits Nepal & Bhutan
to any country (except Nepal and Bhutan).

Exchange facilities exceeding the limits under LRS for persons Transactions with person

going abroad for employment. resident in Nepal & Bhutan

Exchange facilities for emigration exceeding the limits mentioned Remittance out of lottery
under LRS or the amount prescribed by country of emigration. winnings

Release of foreign exchange, exceeding the limits under LRS to a Payment of commission on
person, irrespective of period of stay, for business travel/ attending exports under Rupee State
a Conference/specialised training/ maintenance expenses of a Credit Route, except commission
patient going abroad for medical treatment / check-up abroad/ for up to 10% of invoice value on
accompanying as attendant to a patient going abroad for medical exports of tea and tobacco.
treatment/ check-up.

Release of exchange for meeting expenses for medical treatment Remittance for purchase
abroad exceeding the estimate from the doctor in India or hospital/ of lottery tickets, banned /
doctor abroad. However, an amount up to the limits under LRS or prescribed magazines, football
its equivalent can be released without insisting on any estimate pools, sweepstakes, etc.
from a hospital/doctor.

Remittance for maintenance of close relatives abroad, Payment of commission on

– Exceeding the net salary (after deduction of taxes, exports made towards equity
contributions and other deductions) of a person who is investment in Joint Ventures/
resident but not permanently resident in India and (a) is Wholly Owned Subsidiaries
a citizen of a foreign state other than Pakistan or (b) is a abroad of Indian companies.

citizen of India who is on deputation to the office or branch or

subsidiary or joint venture in India of such foreign company.

– Exceeding US $ 250,000 per financial year per recipient.

Release of exchange for studies abroad exceeding the estimates Remittance of income from

from the institution abroad or the limits under LRS per academic racing / riding or any other

year, whichever is higher. hobby

Remittances exceeding US $ 1million per project, for any Remittance of interest income

consultancy services procured from outside India. on funds held in NRSR Scheme

Account.

Remittances exceeding US $ 10 million per project, consultancy Remittance of dividend by

services procured from outside India by Indian companies any company to which the

executing infrastructure projects. requirement of dividend

balancing is applicable.

Commission to agents abroad for sale of residential flats/ Payment related to “Call Back
commercial plots in India, exceeding US $ 25,000 or 5% of the Services” of telephones.
inward remittance (whichever is higher) per transaction.

BCAS 6.3
Referencer
2021-2022

FEMA and International Taxation

Payment / Withdrawal of FX which require prior Transactions which are
approval of RBI prohibited

Donations by Indian corporates, exceeding 1% of the foreign
exchange earnings during the previous 3 financial years or
US $ 5 million, whichever is less, for creation of Chairs in
reputed educational institutes or donations to funds (not being an
investment fund) promoted by educational institutes or donation to
technical institution or body or association in the field of activity of
the donor Company.

Remittance exceeding US $ 100,000 or 5% of the investment
brought into India, whichever is higher, by an entity in India by way
of reimbursement of pre-incorporation expenses in India

The following payments will require prior approval from the Government of India, except where the
payment is made from the RFC or RFC(D) or EEFC Account of the remitter: -

Purpose of Remittance Approval to be obtained from

1. Cultural Tours Ministry of HRD (Department of Education and
Culture)

2. Advertisement in foreign print media for the Ministry of Finance (Department of Economic
purpose other than promotion of tourism, Affairs)
foreign investments and international
bidding (exceeding US $ 10,000) by a State
Government or its PSU

3. Remittance of freight of vessel chartered by a Ministry of Surface Transport (Chartering Wing)
PSU

4. Payment of import through ocean transport by Ministry of Surface Transport (Chartering Wing)
a Government Department or a PSU on CIF
basis

5. Multi-modal transport operators making Registration certificate from the Director

remittance to their agents abroad General of Shipping

6. Remittance of hiring charges of Transponders

(a) TV channels Ministry of Information and Broadcasting

(b) Internet service providers Ministry of Communication and Information
Technology

7. Remittance of container detention charges Ministry of Surface Transport (Director General
exceeding the rate prescribed by Director of Shipping)
General of Shipping

8. Remittance of prize money/sponsorship of Ministry of HRD (Department of Youth Affairs
sports activity abroad by a person other than & Sports)
International/National/ State Level Sports
bodies, if the amount involved exceeds
US $ 100,000

9. Remittance for membership of P&I Club Ministry of Finance (Insurance Division)

6.4 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

4. Bank Accounts in India
Non-residents have been allowed to maintain Bank accounts in India, both in INR and foreign currency.
There are basically 3 types of accounts that can be maintained in India by a Person Resident outside
India:

• Non-Resident (Ordinary) Account – NRO A/c

• Non-Resident (External) Rupee Account – NRE A/c

• Non-Resident (Foreign Currency) Account – FCNR A/c

Particulars NRO A/c NRE A/c FCNR A/c
Who can open
an account Any person resident NRIs & PIOs (Individuals/ NRIs & PIOs (Individuals/

Currency outside India (Individuals/ entities of Bangladesh entities of Bangladesh/
Repatriable/
Non- Entities of Bangladesh / / Pakistan nationality/ Pakistan nationality/
Repatriable
Type of Pakistan nationality/ ownership require RBI ownership require RBI
Account
Joint accounts ownership require RBI approval) approval)

Major approval)
Permissible
Debits INR INR Permissible Foreign
Currency
Major
Permissible Non-Repatriable (Except Repatriable Repatriable
Credits current income and by
NRI/PIO under USD 1
million per F.Y. scheme)

Current, Savings, Current, Savings, Term Deposits

Recurring or Fixed Deposit Recurring or Fixed Deposit

Accounts Accounts

Jointly with residents on In names of two or more In names of two or more

‘former or survivor’ basis. NRI/ PIOs or with resident NRI/PIOs or with resident

NRIs and/or PIOs may relative(s) on “former or relative(s) on “former or

hold NRO accounts jointly survivor” basis. survivor” basis.

with other NRIs and/or

PIOs.

Local rupee payments, Local disbursements, Local disbursements,

Transfer to other NRO A/c, remittance outside India, remittance outside India,

remittance outside India transfer to other NRE/ transfer to other NRE/

of current income in India FCNR account and FCNR account and

(net of taxes) Investment in India investment in India

Remittance in permitted Remittance in permitted Remittance in permitted
foreign currency, Deposit foreign currency, proceeds foreign currency, proceeds
by Account holder during of foreign currency/bank of foreign currency/bank
temporary visit to India, notes tendered during notes tendered during
Transfer from other NRO temporary visit to India, temporary visit to India,
A/c, dues in India of transfer from other NRE transfer from other NRE/
Account Holder, Rupee / FCNR account, Current FCNR account, current
loans/gift from resident Income, interest on bank income, interest on bank
relative under LRS etc. balances & investments. balances & investments.

BCAS 6.5
Referencer
2021-2022

FEMA and International Taxation

Particulars NRO A/c NRE A/c FCNR A/c
Taxable Non-Taxable Non-Taxable
Taxability of
Interest

Even residents have been allowed to maintain permitted to purchase foreign exchange only after
foreign currency accounts in India as under: utilising fully the available balances in the EEFC
accounts.
i. EEFC Account
A person is permitted to credit the under- Individuals can open EEFC account jointly with
mentioned amounts out of his foreign exchange any of their ‘close relative’ on ‘former or survivor
earnings to his Exchange Earners Foreign basis’ but the joint relative cannot operate the
Currency (EEFC) Account: account.

Entity or person Limit in Units in SEZ are permitted to open, hold and
% maintain a Foreign Currency Account with an
authorised dealer in India.
1. Status Holder Exporter (as 100
defined in the EXIM Policy in ii. Resident Foreign Currency (Domestic)
force) Account – RFC (D) A/c

2. Individual professionals ** 100 A person resident in India can open, hold and
maintain a Resident Foreign Currency (Domestic)
3. 100% EOU Unit in EPZ/STP/ 100 Account and credit the account with foreign
EHTP exchange in the form of currency notes, bank notes
and travellers cheques from the following sources:
4. Any other person 100
i. Payment/ service/ gift/ honorarium received
** Professionals mean Director on Board of while on visit abroad or from a non-resident
overseas company; Scientist/Professor in who is on a visit to India
Indian University/Institution; Economist/ Lawyer/
Doctor/Architect/ Engineer/Artist/Cost/Chartered ii. Unspent amount of foreign exchange
Accountant/ Any other person rendering acquired from AD for travel abroad
professional services in his individual capacity,
as may be specified by the Reserve Bank from iii. Amount received as Gift from close relative
time-to-time. Professional earnings including
director’s fees, consultancy fees, lecture fees, iv. Earning through export of goods/ services,
honorarium and similar other earnings received royalty
by a professional by rendering services in his
individual capacity. v. Disinvestment proceed on conversion of
shares into ADR/ GDR
However, amounts received to meet specific
obligations of the account holder cannot be vi. Proceeds of insurance policies settled in
credited (e.g., equity investment from a non- foreign currency that is issued by Insurance
resident investor). The balances do not earn any Companies in India.
interest.
iii. Resident Foreign Currency Account –
These funds can be used for several current RFC A/c
account purposes. For many transactions, where
there are restrictions under the current account Resident Indians can also open RFC account.
rules, funds in EEFC account can be used without This account is different from RFC (D) account.
restrictions. However, EEFC account holders are This account is primarily for non-residents who
return to India. In RFC A/c., following items can
be deposited:

6.6 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

i. Pension or any other superannuation or other iv. Proceeds of insurance policies settled in
monetary benefits from employer outside foreign currency that is issued by Insurance
India. Companies in India.

ii. Amount received on conversion of the assets There are no restrictions on use of funds. They
if those assets were acquired when such can be used for meeting expenses and making
person was a non-resident. investments abroad. RFC account can be
maintained in the form of current or savings or
iii. Amount received as gift or inheritance from term deposit accounts.
a person who was a non-resident and has
become a resident.

Other Foreign Currency Accounts by Specific Persons

Any passenger bringing
in foreign exchange on
his arrival in India in the
form of currency notes,
bank notes or travellers
cheques exceeding US $
10,000 or its equivalent
and / or the value of
foreign currency notes
exceeding US $ 5,000 or
its equivalent is required
to file a declaration
in Form CDF with the
Custom Authorities. A
person resident in India
is permitted to carry only
` 25,000/- during his visit
abroad (except Nepal and
Bhutan).

Temporary Foreign Currency Accounts in India
Organisers of International Seminars, Conferences, Conventions, etc., who have been permitted by
the concerned Administrative Ministry of the Government of India to hold such seminars, etc. are
permitted to open temporary foreign currency accounts in India. The account is to be operated for
receipt of delegate fees from abroad and payment of expenses including payment to special invitees
from abroad. The said account has to be closed immediately after the conference/event is over.

BCAS 6.7
Referencer
2021-2022

FEMA and International Taxation

5. Investment in India
Foreign Investment in India

I. Foreign Direct Investment Owned Subsidiary on automatic basis. Investment
The Industrial Policy, Foreign Exchange in a proprietorship, partnership or Association of
Management (Non-Debt Instrument) Rules (2019) Persons, is subject to RBI permission in certain
and Mode of Payment and Reporting of Non- cases.
Debt Instruments Regulations, 2019 governs the
Foreign Direct Investment in India. Both – Non Investment can be made by an incorporated
Debt Instrument Rules and Industrial Policy entity, or individuals. Unincorporated entities
(including consolidated FDI Policy) – should be cannot invest. However, citizens and incorporated
read together to have a full picture. Sectoral limits entities of a country which shares land border with
for Foreign Direct Investments and Investments India (i.e. China, Pakistan, Bangladesh, Bhutan,
by NRIs are almost at par excepting the sector Nepal, Myanmar and Afghanistan) or where the
of Housing and Real Estate Development, and beneficial owner of an investment into India is
Domestic Airlines. Various avenues and policy for situated in or is a citizen of any such country,
foreign investment are covered in brief. For FDI are permitted to invest under the FDI scheme
purposes an NRI means an individual resident only after obtaining prior Government approval.
outside India who is a citizen of India. Further, citizens and incorporated entities of
Pakistan are prohibited to invest in defence,
Investment is generally allowed in an Indian space, atomic energy and sectors/activities
company, which is engaged in any business, prohibited for foreign investment.
except prohibited sectors. Branches, liaison
offices and project offices can be opened for Also, any transfer of ownership of any existing
limited purposes. In SEZs, non-residents can or future FDI in an entity in India, directly or
invest as a branch/unit, Joint Venture or a Wholly indirectly, resulting in the beneficial ownership by
an entity/citizen as mentioned above, then such

6.8 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

subsequent change will require prior Government development of townships, construction of
approval. residential /commercial premises, roads or
bridges and Real Estate Investment Trusts
Eligibility Person Resident Outside (REITs) registered and regulated under the
Eligible India SEBI (REITs) Regulations 2014)
Instruments
Equity Instruments which is g. Manufacturing of cigars, cheroots, cigarillos
Lock in and cigarettes, of tobacco or of tobacco
Period in defined as Equity Shares, substitutes
case of
optionality Convertible Debentures, h. Activities/sectors not open to private sector
clause investment e.g., Atomic Energy.
Modes of Convertible Preference Shares,
Investment i. Foreign technology collaboration in any form
Partly paid Equity Shares and including licensing for franchise, trademark,
brand name, management contract is also
Share Warrants issued by an prohibited for Lottery Business and gambling
and betting activities.
Indian Company subject to
FDI is also permitted in LLPs
Company’s Act, 2013 & SEBI • Entry Route – Automatic route in LLP’s

guidelines operating in sectors/ activities where 100%
FDI is allowed through Automatic Route
One year from the date of and there are no FDI linked performance
investment or as per prescribed conditions.
FDI guidelines, whichever is
higher • Capital Contribution - An LLP can receive
foreign capital contribution only by cash
Issuance of fresh Shares or consideration, received by inward remittance,
Transfer of Existing Shares through normal banking channels or by
debit to NRE/FCNR account of the person
When investment in India can be made in ANY concerned, such account being maintained
sector without any approval from any authority, with an authorised dealer/ bank.
this is known as the “Automatic route”. For a
small list of sectors or investment exceeding • Investment in LLPs by Foreign Portfolio
permissible sectoral caps, which are not under the Investors (FPIs) and Foreign Venture Capital
“automatic route”, a specific approval should be Investors (FVCIs) is not permitted.
taken from Government of India/Department for
Promotion of Industry and Internal Trade (DPIIT) • LLPs are not permitted to avail External
through the Foreign Investment Facilitation Portal Commercial Borrowings (ECBs).
(FIFP).
FDI in LLP is subject to compliance of the LLP
FDI is prohibited in the following activities/ Act, 2008
sectors:
Reporting Requirements
a. Lottery business including Government/ All reportings for various types of Foreign
private lottery, online lotteries, etc. Investments in India are required to be
done through the Single Master Form (SMF)
b. Gambling and betting including casinos etc. through the Foreign Investment Reporting and
Management System (FIRMS) portal. This
c. Chit funds includes the following -

d. Nidhi company 6.9

e. Trading in Transferable Development Rights
(TDRs)

f. Real Estate Business or Construction
of Farm Houses (For FDI Regulations -
“real estate business” shall not include

BCAS
Referencer
2021-2022

FEMA and International Taxation

• FC-GPR – which a company submits to RBI by way of direct/portfolio/re-invested earnings/
for reporting the issue of eligible instruments others in the Indian company during the preceding
to the overseas investor. financial year through the Foreign Liabilities and
Assets Information Reporting (FLAIR) system.
• FC-TRS – which the non-resident has to
submit at the time of transfer of shares/ Foreign Portfolio Investor (FPIs)
debentures between a resident and a non- FPIs such as Pension Funds, Investment
resident. Trusts, Asset Management Companies, etc.,
who have obtained registration from SEBI, are
• DI – which the downstream investment permitted to invest on full repatriation basis
company has to submit at the time of under FDI Policy as well as under in the Indian
indirect foreign investment or downstream Primary & Secondary Stock Markets (including
investment. OTCEI) including in unlisted, dated Government
Securities, Treasury Bills, ‘to be listed’ debt
• InVI – which the investment vehicle receiving securities, Units of Domestic Mutual Funds and
investment has to submit at the time of issue commercial paper without any lock-in period.
of units to overseas investors.
Limits on investments are:
• LLP - I – which the LLP has to submit for a. The total holdings of all FPIs in any
reporting receipt of foreign direct investment
by way of capital contribution and profit Company will be subject to its sectoral
share. foreign investment cap. However, the
company has an option to limit it to a lower
• LLP - II – which the LLP has to submit for threshold.
reporting disinvestment or transfer of capital
contribution and profit share. b. A FPI, having 10% or more than 10% of total
paid-up capital on a fully diluted basis or
• ESOP – which the company has to submit paid up value of each series of debentures
for issue of ESOPs or Sweat Equity Shares or preference shares or share warrants, the
or Shares against exercise of ESOP to total investment made by the FPI shall be
employee outside India. re-classified as FDI subject to the conditions
as specified by SEBI and RBI.
• CN – which the company has to submit
for issue or transfer of convertible notes to c. A FPI may trade in all exchange trade
overseas investors. derivative contracts approved by SEBI
from time-to-time subject to the limits as
• DRR – which the company has to submit prescribed in by SEBI.
for issue or transfer of depository receipts to
overseas investors. An FPI may undertake short selling as well as
lending and borrowing of securities as permitted
The forms are required to be filed online. The by RBI and SEBI subject to certain conditions.
certificates and other documents to be filed have
to be scanned and uploaded along with the II. Foreign Venture Capital Investor (FVCI)
same. In cases where pricing guidelines apply, a Foreign Venture Capital Investors (FVCIs) can
Valuation report issued by a Chartered Accountant invest in securities, issued by an Indian Company
or a SEBI registered Merchant Banker is required engaged in sectors which are permitted for the
to be submitted. same and even those securities which are not
listed on recognised stock exchange at the time
Further, every year before July 15, Annual return of issue of such securities. They can also invest
on Foreign Liabilities and Assets has to be filed
directly with the Director, Balance of Payment
Statistical Division, RBI detailing all investments

6.10 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

in securities issued by a Start-up enterprise III. International Financial Institutions
irrespective of their sector/activity. Multilateral Development Banks, which are
specifically permitted by the Government to float
A registered FVCI may, through the SEBI, apply rupee bonds in India, are permitted to purchase
to the Reserve Bank for permission to invest in a Government dated securities.
VCF or in a scheme floated by such VCFs. The
domestic VCF must however be registered with IV. Investments by Non-Resident Employees
SEBI. The registered FVCI may purchase equity/ of Indian Companies, etc.
equity linked instruments/ debt/ debt instruments,
debentures of a VCF through Initial Public Offer An Indian Company can issue shares up to
or Private Placement or in units of schemes/funds 5% of its paid-up capital to its employees or
set up by a VCF. employees of its overseas joint venture or wholly
owned subsidiary resident outside India, under
The amount of consideration for investment in a SEBI approved Employees Stock Options
VCFs shall be paid out of inward remittance from Scheme. These shares cannot however be
abroad through normal banking channels or a issued to employees who are citizens of Pakistan/
Special Non-Resident Rupee (SNRR) account Bangladesh without Government Approval.
maintained in accordance with the FEM (Deposit)
Regulations, 2016. V. Investments by NRIs / PIOs
NRIs and Overseas Citizen of India (OCI) can
There is no limit on investments, but if the invest in shares and convertible debentures of
investment is in equity instruments then the Indian companies.
sectoral caps, entry routes and attendant
conditions shall apply. Form FC-GPR – Part ‘A’ Foreign investment policy for foreigners applies
has to be filed with RBI, through the company’s equally to NRI for repatriable investment. There
bankers, within 30 days of allotment of securities. are only two sectors – Real Estate Development
Form FC-TRS will be applicable in case of transfer and Domestic Airlines – where investment
of shares between a resident and non-resident. facilities are different for NRIs and foreigners.

Investment by Repatriation Basis Non-Repatriation Basis
NRIs
All instruments permitted under FDI for All the instruments permitted under FDI
Permitted other non-residents, Government dated for other non-residents, Government
Instruments Securities (other than Bearer Securities), Securities (other than Bearer
Treasury bills, Units of domestic Mutual Securities), Treasury Bills, Units of
Prohibited Funds, bonds issued by PSUs in India, Domestic Mutual Funds, Units of money
Instruments shares in Public sector enterprise market mutual funds
Deposit of sale disinvested by GOI
proceeds
Investment in small saving schemes Investment in small saving schemes

(including PPF) (including PPF)

No restrictions To be deposited in NRO Account

RBI has granted general permission to NRI / PIO to acquire shares from other NRI / PIO. Purchase
of shares by NRIs from existing resident shareholders is permitted under the automatic route if the
specified conditions are satisfied.

NRIs from Nepal are also permitted to make direct investments on repatriation basis if they remit funds
in foreign exchange.

BCAS 6.11
Referencer
2021-2022

FEMA and International Taxation

Portfolio Investment in companies, other than NRIs can repatriate their investments which were
those engaged in the print media sector, listed originally made on non-repatriation basis subject
on Stock Exchanges is permitted up to 5% for to RBI approval if:
each NRI subject to overall ceiling of 10% of the
company’s capital. The company concerned can 1. The original investment was made in foreign
increase this limit of 10% to 24%. exchange under the FDI Scheme, and

NRI may invest in exchange traded derivative 2. The sector / activity in which the investment
contracts approved by SEBI from time-to-time was made is proposed to be converted into
out of INR funds held in India on non- repatriation repatriable equity and is under the automatic
basis subject to the limits prescribed by SEBI. route for FDI.

NRIs are permitted to invest up to 100% in PSE If the above two conditions are not met, approval
Capital/PSU Bonds, Government Securities will have to be obtained from RBI for conversion
(other than Bearer Securities), units of UTI & of non-repatriable equity into repatriable equity.
instruments of domestic Mutual Funds (referred to
in Section 10 (23D) of the Income-tax Act, 1961). VI. Conversion into equity
An Indian company can issue, subject to certain
Consideration for purchase of the equity terms and conditions, equity shares / preference
instruments should be received as inward shares under the Approval Route:
remittance through banking channels or through
funds held in NRE account, which is designated a. By way of conversion of ECB (other than
as NRE (PIS) Account used exclusively for import dues deemed as ECB or Trade
investments on repatriation basis. NRIs are now Credit), lump sum technical knowhow fees,
permitted to credit the sale proceeds of FDI royalty or any other funds payable by the
investment in their NRE/FCNR (B) accounts, investee company, remittance of which
provided the investment was received by way of does not require prior permission of the
remittance from abroad or by way debit to NRE/ Government of India or RBI.
FCNR (B) account of the investor.
b. By way of conversion of monies payable
NRI / OCI can also invest on non-repatriation against import of capital goods/machineries/
basis in all sectors except plantations, nidhis, equipment (other than second- hand
chit funds and real estate trading. In such cases machineries).
investments made on repatriation basis will also
not apply. Investments made on non-repatriation c. Against receipt of money from overseas
basis is deemed to be domestic investment at par investor towards pre-operative/pre-
with investment made by residents. incorporation expenses (including payments
of rent, etc.).

VII. Investment Facilities in brief

Avenues of Instruments Category of Investors
Investment

Public/Private ‘Equity instruments’, which means equity Non-Resident Indians/Person
Limited shares, compulsorily convertible preference resident outside India/ Non-
Companies shares, compulsorily convertible debentures Resident Incorporated Entities/
and share warrants issued by an Indian Foreign Institutional Investors
Company

Public Limited NCDs NRIs
Companies

6.12 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Avenues of Instruments Category of Investors
Investment

Trading ‘Equity instruments’, which means equity Person resident outside India
Companies shares, compulsorily convertible preference
shares, compulsorily convertible debentures
and share warrants issued by an Indian
Company

MSME Units ‘Equity instruments’, which means equity Person resident outside India
shares, compulsorily convertible preference
shares, compulsorily convertible debentures
and share warrants issued by an Indian
Company

EOU or Unit in ‘Equity instruments’, which means equity Person resident outside India
Free Trade Zone shares, compulsorily convertible preference
or in Export shares, compulsorily convertible debentures
Processing Zone and share warrants issued by an Indian
Company

Public/Private Ltd. Equity instruments including Right Share other Existing shareholders /

Companies than share warrants Renouncees

Under Scheme ‘Equity instruments’, which means equity Existing shareholders
of amalgamation/ shares, compulsorily convertible preference
merger shares, compulsorily convertible debentures
and share warrants issued by an Indian
Company

Employees Stock ‘Equity instruments’, which means equity Employees resident outside
Option shares, compulsorily convertible preference India
shares, compulsorily convertible debentures
and share warrants issued by an Indian
Company

ADR/GDR Receipts Non-residents

Portfolio ‘Equity instruments’, which means equity RFPIs (Registered Foreign
Investment shares, compulsorily convertible preference Portfolio Investor) & NRIs
Scheme shares, compulsorily convertible debentures
and share warrants issued by an Indian
Company

Investment in Exchange Traded Derivatives RFPIs (on repatriation basis) &
Derivatives NRIs (on repatriation basis)

Govt. Securities Govt. dated Securities/Treasury Bills, Units NRIs & RFPIs
of Domestic Mutual Funds, Bonds issued by
PSUs and shares of Public Sector Enterprises
being divested

Indian VCU or SEBI Registered VCF/VC Units SEBI Registered Foreign
VCF or in a Venture Capital Investor
Scheme floated by
VCF

BCAS 6.13
Referencer
2021-2022

FEMA and International Taxation

6. Acquisition and transfer of Immovable property in India
Immovable property in India can be acquired / transferred by following persons:

Table A

Indian Non-Resident Indian (NRI) Persons of Indian Origin Resident Outside
Nationals India
Resident in
1. Can acquire any immovable 1. Can acquire any immovable property other
India
property other than than agricultural land/plantation/farm house
FEMA is not
applicable

agricultural land/plantation/ out of foreign currency funds or by way of gift

farm house 2. Can acquire any immovable property

2. Can transfer/sell immovable including agricultural land/plantation/farm

property including house by way of inheritance

agricultural land/plantation/ 3. Can sell any immovable property other than
farm house to a person agricultural land/ plantation/farm house to a
resident in India person resident in India

3. Can transfer/sell any 4. Can gift any residential or commercial
immovable property other property to a person Resident in India or to a
than agricultural land/ PIO Resident outside India/an NRI.
plantation /farm house to

an NRI/PIO resident outside 5. Can sell/gift any agricultural land/plantation/

India farm house to a person resident in India who

is a citizen of India.

Notes:
1. Persons of Indian Origin do not include citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan,

China, Iran, Nepal or Bhutan.

2. NRI/PIO can borrow money from banks/approved housing finance companies for acquisition/
repairs/renovation/improvement of residential accommodation in India.

3. NRI/PIO can repatriate equivalent to the amount of foreign exchange remitted into India at the
time of purchase.

4. Payment by NRI/PIO for purchase of immovable property cannot be by way of foreign currency
notes or travellers cheques.

5. NRI/PIO employees of Indian companies in India or their branches outside India can also take
loans from their employers for purchasing housing property in India or abroad or for any other
purpose other than for utilising in the following activities: -

a. Chit fund business

b. Nidhi company

c. Agricultural or plantation activity or in real estate business or construction of farm houses

d. Trading in TDR

e. Investment in capital market including margin trading and derivatives.
6.14
BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Table B

Foreign Citizens Resident in Foreign Citizens Resident Indian Branch / Office of
India Outside India Person Resident outside

India

No restrictions, except in the Can acquire and transfer only after Can acquire immovable

case of citizens of Pakistan, prior permission from RBI property which is required

Bangladesh, Sri Lanka, China, Foreign Embassy/Diplomat/ for carrying on its activities,
Iran, Nepal, Afghanistan, Macau, Consulate General a declaration in Form IPI
Hong Kong & Bhutan who will will have to file with RBI

require prior permission from Can acquire and sell immovable within 90 days of such

RBI in all cases except where property other than agricultural land/ acquisition. Repatriation of

the immovable property is plantation property/farmhouse only sale proceeds requires prior

acquired by way of lease for after obtaining prior permission RBI approval

less than 5 years. from the Ministry of External

RBI has also allowed acquisition Affairs, Government of India and
of immovable property by Long- the consideration for acquisition is
Term Visa Holders being citizen remitted from abroad

of Afghanistan, Bangladesh or

Pakistan belonging to minority

communities in those 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 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

certain conditions.

7. Branch / Liaison / Project Office in INDIA

Automatic Route – If the foreign Approval Route* – Citizen / Entity * A citizen of or an entity registered/
Entity’s Principal Business falls incorporated / registered in Pakistan, or, incorporated in Bangladesh, Sri Lanka,
under the sector where 100% FDI is entity’s principal business is Defence, Afghanistan, Iran, China, Hong Kong or Macau
permitted Telecom, Private Security and Information opening a BO/LO/PO in Jammu and Kashmir,
and Broadcasting, or overseas NPO / NGO / North East region and Andaman and Nicobar
Government bodies Islands also need to obtain prior permission of
RBI.
BCAS
Referencer 6.15
2021-2022

FEMA and International Taxation

Branch Offices/ Liaison Offices

Branch Office Liaison Office

Track A profit making track record during the A profit making track record during the
Record
immediately Five Financial years in the immediately Three Financial years in the

home country home country

Net Worth** Not less than USD 100,000 or its Not less than USD 50,000 or its equivalent.
equivalent.

Permissible – Export & Import of goods – only on – Representing in India the parent

Activities wholesale basis. company / group companies.

– Rendering professional or – Promoting export / import from / to

consultancy services. India.

– Carrying on research work, in areas – Promoting technical/financial

in which the parent company is collaborations between parent/group

engaged. companies and companies in India.

– Promoting technical or financial – Acting as a communication channel

collaborations between Indian between the parent company and

companies and parent or overseas Indian companies.

group company.

– Representing the parent company in
India and acting as buying/ selling
agent in India.

– Rendering services in information
technology and development of
software in India.

– Rendering technical support to the
products supplied by parent/ group
companies.

– Foreign airline/shipping company.

** Total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance
Sheet or Account Statement certified by a CPA or a Registered Account Practitioner

Branch Office in SEZ Branches of Foreign Banks
RBI has granted General Permission to foreign Foreign banks do not require separate approval
companies for establishing branch/unit in under FEMA, for opening branch office in
Special Economic Zones (SEZ) to undertake India provided they have obtained necessary
manufacturing and service activities, subject to approval under the provisions of the Banking
the following conditions: Regulation Act, 1949, from Department of Banking
Operations & Development, Reserve Bank.
a. BO must function in those sectors where 100
per cent FDI is permitted; Liaison Offices of Foreign Insurance
Companies/Banks
b. BO must comply with Part XXII of the Foreign Insurance companies can establish
Companies Act, 2013; Liaison Offices in India only after obtaining

c. BO must function on a standalone basis. BCAS
Referencer
6.16 2021-2022

Foreign Exchange Management Act, 1999

approval from the Insurance Regulatory and India who have secured a contract from an Indian
Development Authority (IRDA). company to execute a project in India, and:

Foreign banks can establish Liaison Offices i. The project is funded directly by inward
in India only after obtaining approval from the remittance from abroad; or
Department of Banking Regulations (DBR),
Reserve Bank of India. ii. The project is funded by a bilateral or
multilateral International Financing Agency; or
The Hon’ble Supreme Court has held that
advocates enrolled under the Advocates Act, iii. The project has been cleared by an
1961 alone are entitled to practice law in India appropriate authority; or
and that foreign law firms/companies or foreign
lawyers cannot practice profession of law in India. iv. A company or entity in India awarding the
As such, foreign law firms/companies or foreign contract has been granted Term Loan by a
lawyers or any other person resident outside Public Financial Institution or a bank in India
India, are not permitted to establish any branch for the project.
office, project office, liaison office or other place
of business in India for the purpose of practicing However, if the above criteria in respect of funding
legal profession. Accordingly, AD Category – I are not met, the foreign entity has to approach
banks are directed by RBI not to grant any the Central Office of RBI for approval to set up a
approval to any branch office, project office, Project Office (PO) in India.
liaison office or other place of business in India
under FEMA for the purpose of practicing legal PO can, subject to certain conditions, open two
profession in India. Further, they shall bring to non-interest bearing foreign currency accounts.
the notice of the Reserve Bank in case any such Similarly, PO can, subject to certain conditions,
violation of the provisions of the Advocates Act make remittances pending winding up/ completion
comes to their notice. of the project.

UIN & PAN Every BO/LO/PO from Bangladesh, Sri Lanka,
BO / LO are granted a Unique Identification Afghanistan, Iran, China, Hong Kong, Macau or
Number by RBI. They are, upon setting-up office, Pakistan has to register with the State Police
required to obtain PAN under Income-tax Act, authorities. Copy of approval letter for persons
1961. The BO can freely remit profits earned from from these countries shall be marked by the AD
India, subject to payment of applicable taxes. Category I bank to the Ministry of Home Affairs,
Internal Security Division – I, Government of
Annual Activity Certificate India, New Delhi for necessary action and record.
Every BO / LO is required to file an Annual All other countries are exempted from registering
Activity Certificate (AAC) at the end of March 31 with the State Police authorities.
along with the audited Balance Sheet with RBI,
through its Bank as well as with the Director 8. Trade Transactions – Import & Export
General of Income Tax (International Taxation)
on or before September 30 of that year. The I. Import of Goods & Services
certificate is to be obtained from a Chartered The import of goods and services in India has to
Accountant. be in conformity with the Foreign Trade Policy and
FEMA (Current Account Transaction) Rules, 2000.
Project Offices
RBI has granted general permission to those Remittance for Import payments
foreign companies to establish Project Offices in Remittance for making payments for imports into
India is allowed by AD Category-I bank for all
bona fide trade transactions only after ensuring
that the requisite details are made available.

BCAS 6.17
Referencer
2021-2022

FEMA and International Taxation

Obligation of Purchaser of foreign exchange of remittances against such normal imports
i. For import of goods into India which shall be (except in cases where amounts are withheld
towards guarantee of performance etc.) is
in conformity with the Foreign Trade Policy extended from 6 months to 12 months from
(FTP), a resident person may make payment the date of shipment for such imports made
through an international card held by him on or before July 31, 2020)
or through international credit/debit card in
rupees against charged slip signed by the ii. For deferred payment arrangements – They
importer or as prescribed by Reserve Bank are treated as trade credits up to 5 years for
of India. which guidelines in Master Direction for ECB
and trade credit is to be followed.
ii. Any person resident in India may also make
payment as under: iii. For Import of Books – No restrictions on time
limit.
(a) In rupees towards meeting expenses on
travel to and from and within India of a Third party payment for Imports
person resident outside India who is on Payment to third Party for import of goods is
a visit to India; permitted subject to following conditions-

(b) By means of a crossed cheque or a i. Firm irrevocable purchase order/tripartite
draft as consideration for purchase of agreement should be there
gold or silver in any form imported by
such person in accordance with the ii. Payment should be made to the third party
laws in force; should be mentioned on the invoice and bill
of entry.
(c) A company or resident in India may
make payment in rupees to its non- Importer should comply with the related extant
whole time director who is resident instructions including those on advance payment
outside India and is on a visit to made for imports.
India for the company’s work and is
entitled to payment of sitting fees or Import of foreign exchange/ Indian Rupees
commission or remuneration, and General or special permission from Reserve Bank
travel expenses to and from and is required to bring foreign currency in India.
within India, in accordance with the
provisions contained in the company’s i. Import of Foreign Exchange
Memorandum of Association or Articles
of Association. • Foreign Exchange in any form other
than currency notes, bank notes and
Time Limit for Settlement travellers’ cheques can be sent into
i. For normal Profits – Remittance to be India without any limitation.

completed before six months from the date • A person may bring into India foreign
of shipment, except where amounts are Exchange without any limitation
withheld towards guarantee of performance. provided the person makes declaration
If payment is delayed due to disputes or to the custom authorities if the
financial problems, AD bank may permit for aggregate value of currency notes,
its settlement but interest thereon will be bank notes or travellers’ cheques
payable only for a period of up to 3 years brought in exceeds US $ 10,000 at
from date of shipment. (In light of COVID- any one time or the aggregate value
19 pandemic, the time period for completion of foreign currency notes brought in
exceeds US $ 5,000.

6.18 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

ii. Import of Indian currency II. Export of Goods & Services
The DGFT announces various policies &
• Any person resident in India may procedures to be followed for exports from India,
bring into India while returning from from time-to-time. AD Category – I banks shall
any place outside India except from conduct export transactions in conformity with the
Nepal and Bhutan up to an amount not Foreign Trade Policy and the Rules framed by the
exceeding ` 25,000. Government of India and the Directions issued by
Reserve Bank from time-to-time.
• From Nepal and Bhutan, a person may
bring Indian rupees of any amount in Realisation and repatriation of proceeds of
denominations up to ` 100. export of goods / software / services
i. Period of Realisation and repatriation of
Advance Remittances
AD Category – I bank may allow advance export proceeds shall be 9 months from date
remittance for import of goods without any ceiling of export for all exporters. (In light of the
subject to the following conditions: outbreak of pandemic COVID-19, the period
of realization and repatriation of export
i. An unconditional, irrevocable standby Letter proceeds is extended to 15 months from the
of Credit or a guarantee from an international date of export for all the exports made up to
bank of repute situated outside India or a or on July 31, 2020)
guarantee of an AD Category–I bank in India,
if such a guarantee is issued against the ii. 15 months - if the goods are exported to a
counter- guarantee of an international bank warehouse established outside India.
of repute situated outside India needs to be
obtained if advance remittance exceeds US Authorised Dealers are allowed to extend time
$ 2,00,000. up to a further period of 6 months beyond 9
months, if the exporter submits a declaration that
ii. The requirement of the bank guarantee the export proceeds will be realised within the
/ standby Letter of Credit may not be extended time.
insisted upon for advance remittances up
to US $ 5,000,000 (US Dollar five million) Manner of receipt and payment
in cases where the importer (other than a i. The export proceeds shall be received
Public Sector Company or a Department/
Undertaking of the Government of India/ through the AD Bank in the manner provided
State Government/s) is unable to obtain bank in FEM (Manner of Receipt and Payment)
guarantee from overseas suppliers and the Regulations.
AD Category – I bank is satisfied about the
track record and bona fides of the importer. ii. Online payment has been allowed by AD
Category-I bank for repatriation of export
iii. A Public Sector Company or a Department/ related remittances. However export
Undertaking of the Government of India / proceeds should not exceed US $ 10,000.
State Government/s which is not in a position
to obtain a guarantee from an international Third Party Payments for exports
bank of repute against an advance payment, Subject to following conditions, third party
is required to obtain a specific waiver for the payments for exports is permitted –
bank guarantee from the Ministry of Finance,
Government of India before making advance i. Firm irrevocable order backed by a tripartite
remittance exceeding US $ 100,000. agreement should be in place.

ii. It should be routed through banking channel
only.

BCAS 6.19
Referencer
2021-2022

FEMA and International Taxation

iii. Remittance by third party should be declared iii. The goods exported have been
in the export declaration form by the auctioned or destroyed by the Port/
exporter. Customs/Health authorities in the
importing country.
iv. Responsibility to realise and repatriate the
export proceeds from such third party is of iv. The unrealised amount represents the
the exporter. balance due in a case settled through
the intervention of the Indian Embassy,
v. Payments may be received from an open Foreign Chamber of Commerce or
cover country if the shipment is made to similar Organisation.
Group II Restricted Cover country like
Sudan, Somalia. v. The unrealised amount represents the
undrawn balance of an export bill (not
Permission for Export Write-off by AD exceeding 10% of the invoice value)
remained outstanding and turned out to
Conditions be unrealisable despite all efforts made
a. The relevant amount has remained by the exporter.

outstanding for one year or more; vi. The cost of resorting to legal action
would be disproportionate to the
b. The aggregate amount of write off allowed unrealised amount of the export bill or
during the financial year does not exceed where the exporter even after winning
10% of the total export proceeds realised the Court case against the overseas
by the exporter through the concerned AD buyer could not execute decree for
Category – I banks during the previous reasons beyond his control.
financial year;
vii. Bills were drawn for the difference
c. The limit of self-write off by an exporter other between the letter of credit value
than the status holder exporter is 5% and by and actual export value or between
status holder exporter is 10% the provisional and the actual freight
charges but the amounts have
d. Satisfactory documentary evidence is remained unrealized consequent to
furnished in support of the exporter having dishonor of the bills by the overseas
made all efforts to realise the dues; buyer with no prospects of realization.

e. The exporter is a regular customer of the Export of Currency
bank for at least 6 months. He is fully Reserve Bank grants general permission
compliant with KYC/AML guidelines and AD for export of Indian currency in the following
Bank is satisfied with the bonafides of the circumstances only: –
transaction.
i. Any person resident in India may take
f. The case falls under any of the undernoted outside India (other than Nepal and Bhutan)
categories: an amount not exceeding ` 25,000.

i. The overseas buyer has been declared ii. Any person resident outside India, not being
insolvent and a certificate from the a citizen of Pakistan or Bangladesh and
official liquidator indicating that there also not a traveller coming from or going to
is no possibility of recovery of export Pakistan or Bangladesh, and visiting India
proceeds produced. may take outside India up to an amount not
exceeding ` 25,000.
ii. The overseas buyer is not traceable
over a reasonably long period of time.

6.20 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Advances against exports law enforcement agency and/or the exporter
i. The exporter is under an obligation to ensure is not traceable and/or is not making sincere
efforts to realise the export proceeds.
that: a) the shipment of goods is made
within one year if he receives advance iii Also, the recommendations to de-caution-
payment from a buyer outside India and b) listing an exporter shall be made by the AD
the document covering the shipment are bank to Regional Office of the Reserve Bank
routed through AD Category-I bank through
whom the advance payment is received. 9. Borrowings from Non-residents

ii. In case of exporter’s inability to make the External Commercial Borrowings [ECB]
shipment no refund of unutilized portion of ECB is an important component of India’s overall
advance received or towards payment of external debt. ECB refers to commercial loans
interest shall be made after the expiry of one raised by eligible resident entities from recognized
year without the prior approval of RBI. non-resident lenders and should conform to
parameters such as minimum maturity, permitted
Exporter’s caution list - and non- permitted end-uses, maximum all-in-cost
i An AD bank would recommend the Reserve ceiling, etc. The parameters apply in totality and
not on a standalone basis.
Bank to put an exporter under caution-list,
depending upon the exporters track record ECB can be raised in any freely convertible
with the AD bank and investigative agencies. foreign currency as well as in Indian Rupees.
Change of currency of ECB from one convertible
ii Recommendations will be made by AD foreign currency to any other convertible foreign
bank to the Regional Office if the exporter currency as well as to INR is freely permitted
has come to the adverse notice of the however, change of currency from INR to any
Enforcement Directorate(ED) / Central foreign currency are not permitted.
Bureau of Investigation (CBI) / Directorate of
Revenue Intelligence (DRI) /any such other

ECB can be in the following forms:

FCY Denominated ECB INR denominated ECB

Loans including bank loans. Loans including bank loans.

Financial Lease Financial Lease

Floating/fixed rate notes/bonds/ Floating/fixed rate notes/bonds/debentures/preference shares
debentures (other than fully and (other than fully and compulsorily convertible instruments)
compulsorily convertible instruments)

Trade credits beyond 3 years Trade credits beyond 3 years

Foreign Currency Convertible Bonds Plain vanilla Rupee denominated bonds issued overseas

(FCCB) and Foreign Currency (also known as Masala Bonds), which can either be either

Exchangeable Bonds (FCEB) placed privately or listed on exchanges as per host country

regulations.

BCAS 6.21
Referencer
2021-2022

FEMA and International Taxation

A. Minimum Average Maturity
Minimum average maturity period (MAMP) will be 3 years for all the entities except the following:

Sr. Particulars Condition No. of Year
No.

1 Manufacturing Sector ECB upto 50 million USD per financial year MAMP 1 year.
Companies More than 50 Million USD per financial year MAMP 3 year.

2 ECB raised from foreign equity Utilised for working capital/general corporate MAMP 5

holder purpose/ repayment of rupee loans years.

3 Other than above - MAMP 3
years.

However, Public Sector Oil Marketing Companies Additional points:
(OMCs) can raise ECB for working capital
purposes with minimum average maturity period Particulars Remarks
of 3 years up to USD 10 billion or equivalent from
all recognized lenders under the automatic route Multilateral financial Can be recognised
without mandatory hedging and individual limit
requirements. institutions (such lenders

The call and Put option, if any, shall not be as, IFC, ADB, etc.)
exercisable prior to completion of minimum
average maturity. / regional financial

institutions and

Government owned

(either wholly or

partially) financial

institutions

B. Eligible Borrowers Individuals Can be recognised
lenders only if they
FCY INR denominated ECB are resident of FATF
Denominated or IOSCO compliant
countries:
ECB

All entities eligible All entities eligible to raise Foreign equity holders
to receive FDI FCY ECB of borrower entity; or

Port trust, Units Registered entities engaged Holder of debt securities
listed abroad
in SEZ, SIDBI, in micro finance activities

EXIM Bank of viz registered not for profit

India companies, registered Foreign branches / subsidiaries of Indian banks

societies/trust/cooperatives For FCY ECB Can be recognised
lenders (except for
and Non-Government FCCB & FCEB)

organisations.

For Rupee denominated Cannot be recognised

C. Recognised Lenders ECB lenders
Recognised lenders should be any entity which
is resident of FATF** or IOSCO** Compliant (However, participation
countries. as arrangers/
underwriters/ market-
6.22 makers/ traders for
Rupee denominated
Bonds issued overseas
is allowed subject to
prudential norms.)

BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

** (FATF compliant country: A country that is a In the following cases, All in cost should be
member of Financial Action Task Force (FATF) or restricted:
a member of a FATF-Style Regional Body; and
should not be a country identified in the public Particulars All in Limit
statement of the FATF as (i) A jurisdiction having Costs
a strategic Anti-Money Laundering or Combating Fixed rate
the Financing of Terrorism deficiencies to which Loans Swap Should not be more
counter measures apply; or (ii) A jurisdiction that costs + than floating rate +
has not made sufficient progress in addressing the Private Spread applicable spread
deficiencies or has not committed to an action plan Placement (i.e. 450 basis
developed with the Financial Action Task Force to points).
address the deficiencies. Foreign
IOSCO compliant country: A country whose Currency Issue Should not exceed
securities market regulator is a signatory to Convertible
the International Organization of Securities Bonds related 2% of the issue size.
Commission’s (IOSCO’s) Multilateral
Memorandum of Understanding (Appendix expenses
A Signatories) or a signatory to bilateral
Memorandum of Understanding with the Issue Should not exceed
Securities and Exchange Board of India (SEBI)
for information sharing arrangements.) related 4% of the issue size.

expenses

D. All-in-Cost (AIC) (ECB’s proceeds cannot be used for payment
The All-in-cost ceiling is prescribed through a of interest/charges)
spread over the benchmark***, i.e. 450 basis
points spread per annum over 6 months LIBOR or ***Benchmark Rate: Benchmark rate in case
applicable benchmark for the respective currency. of foreign currency denominated ECB/ TC (FCY
ECB/TC) refers to 6-month London Interbank
All-in-cost includes and excludes the following: Offered Rate (LIBOR) rate of different currencies
or any other 6-month interbank interest rate
Expenses included Expenses excluded applicable to the currency of borrowing, for
- Rate of interest, - Commitment fees e.g., Euro Interbank Offered Rate (EURIBOR).
Benchmark rate in case of Rupee denominated
ECB (INR ECB) will be prevailing yield of the
Government of India securities of corresponding
maturity.

- other fees/ - withholding tax E. Permitted End-Use
The concept of negative list is introduced to
expenses/charges payable in INR provide a list of activities where ECB proceeds
cannot be utilized which include the following:
- guarantee fees,
A) Real Estate Activities*
- Export Credit
Agency (ECA) B) Investment in capital market
charges, whether
paid in FC or INR C) Equity Investment

D) Working capital purposes except from foreign
equity holders

E) General corporate purposes except from
foreign equity holders

BCAS 6.23
Referencer
2021-2022

FEMA and International Taxation

F) Repayment of Rupee Loans except from Financial Leverage Automatic
foreign equity holders Limit Route/

G) On lending to entities for the above Approval
activities** Route

*Real estate activities: Any real estate activity ECB more Approval
involving own or leased property for buying, than USD Route
selling and renting of commercial and residential 750 million
properties or land and also includes activities
either on a fee or contract basis assigning real ECB upto ECB/Equity Ratio Approval
estate agents for intermediating in buying, selling, USD 750 exceeds 7:1 Route
letting or managing real estate. However, this million
would not include construction/development ECB/Equity Ratio Automatic
of industrial parks/integrated township/SEZ,
purchase/long term leasing of industrial land as does not exceeds 7:1* Route
part of new project/modernisation of expansion of
existing units or any activity under ‘infrastructure *Not applicable to existing /proposed ECB upto
sector’ definition. USD 5 million. ECB exceeding 5 million should
fall in line for leverage requirements.
** RBI in consultation with Government of India
has issued a circular dated 30th July 2019 Further, the borrowing entities will also be
to rationalize the end – use provisions under governed by the guidelines on debt equity ratio
ECB Policy. It allows certain eligible borrowers issued, if any, by the sectoral or prudential
including NBFC’s to raise funds from recognized regulator concerned.
lenders for working capital and general corporate
purposes subject to fulfillment of minimum ECB liability-Equity ratio: For the purpose of ECB
average maturity period and other conditions liability-equity ratio, ECB amount will include
under ECB Framework. It also allows NBFCs all outstanding amount of all ECBs (other than
to borrow for on-lending purposes. There are INR denominated) and the proposed one (only
also other relaxations brought out by circular outstanding ECB amounts in case of refinancing)
with respect to end use provisions for certain while equity will include the paid-up capital and
category of eligible corporate borrowers and free reserves (including the share premium
lender banks. One can refer to the circular at received in foreign currency) as per the latest
https://www.rbi.org.in/Scripts/NotificationUser. audited balance sheet. Both ECB and equity
aspx?Id=11636&Mode=0. amounts will be calculated with respect to the
foreign equity holder. Where there are more
F. Parking of ECB Proceeds than one foreign equity holders in the borrowing
ECB proceeds are permitted to be parked abroad company, the portion of the share premium in
as well as domestically in a manner prescribed foreign currency brought in by the lender(s)
by RBI. concerned shall only be considered for calculating
the ratio. The ratio will be calculated as per latest
G. Limits and Leverage audited balance sheet.
Under the ECB framework, all eligible borrowers
can raise ECB up to USD 750 million or H. Exchange rate on conversion
equivalent per financial year under automatic
route. Particulars Rate to be considered

Form FCY Cannot exceed the Exchange Rate
ECB into on the date of such agreement for
INR ECB conversion.

From INR Exchange rate prevailing at the
ECB to date of settlement
Rupee

6.24 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

I. Hedging provision Sr. Type of Period of Applicable
The entities raising ECB are required to follow No. Return/ delay LSF
the guidelines for hedging issued, if any, by the
concerned sectoral or prudential regulator in Form INR 100,000
respect of foreign currency exposure. per year
3 Form ECB 2/ Beyond
J. Procedure for raising ECBs under Form ECB three years
approval route from due
date of
The borrowers may approach the RBI with an submission/
application in prescribed format (Form ECB) for date of
examination through their AD Category I bank. drawdown
Such cases shall be considered keeping in view
the overall guidelines, macroeconomic situation M. Conversion of ECB into Equity
and merits of the specific proposals. Conversion of ECBs, including those which are
matured but unpaid, into equity is permitted
L. Reporting requirements subject to the following conditions:
a. Loan Registration Number is a mandatory
i. The conversion, which should be with the
requirement for borrowing under ECB lender’s consent and without any additional
framework. cost, should not result in contravention of
eligibility and breach of applicable sector
b. Changes in Terms and Conditions of ECB cap on the foreign equity holding under FDI
should be reported to the DSIM through policy;
revised Form ECB within 7 days.
ii. Applicable pricing guidelines for shares are
c. The borrowers are required to report actual complied with;
ECB transactions through Form ECB 2
Return through the AD Category I bank on iii. In case of partial or full conversion of ECB
monthly basis so as to reach DSIM within into equity, the reporting to the Reserve Bank
seven working days from the close of month has to be complied with.
to which it relates.
iv. If the borrower concerned has availed
d. Non Submission of Form ECB 2, will attract of other credit facilities from the Indian
late submission fee. banking system, including foreign
branches/subsidiaries of Indian banks, the
Sr. Type of Period of Applicable applicable prudential guidelines issued
No. Return/ delay LSF by the Department of Banking Regulation
of Reserve Bank, including guidelines on
Form INR 5,000 restructuring are complied with;

1 Form ECB 2 Up to 30 INR 50,000 v. Consent of other lenders, if any, to the same
calendar per year borrower is available or atleast information
days from regarding conversions is exchanged with
due date of other lenders of the borrower.
submission
vi. For conversion of ECB dues into equity, the
2 Form ECB 2/ Up to three exchange rate prevailing on the date of the
agreement between the parties concerned
Form ECB years from for such conversion or any lesser rate can
be applied with a mutual agreement with
due date of

submission/

date of

drawdown

BCAS 6.25
Referencer
2021-2022

FEMA and International Taxation

the ECB lender. It may be noted that the fair borrowing entity shall inform about pendency of
value of the equity shares to be issued shall such investigation/adjudication/appeal to the AD
be worked out with reference to the date of Category-I banks/RBI as the case may be.
conversion only.
O. ECB by entities under restructuring/ECB
N. Borrowings by Entities under facility for Resolution Applicants under
Investigation CIRP

All entities against which investigation/ An entity which is under restructuring scheme/
adjudication/appeal by the law enforcing corporate insolvency resolution process can
agencies for violation of any of the provisions raise ECB only if specifically permitted under the
of the Regulations under FEMA is pending, may resolution plan.
raise ECBs as per the applicable norms. The

P. Brief Framework of ECB facility for Startups

Sr. Particulars Framework for availing ECB under Automatic Route
No.

1. Eligibility An entity recognised as a Start-up by the Central Government as on date
of raising ECB

2. Maturity Minimum average maturity period will be 3 years.

3. Recognised Lender / investor shall be a resident of a FATF compliant country.
Lender However, foreign branches/subsidiaries of Indian banks and overseas
entity in which Indian entity has made overseas direct investment as per
the extant Overseas Direct Investment Policy will not be considered as
recognized lenders under this framework.

4. Forms Loans or non-convertible, optionally convertible or partially convertible
preference shares.

5. Currency Any freely convertible currency or in Indian Rupees (INR) or a combination
thereof. In case of borrowing in INR, the non-resident lender, should
mobilise INR through swaps/outright sale undertaken through an AD
Category-I bank in India.

6. Limit The borrowing per Start-up will be limited to USD 3 million or equivalent
per financial year either in INR or any convertible foreign currency or a
combination of both.

7. All - in - cost Shall be mutually agreed between the borrower and the lender.

8. End Uses For any expenditure in connection with the business of the borrower.

9. Conversion into Conversion into equity is freely permitted subject to Regulations applicable
Equity for foreign investment in Start-ups.

10. Security Security can be in the nature of movable, immovable, intangible assets
(including patents, intellectual property rights), financial securities, etc.
and shall comply with FDI / FPI / or any other norms applicable for
foreign lenders / entities holding such securities. Further, issuance of
corporate or personal guarantee is allowed. Guarantee issued by a non-
resident(s) is allowed only if such parties qualify as lender under ECB for
Start-ups. However, issuance of guarantee, standby letter of credit, letter
of undertaking or letter of comfort by Indian banks, all India Financial
Institutions and NBFCs is not permitted.

6.26 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Sr. Particulars Framework for availing ECB under Automatic Route
No.
11. Hedging The overseas lender, in case of INR denominated ECB, will be eligible
to hedge its INR exposure through permitted derivative products with AD
12. Conversion Rate Category – I banks in India. The lender can also access the domestic
13. Other Important market through branches/ subsidiaries of Indian banks abroad or branches
of foreign bank with Indian presence on a back to back basis.
Provisions In case of borrowing in INR, the foreign currency - INR conversion will be
at the market rate as on the date of agreement.
Provisions on leverage ratio and ECB liability: Equity ratio will not be
applicable. Other provisions as included in ECB Framework would be
applicable. Other start – ups not included in the aforesaid definition of
start- up but are eligible to receive FDI, can also raise ECBs under the
general ECB route/framework.

Reporting of External Commercial Borrowings

Particulars Forms/ Documents to Period in which Remarks
Documents be Submitted to to be reported

Whom

For Allotment of Form ECB in Designated AD Loan amount 1. Borrowers

Loan Registration duplicate which bank. cannot be drawn may enter into

Number (LRN) also contains till the time LRN is loan Agreement

(both under terms and obtained. complying with the

Automatic and conditions of ECB ECB guidelines

Approval Route) (Certified by a CA with recognised

from RBI or a CS) lender for raising

ECB under the

Automatic Route

without the prior

approval of the

Reserve Bank.

2. Loan Agreement

need not be

submitted.

Monthly return Form ECB- 2 T h r o u g h Within 7 working If there are no

regarding use Return (Certified D e s i g n a t e d days from the transactions, still a

of External by a CA or a CS AD Bank to close of month to NIL return should

C o m m e r c i a l and AD) Department of which it relates. be submitted.

Borrowings. Statistics and

Information

Management

(DSIM), Reserve

Bank of India.

BCAS 6.27
Referencer
2021-2022

FEMA and International Taxation

Particulars Forms/ Documents to Period in which Remarks
Documents be Submitted to to be reported

Whom

Application for Form ECB Designated AD

ECB under (Annexure I) along bank to the Chief

Approval Route with: General Manager-

(1) A copy of offer in-Charge,
letter from the Foreign Exchange
overseas lender/ Department,
supplier furnishing Reserve Bank
complete details of India, Central
of the terms and office, External
conditions of Commercial
proposed ECB and Borrowings
Division, Mumbai.

(2) A copy of the

import contract,

proforma/

commercial

invoice/ bill of

lading certified by

AD.

Conversion of Form FC- GPR Online on FIRMS Within 7 working 1. In case of
ECB into Equity-
In case of Full Form ECB-2 portal (under SMF) days from the Full Conversion
Conversion.
Department of close of month to the words ‘’ECB
Statistics and which it relates. Wholly Converted
to Equity’’ should
Information
be clearly
Management
indicated on top of
(DSIM), RBI
the ECB- 2 form.

2. Once reported,
filing of ECB-2 in
the subsequent
months is not
necessary.

Conversion of Form FC- GPR Online on FIRMS Within 7 working In case of Partial

ECB into Equity- for conversion of portal. Department days from the Conversion the

In case of Partial shares and for of Statistics close of month to words ‘’ECB

Conversion. remaining portion and Information which it relates. Partially Converted

of ECB, Form M a n a g e m e n t to Equity’’ should

ECB- 2 (DSIM), RBI be clearly indicated

on top of the ECB-

2 form

6.28 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Particulars Forms/ Documents to Period in which Remarks
Documents be Submitted to to be reported
Changes/
Modifications in Whom
the drawdown/
repayment Revised Form T h r o u g h Not later than 7 Average maturity
schedule ECB
D e s i g n a t e d days from the period, as
Changes in
the currency of AD Bank to date of changes declared while
Borrowings
Department of effected. obtaining the
Change of the AD
Bank Statistics and LRN should be

Changes in Information maintained.
the Name of
the Borrower Management
Company
(DSIM), Reserve
Change in the
Recognised Bank of India.
Lender
Subject to the
condition that the
proposed currency
of borrowing is
freely convertible.

Subject to the
No- Objection
certificate (NOC)
from the existing
Designated AD
bank.

Subject to

production of

Supporting

Documents

evidencing the

change in the

name from the

Registrar of

Companies.

Authorised dealer
ensuring that the
new Lender is
a Recognised
Lender per the
extant ECB Norm.

BCAS 6.29
Referencer
2021-2022

FEMA and International Taxation

Particulars Forms/ Documents to Period in which Remarks
Documents be Submitted to to be reported

Whom

Cancellation of Subject to
LRN
ensuring that no

Drawdown for

the said LRN

has taken place

and the monthly

ECB-2 returns till

date in respect

of the LRN have

been submitted to

DSIM.

Change in the Subject to
end use of ECB
proceeds. ensuring that the

proposed end

use is permissible

under the

Automatic Route

as per the extant

ECB guidelines

and the monthly

ECB-2 returns till

date in respect

of the LRN have

been submitted to

DSIM.

Reduction in The consent from
Amount of ECB. the Lender for
reduction in Loan
Amount has been
obtained

Reduction in all- Subject to
in-cost of ECB
ensuring that the

consent of the

Lender has been

obtained.

Reporting of FCCB and FCCEB shall be same as Above except for the changes to be incorporated.

TRADE CREDITS
Trade Credits (TC) refer to credits extended for imports directly by the overseas supplier, bank and
financial institution for maturity of less than three years. Trade Credits can be supplier’s trade credits
or buyer’s trade credits.

Supplier’s Trade Credit – credit for imports into India extended by the overseas supplier.

6.30 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Buyer’s Trade Credit – loans from overseas bank date of shipment. No roll-over/extension will be
or financial institution. permitted beyond the permissible period. The
maturity period is the same for transactions under
Amount and Maturity the Automatic Route or the Approval Route. For
Automatic Route - Up to US $ 150 million or shipyards/shipbuilders, the period of Trade Credit
equivalent per import transaction for oil/gas for import of non - capital goods can be up to 3
refining and marketing, airline and shipping years
companies. For others up to USD 50 million or
equivalent per import transaction. All in-cost ceiling for Trade Credits is
benchmark plus 250 basis points. It includes
For import of permissible non-capital goods rate of interest, other fees, expenses, charges,
the maturity period is up to one year from the guarantee fees whether paid in foreign currency
date of shipment or the operating cycle whichever or INR. However, Withholding tax payable in INR
is less. For import of permissible capital goods shall not be a part of all-in-cost.
the maturity period is up to three years from the

Parameters FCY denominated TC INR denominated TC
Exchange
rate in case Exchange Rate prevailing on the Exchange rate will be rate prevailing on the
of change/ date of agreement between parties date of settlement.
conversion concerned for such change or
exchange rate, whichever is less
Hedging than the rate prevailing on the date
provision of agreement, if consented by the
TC lender.
Change of
Currency of The entities raising TC are required The overseas investors are eligible to hedge
Borrowing
to follow the guidelines for hedging, their exposure in Rupee through permitted

if any, issued by the concerned derivative products with AD Category I banks

sectoral or prudential regulator in India. The investors can also access

in respect of foreign currency the domestic market through branches

exposure. Such entities shall have / subsidiaries of Indian banks abroad or

a board approved risk management branches of foreign banks with Indian

policy. presence on a back to back basis.

It is freely permitted It is not permitted

Trade Credits in SEZ/FTWZ/DTA Reporting Requirements
TC can be raised by a unit or a developer in a TC transactions are subject to the reporting
SEZ including FTWZ for purchase of non-capital requirements on monthly basis and quarterly
and capital goods within an SEZ including FTWZ basis in the prescribed format.
or from a different SEZ including FTWZ subject
to compliance with parameters stated therein. i. Monthly Reporting: AD Category I banks are
TC transactions in respect of SEZs and DTAs as required to furnish details of TCs like drawal,
permitted above should also be in compliance utilisation, and repayment of TC approved
with applicable provisions of SEZ Act, 2005 as by all its branches, in a consolidated
amended from time to time. statement, during a month, in Form TC to the
Director, Division of International Trade and

BCAS 6.31
Referencer
2021-2022

FEMA and International Taxation

Finance, Department of Economic Policy and iv. Banks can grant loans without any ceiling
Research, RBI, Central Office, Fort, Mumbai but subject to usual margin requirements
– 400001 through email. (in Indian Rupees in India and in foreign
currency in India or overseas) against
Suppliers’ credit beyond 180 days and NRE and FCNR (B) deposits either to
up to one year/three years from the date the depositors or third parties in India or
of shipment for non-capital/capital goods overseas.
respectively, should also be reported by the
AD banks. Further, permissions granted by 10. Overseas Direct Investments
the AD banks/Regional offices of Reserve
Bank for settlement of delayed import dues Meaning
should also be reported. It means investment outside India by entities by
way of contribution to capital or subscription to
ii. Quarterly Reporting: AD Category I banks Memorandum of Association of a foreign entity
are also required to furnish data on issuance or purchase of existing shares of a foreign entity
of bank guarantees for TCs by all its either by market purchase or private placement
branches, in a consolidated statement, at or through stock exchange but does not include
quarterly intervals on the XBRL platform. portfolio investment.

Borrowings through Loans/Deposits Eligible Entities
i. Indian Companies, other Body Corporates, a. A company incorporated in India; or

Indian Proprietary Concerns and Firms b. A body created under an Act of Parliament;
can accept fresh deposits from NRI or
only if the deposit is by way of debit to
the NRO account of the lender and the c. Partnership firm registered under the Indian
amount deposited does not represent inward Partnership Act, 1932;
remittances or transfer from NRE/FCNR
(B) Accounts into the NRO Account of the d. A Limited Liability Partnership (LLP),
lender. However, they are permitted to hold registered under the Limited Liability
and renew on maturity existing deposits Partnership Act, 2008.
received by them on repatriation as well as
non- repatriation basis. e. Any other entity in India as may be notified
by the Reserve Bank.
ii. Resident Individuals are permitted to avail of
interest free loans up to US $ 250,000 from f. Resident Individual upto USD 2,50,000 under
their NRI / PIO relative(s) (as defined under LRS Scheme
the Companies Act, 2013) subject to certain
conditions. When more than one such company, body or
entity makes investment in the foreign JV / WOS,
iii. Special permission of RBI will be required such combination will also form an “Indian Party”.
in case where deposits / loans do not fulfill HUFs, AOPs, etc. are not allowed to invest
the specified criteria or where the deposits/ abroad. Proprietary concern and Unregistered
loans are on repatriation basis in the case of Partnership firm can invest abroad only after
proprietary concerns and firms. obtaining prior approval from RBI.

6.32 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

S Prior Permission required S General Permissions for purchase/

No. No. acquisition of securities and sale of

shares/securities so acquired

1. Investments in Real Estate Business 1. Out of funds held in RFC account; and

(buying and selling of real estate or trading in 2. As bonus shares on foreign securities
Transferable Development Rights (TDRs) but held in accordance with the provisions
does not include development of townships, of the Act or rules or regulations made
construction of residential/commercial thereunder
premises, roads or bridges)

2. Banking Business 3. When not permanently resident in India,
out of their foreign currency resources
outside India

A Resident individual (single or in association Remittance Scheme, as prescribed by it from
with another resident individual or with an ‘Indian time-to-time.
Party’), who satisfies the criteria as prescribed,
can invest in the equity shares and compulsorily Joint Ventures / Wholly Owned Subsidiaries
convertible preference shares of a JV or WOS Abroad
outside India. The limit of ODI by the resident Indian investments abroad in Joint Ventures
individual shall not exceed the overall limit (JV) and Wholly Owned Subsidiaries (WOS) are
prescribed by the RBI under the Liberalized permitted by RBI.

Automatic Route Approval Route

Case where prior permission is not required: Case where prior permission from RBI

is required:

Investments can be made under the automatic route Investment exceeding ` 1 billion in a

up to 400% of the net worth (subject to a maximum financial year will be under the approval
investment of ` 1 billion.) of the Indian party as on the route

date of the last audited balance sheet

Indian software exporters are permitted to receive 25 Investment exceeding 400% of the net
per cent of the value of their exports to an overseas worth of the Indian party as on the date of
software start-up company in the form of shares without the last audited balance sheet
entering into the joint agreements without prior approval
of RBI.

There are various options available for investment Eligible Instruments
under both the routes. Investment can be in equity, loans, or by way of
guarantees. Further, these guarantees can be –
Note: For arriving at the net worth of an Indian corporate or personal / primary or collateral and
party, the net worth of its holding company or can be given by the Promoter Company / group
its subsidiary may be taken into account to the company / sister concern / associate company
extent it (the holding / subsidiary company) has in India. The amount and period of guarantee
not undertaken overseas investment and has should be specified upfront. Form ODI will have to
issued a letter of disclaimer in favour of the Indian be filed with RBI for all guarantees given. All the
party.

BCAS 6.33
Referencer
2021-2022

FEMA and International Taxation

guarantees will be considered while computing the prescribed period of realization will
the overall limit of 400% of the net worth. require prior approval of RBI.)

Investment in Compulsory Convertible Preference c. Swap of shares
Shares will be treated at par with equity shares.
d. Proceeds from ECB/FCCBs
Resident Individuals can only invest through
equity shares or Compulsory Convertible e. In exchange of ADRs/GDRs
Preference Shares.
f. Balances held in EEFC account of the
General Guidelines Indian Party and
1. Investments can be made in existing
g. Proceeds of foreign currency funds
companies or new companies or for raised through ADR/GDR issues.
acquiring overseas business.
5. Investment under automatic route will not be
2. Registered Trusts and Societies engaged in permitted to parties on RBI Caution List, or
manufacturing/ educational/ hospital sector who have defaulted to the banking system
in India can invest in a JV / WOS outside in India and whose names appear on the
India, in the same sector, after obtaining prior Defaulter’s list.
permission of RBI.
6. Share certificates/other documents where
3. The foreign entity can be engaged in any share certificates are not issued, should be
industrial, commercial, trading, agriculture, submitted within six months from the date of
service industry, financial services such as investment and dividends, royalties, etc. due
insurance, mutual funds, etc. However, any to Indian investor should be repatriated to
overseas entity which has equity participation India within 60 days of its falling due.
directly / indirectly by Indian parties cannot
offer financial products linked to Indian 7. In case of partial/full acquisition of an existing
Rupee (e.g., non-deliverable trades involving foreign company, where (i) the investment is
foreign currency, rupee exchange rates, more than US $ 5 million or (ii) investment
stock indices linked to Indian market, etc.) by way of swap of shares, irrespective of
without obtaining specific approval of RBI. the amount, valuation of the shares of the
The rationale behind it is that the Indian company must be made by a Category-I
Rupee is currently not fully convertible and Merchant Banker registered with SEBI or
such products could have implications for the an Investment Banker / Merchant Banker
exchange rate management of the country. outside India registered with the appropriate
regulatory authority in the host country. In
4. Investment in an overseas JV/WOS can be all other cases valuation can be made by a
by way of: Chartered Accountant or a Certified Public
Accountant.
a. Drawal of foreign exchange from an AD
Bank in India 8. Indian Parties are allowed to issue corporate
guarantees on behalf of their first level step
b. capitalization of exports of goods and down operating JV/WOS set up by their JV/
services. WOS operating as either an operating unit
or as a Special Purpose vehicle under the
(For contribution by way of exports, no Automatic Route, subject to the condition
agency commission will be payable to that the financial commitment of the Indian
the WOS/JV. Capitalisation of export Party is within the permitted limit. Such
proceeds remaining unrealised beyond guarantee will have to be reported to the
RBI.
6.34
BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Further the issuance of corporate guarantee made either in freely convertible currencies
on behalf of second generation or or in Indian Rupees. However, if investment
subsequent level step down subsidiary will is made in freely convertible currencies then
be considered under the Approval Route, all dues receivable on such investments as
provided the Indian Party indirectly holds well as their sale/ winding up proceeds are
51 per cent or more stake in the overseas required to be repatriated to India also in
subsidiary for which such guarantee is freely convertible currencies. An Indian Party
intended to be issued. can invest in an entity in Pakistan under an
Approval Route.
9. In the event of changes proposed in the
JV/WOS regarding activities, investment in 14. Entities setting up Branch/JV/WOS overseas
another concern / subsidiary or alterations for trading in Commodities Exchanges
of share capital, the IP should report such Overseas will have to obtain clearance from
changes to RBI as prescribed. the Forward Markets Commission.

10. Listed companies are permitted to write off 15. Shares held in the overseas JV/WOS or
capital and other receivables up to 25 per Step Down Subsidiary (SDS) are allowed to
cent of the equity investment in the JV/WOS pledge by way of security for availing fund
under the Automatic route and Unlisted based and/or non-fund based facilities for
companies are permitted to write-off capital the IP or the JV/WOS from a Bank in India
and other receivables up to 25 per cent of or abroad.
the equity investment in the JV/WOS under
the approval route. 16. Creation of charge on movable/immovable
property and other financial assets of the
Such write-off/ restructuring have to reported Indian entity and their group companies
to the RBI along with a certified copy of allowed under approval route within the
the balance sheet showing the loss in the overall limit of 400% of the net worth.
overseas WOS/JV set up by the Indian
Party and projections for the next five years 17. An Indian Party cannot invest in an overseas
indicating benefits accruing to the Indian entity either set up or acquired directly
party consequent to such changes within 60 or indirectly abroad, located in countries
days of write-off. identified by the Financial Action Task Force
(FATF) as “non co-operative countries
11. Disinvestment can be either under the and territories.”. Investment/ financial
automatic route or approval route. All such commitments in Pakistan by Indian Parties
proposals should be accompanied by a are permissible under the approval route
Chartered Accountant’s valuation report.
The Indian Party must submit details of 18. An Indian party may create charge, by way
such disinvestment through its designated of pledge, on the shares of JV/WOS or
AD within 30 days from the date of SDS outside India as a security in favour of
disinvestment. an Authorized Dealer or a public financial
institution in India or an overseas lender, for
12. Resident Indian does not need permission to availing of fund based or non-fund based
accept appointment as Director on boards of facility for itself or for its JV/WOS/SDS.
overseas company or to act as Trustee of an
overseas Trust. 19. Resident Individual is allowed to invest only
in operating JV/WOS and no step down
13. Investment in Nepal can be made in Indian subsidiary is allowed to be acquired or set
Rupees only. Investment in Bhutan can be up by the said JV/WOS.

BCAS 6.35
Referencer
2021-2022

FEMA and International Taxation

Annual Performance Report of accounts of JV / WOS, the Indian Party

– An Indian Party should submit an Annual may submit the APR based on the un-

Performance Report (APR) in Form ODI audited annual accounts of the JV / WOS

through the designated AD, along with only if the same has been adopted and

Audited Annual Accounts, Directors’ Report ratified by the Board of the Indian Party.

of the Overseas Company, on or before Such an exemption will not be available in

December 31 every year for reporting respect of entities in a country which is under

pre/post commencement of commercial observation of Financial Action Task Force

operation. (FATF) or any other country as prescribed by

– In case the law of the host country does not the RBI.

necessarily require auditing of the books – APR in case of resident individual investors

has to be self – certified.

Investments by Employees

Sr. Type of Employee RBI Limits Remarks
No.

1. Employee or Director in India of an No Limit The shares so acquired can also be
Indian office or branch of a foreign repurchased by the foreign company/
company or of a subsidiary in India sold without obtaining RBI permission
of foreign company or of an Indian provided the sales proceeds are
company irrespective of foreign equity repatriated to India.
holding (whether directly or through
a SPV or step down subsidiary) may
purchase equity shares

2. An employee or Director of the Indian The shares so The percentage of shares held

promoter company of an overseas JV/ acquired should by the Indian promoter company

WOS engaged in the field of software not exceed 5% together with the shares allotted to

can purchase shares of the paid- up its employees is not less than the

capital of the JV/ percentage of shares held by the

WOS Indian promoter company prior to the

allotment of shares to the employees.

3. A resident employee (including Should not The issue of employees’ stock

working director) of companies exceed the option by a listed company shall

based in the knowledge-based ceiling as be governed by SEBI (Employees’

sectors (information technology, stipulated by Stock Option and Stock Purchase

pharmaceuticals, biotechnology) can RBI from time to Scheme) Guidelines, 1999 and the

purchase foreign securities under the time. issue of employees stock option

ADR/GDR linked Employees’ Stock by an unlisted company shall be

Option Scheme governed by the guidelines issued by

the Government of India for issue of

ADR/GDR linked stock options.

6.36 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Investment in Agricultural Operations – Business travel, if the visits are for
Overseas international conference, seminars, etc.
An Indian company or a partnership firm
registered under the Indian Partnership Act, 1932 – Acquisition of a property abroad
is permitted to undertake agricultural operations
including purchase of land incidental to such – Investment in overseas companies
activity. Investment can be made either directly (including incorporation of a new company)
(through a branch) or through an overseas
subsidiary/joint venture up to 400% of its net – Opening of a bank account outside India
worth.
– Emigration or employment abroad
Investment by recognised star exporters
A proprietary concern/unregistered partnership – Students pursuing their education abroad
firm engaged in the business of exports are
permitted to invest up to 10% of the average – Medical treatment abroad
three years export realization or 200% of their net
owned funds, whichever is lower after obtaining Even minors are eligible under this scheme but
prior approval of RBI, subject to the following the LRS form needs to be countersigned by the
conditions: – minor’s natural guardian.

1. The exporter should be classified as ‘Status However, remittance facility under the Scheme
Holder’ as per Foreign Trade Policy. cannot be used for the following:

2. The exporter should be KYC compliant and – Remittance for any purpose specifically
must be engaged in the proposed business. prohibited under Schedule-I (like
purchase of lottery tickets/sweep stakes,
3. Export outstanding should not exceed 10% proscribed magazines, etc.) or any item
of the average export realisation of the restricted under Schedule II of Foreign
preceding three years. Exchange Management (Current Account
Transactions) Rules, 2000
4. The exporter should not be on caution list of
the RBI, etc. – Remittance from India for margins or
margin calls to overseas exchanges /
Investment can be through an overseas overseas counterparty
subsidiary / joint venture. Application for approval
will have to be made in Form ODI. – Capital account remittances, directly or
indirectly to countries identified by the
Remittance under the Liberalised Remittance Financial Action Task Force (FATF) as “non-
Scheme (LRS) of US $ 250,000 co-operative countries and territories”, from
An individual resident in India is permitted to remit time-to-time
outside India up to US $ 250,000 per financial
year for any legal and lawful purpose without – Remittances directly or indirectly to those
obtaining prior permission of RBI. An illustrative individuals and entities identified as
list of the permitted activities is as follows: posing significant risk of committing acts
of terrorism as advised separately by the
– Remittance towards gift (including gift by Reserve Bank to the banks.
way of credit to the NRO account in India
of the overseas relative) and donation, or – A resident cannot gift to another resident,
in foreign currency, for the credit of latter’s
– Non-business related travel overseas foreign currency account held abroad under
LRS

Foreign Currency Account of Indian Party
An Indian party is permitted to open, hold and
maintain a Foreign Currency Account (FCA)
abroad for the purpose of overseas direct

BCAS 6.37
Referencer
2021-2022

FEMA and International Taxation

investments (ODI) if the host country Regulations Normal procedure for repatriation of investment
stipulate that investments into the country must income and closure of bank account upon
be routed through a designated account in that divestment will apply.
country. This account can be used only for
overseas investments in JV/WOS under ODI and For greater insights about the issues on Overseas
receipt of entitlements from such investments. Direct Investment, kindly refer to FAQs by RBI at
https://rbi.org.in/Scripts/FAQView.aspx?Id=32.

Reporting of Overseas Investment

Particulars Name of Form/ Document Period in which Where to
to be Reported submit
Application for Part I of Form ODI along with
Prior Approval To RBI through
AD
investment under 1. Statutory Auditor’s Certificate
Approval Route

2. Letter to the AD

3. Board resolution

4. Incorporation certificate and
valuation certificate of overseas
entity (if applicable)

5. Diagrammatic representation of
organizational structure of the entity

Investment under Part I of Form ODI along with To be submitted To RBI through

Automatic Route Statutory Auditor’s Certificate prior to the AD

investment

Intimation of changes Relevant Section of Form ODI - Part Within period of To RBI through

Post Investment I 30 days of the AD

approval of those

decisions.

Closure/ Disinvestment/ Automatic Route - Part III of Form Within 30 days of To RBI through

Voluntary Liquidation/ ODI Disinvestment AD

Winding up of JV/ WOS Approval Route - Part III of form ODI Within 30 days of To RBI through

Disinvestment AD

Annual Performance Part II of Form ODI along with On or Before 31st To RBI through

Report (APRs) 1. Financials of overseas entity December every AD
year for preceding

2. Certificate from Statutory Auditor/ year ended on

Indian Party 31st March.

Capitalisation of Export Form ODI - Part I Prior Approval To RBI through
proceeds or other of The Reserve AD
Entitlements, which are Bank.
overdue

6.38 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Particulars Name of Form/ Document Period in which Where to
to be Reported submit

Write- Off/ restructuring Intimation along with Within 30 days To RBI through

have to be reported a) A certified copy of the balance of Write- off/ AD
to The Reserve Bank Sheet showing the loss in the Restructuring.
through the designated overseas WOS/ JV set up by the
AD category- I bank Indian Party;
within 30 days of Write-
off/ restructuring. b) Projections for the Next five years
indicating benefit accruing to the

Indian Company consequent to such

Write- off/ Restructuring.

Application for Form ODI Prior Approval To RBI through
AD
investment in case of

Acquisition through

bid/ tender in case

bidding terms is not in

conformity with the ODI

regulations.

11. Cross Border Merger Regulations
Section 234 of the Companies Act, 2013, Ministry of Corporate Affairs had issued Companies
(Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 on April 13, 2017 to
operationalise this section.

To address FEMA issues, RBI on 26th April, 2016 placed on its website the draft guidelines for cross-
border merger, demerger, amalgamation and arrangement between Indian companies and foreign
companies pursuant to the Rules notified by MCA which have now been notified as “Foreign Exchange
Management (Cross Border Merger) Regulations.

Inbound & Outbound Merger – Merger or amalgamation of a Foreign Company with an Indian
Company

Meaning Inbound cross-border merger would Outbound Cross Border Merger
mean that the resultant company would mean where the resultant
would be Indian Company company is a foreign company

Conditions to be Resultant company would be allowed to • A person resident in India may

complied with issue any security/foreign security to a acquire or hold securities of the

by the resultant person resident outside India provided resultant company in accordance

company it complies with FDI Regulations1 with ODI Regulations

including:- • A resident individual may acquire

• Pricing Guidelines securities outside India provided

• Entry routes that the fair market value of such
• Sectoral caps securities is within the limits
prescribed under the Liberalized

• Attendant conditions Remittance Scheme laid down
• Reporting requirements in the Act or rules or regulations
framed thereunder.

BCAS 6.39
Referencer
2021-2022

FEMA and International Taxation

Meaning Inbound cross-border merger would Outbound Cross Border Merger
mean that the resultant company would mean where the resultant
would be Indian Company company is a foreign company

It should also comply with conditions laid
down in ODI Regulations for transfer/
acquisition of shares in following cases:

• Where the foreign company is a JV/
WOS of the Indian company

• Where such merger of the JV/WOS
results into acquisition of the Step
down subsidiary of the JV/ WOS
of the Indian party by the resultant
company

Compliance An office outside India of the foreign An office in India of the Indian
by office of the company, post-merger shall be deemed company, pursuant to sanction of the
foreign/Indian to be the branch/office outside India Scheme of cross border merger, may
company of the resultant company and may be deemed to be a branch office in
undertake any transaction as permitted India of the resultant company and
Guarantees to a branch/office under the aforesaid may undertake any transaction in
or outstanding Regulations in accordance with relevant3 accordance with relevant regulations
borrowings of regulations.
the foreign/
Indian company The guarantees or outstanding • The guarantees or outstanding
borrowings of the Indian company
borrowings of the foreign company from which become the liabilities of
the resultant company shall
overseas sources which become the be repaid as per the Scheme
sanctioned by the NCLT in terms
borrowing of the resultant company or of the Companies (Compromises,
Arrangement or Amalgamation)
any borrowing from overseas sources Rules, 2016.

entering into the books of resultant Also, the resultant company shall
not acquire any liability payable
company shall conform, within a period towards a lender in India in
Rupees which is not in conformity
of two years, to the External Commercial with the Act or rules or regulations
framed thereunder.
Borrowing norms or Trade Credit norms
Further, a no-objection certificate
or other foreign borrowing norms, as • to this effect should be obtained
laid down under ECB Regulations4 as from the lenders in India of the
Indian company.
applicable.

Another condition is that no remittance

for repayment of such liability is made

from India within such period of two

years. •

However, conditions with respect to end

use shall not apply.

6.40 BCAS
Referencer
2021-2022

Foreign Exchange Management Act, 1999

Meaning Inbound cross-border merger would Outbound Cross Border Merger
mean that the resultant company would mean where the resultant
Acquisition or would be Indian Company company is a foreign company
holding of an
asset outside The resultant company may acquire and The resultant company may acquire
India and in
India hold any asset outside India which an and hold any asset in India which

Indian company is permitted to acquire a foreign company is permitted to

under the provisions of the Act, rules acquire under the provisions of the Act,

or regulations framed thereunder. Such rules or regulations framed thereunder.

assets can be transferred in any manner Such assets can be transferred in any

for undertaking a transaction permissible manner for undertaking a transaction

under the Act or rules or regulations permissible under the Act or rules or

framed thereunder. regulations framed thereunder.

Where the asset or security outside India Where the asset or security in India

is not permitted to be acquired or held cannot be acquired or held by the

by the resultant company under the Act, resultant company under the Act, rules

rules or regulations, the resultant company or regulations, the resultant company

shall sell such asset or security within shall sell such asset or security within

a period of two years from the date of a period of two years from the date of

sanction of the Scheme by NCLT and the sanction of the Scheme by NCLT and

sale proceeds shall be repatriated to India the sale proceeds shall be repatriated

immediately through banking channels. outside India immediately through

Where any liability outside India is not banking channels. Repayment of Indian
permitted to be held by the resultant liabilities from sale proceeds of such
company, the same may be extinguished assets or securities within the period
from the sale proceeds of such overseas of two years shall be permissible.

assets within the period of two years.

Opening of a The resultant company may open a The resultant company may open a

Bank Account bank account in foreign currency in the Special Non-Resident Rupee Account

Outside India/in overseas jurisdiction for the purpose of (SNRR Account) in accordance with

India putting through transactions incidental to the Foreign Exchange Management

the cross border merger for a maximum (Deposit) Regulations, 2016 for the

period of two years from the date of purpose of putting through transactions

sanction of the Scheme by NCLT. under these Regulations. The account

shall run for a maximum period of two

years from the date of sanction of the

Scheme by NCLT.

Valuation or the foreign company, as the case may be,
The valuation of the Indian company and the may be paid, in accordance with the Scheme
foreign company shall be done in accordance sanctioned by the NCLT.
with Rule 25A of the Companies (Compromises,
Arrangement or Amalgamation) Rules, 2016. (2) The companies involved in the cross-border
merger shall ensure that regulatory actions,
Miscellaneous if any, prior to merger, with respect to non-
(1) Compensation by the resultant company, to compliance, contravention, violation, as the
case may be, of the Act or the Rules or
a holder of a security of the Indian company

BCAS 6.41
Referencer
2021-2022

FEMA and International Taxation

the Regulations framed thereunder shall be B. Others
completed.
Branches/Trading Foreign Foreign

Reporting Offices of Indian Subsidiaries Companies
The resultant company and/or the companies
involved in the cross-border merger shall be Companies of Indian
required to furnish reports as may be prescribed
by the RBI. Companies

1. For their No No
business restrictions restrictions

Deemed approval 2. Residence of
(1) Any transaction on account of a cross- their staff

border merger undertaken in accordance 13. Branch / Liaison / Project Office outside
with these Regulations shall be deemed India
to have prior approval of the Reserve
Bank as required under Rule 25A of the An Indian entity opening a Branch /
Companies (Compromises, Arrangement and Representative / Liaison office outside India is
Amalgamations) Rules, 2016. allowed to remit, subject to certain terms and
conditions, as under:
(2) A certificate from the Managing Director/
Whole Time Director and Company a. For Initial Expenses – Up to 15% of its
Secretary, if available, of the company(ies) average annual sales/income or turnover
concerned ensuring compliance to these during the last two accounting years or up to
Regulations shall be furnished along with 25% of net worth, whichever is higher.
the application made to the NCLT under the
Companies (Compromises, Arrangement or b. For Recurring Expenses – Up to 10% of its
Amalgamation) Rules, 2016. average annual sales/income or turnover
during the last two accounting years.
12. Acquisition and Transfer of Immovable
Property outside India The overseas office is also permitted to acquire
immovable property outside India for its business
Immovable property outside India can be acquired and for residential purpose of its staff out of the
above remittances.
by following persons:
14. Compounding & Contravention under
A. Individuals FEMA

Person Resident In Indian Foreign Contravention, Penalties & Appeals
India Nationals Nationals Penalties for contraventions under FEMA are per
Resident Resident in se monetary in nature. If any person contravenes
Outside / Outside any provisions, rules, regulations, etc. the
penalty imposed can be up to 3 times of the
India India sum involved in contravention; and if the sum
of contravention is not ascertainable, penalty
1. By way of gift or No No can be up to ` 200,000. If the contravention
inheritance from any restrictions restrictions is a continuing one, a further penalty up to `
person resident in 5,000 per day may be imposed for every day
India but who was after the 1st day during which the contravention
a non- resident and continues.
had acquired the
property while he If any person is found to have acquired any
was a non-resident foreign exchange, foreign security or immovable

2. By purchase out of BCAS
funds held in RFC Referencer
Account 2021-2022

6.42

Foreign Exchange Management Act, 1999

property, situated outside India, of the aggregate contraventions other than cases under section
value exceeding the threshold prescribed u/s. 3(a) of FEMA. Cases of contravention under
37A (at present the limit prescribed is ` one section 3(a) relate to dealing in or transfer of
crore), then such person is liable to: foreign exchange and foreign security to any
person other than an authorised dealer. For these,
a. Penalty up to 3 times the sum involved. Enforcement Directorate will be responsible.

b. Confiscation of the value equivalent situated Depending on the sum involved, various officers
in India. have been designated to look into applications for
compounding. In case where the sum involved in
c. Imprisonment for a term which may extend such contravention is
to 5 year + fine.
• ` 10 lakh or below - The Assistant General
The adjudicating officer / competent authorities Manager of the Reserve Bank of India
may also confiscate any currency, security or
property in addition to imposing penalty. If a • More than ` 10 lakh but less than ` 40 lakhs
person does not pay up the penalty within 90 - The Deputy General Manager of Reserve
days, he is liable for civil imprisonment. Bank of India;

There is a right to appeal given at every • More than ` 40 lakh but less than ` 100
stage and an appeal against an order of the lakhs - The General Manager of Reserve
Adjudicating Authority can be made to the Bank of India;
Special Director (Appeals). An appeal against
the order of the Special Director (Appeals) can • ` 100 lakhs or more - The Chief General
be made to the Appellate Tribunal. An appeal, Manager of the Reserve Bank of India;
on questions of law, against the order of the
Appellate Tribunal can be made to the High (Provided further that no contravention shall be
Court. compounded unless the sum involved in such
contravention is quantifiable)
A person preferring an appeal to the Special
Director (Appeals) or the Appellate Tribunal can The compounding authority can call for any
take assistance of a Chartered Accountant or information, record or any other documents
Legal Practitioner. relevant to the compounding proceedings. The
compounding authority is required to pass
Compounding of Contraventions an order within 180 days from the date of
Powers for compounding of offences – RBI has application. The sum for which the contravention
been given powers for compounding all cases of is compounded has to be paid within 15 days
from the date of order of compounding.

Power of Compounding of Contraventions by Power of Compounding of Contraventions

Regional Offices / Sub-offices of RBI by FED Co., Cell, New Delhi

Delay in reporting inward remittance received for Contraventions relating to acquisition and

issue of shares transfer of immovable property outside India

Violation of pricing guidelines for issue of shares Contraventions relating to acquisition and

transfer of immovable property in India

Delay in issue of shares/refund of share application Contraventions relating to establishment in India
money beyond 60 days, mode of receipt of funds of Branch Office, Liaison Office or Project Office

Issue of ineligible instruments such as non- Contraventions falling under Foreign Exchange
convertible debentures, partly paid shares, shares Management (Deposit) Regulations, 2000
with optionality clause

BCAS 6.43
Referencer
2021-2022

FEMA and International Taxation

Power of Compounding of Contraventions by Power of Compounding of Contraventions
Regional Offices / Sub-offices of RBI by FED Co., Cell, New Delhi

Issue of shares without approval of RBI or FIPB
respectively, wherever required

Delay in submission of Form FC-TRS on transfer
of shares from Resident to Non-Resident &Vice
versa

Receiving investment in India from non-resident
or taking on record transfer of shares by investee
company, in the absence of certified Form FC-TRS

Delay in reporting the downstream investment
made by an Indian Entity to Secretariat for
Industrial Assistance, DIPP.

Delay in reporting receipt of amount of
consideration for capital contribution and
acquisition of profit shares by LLP/delay
in reporting disinvestment/transfer of capital
contribution of profit share between resident and
non - resident in case of LLP

Gift of equity instruments by a person resident in
India to a person resident outside India without
seeking prior approval of the RBI.

With an intention to ensure more transparency However, the remittance should not exceed US$
and greater disclosure, RBI has decided to one million per financial year. The limit will not cover
upload a summary information in respect of the sale proceeds of assets held on repatriation basis.
Compounding Orders passed on or after 1st Remittances of balances held in a bank account
March, 2020 instead of the Compounding Orders by a foreign student who has completed his/her
on Bank’s website. studies is also allowed, provided such balance
represents proceeds of remittances received from
15. Miscellaneous abroad through normal banking channels or rupee
proceeds of Forex brought by such person and sold
Remittances of proceeds of assets by foreign to an authorised dealer or out of stipend/scholarship
nationals received from the Government or any organisation
Remittance of proceeds of assets by a foreign in India. All these facilities are not available for
national are allowed where: citizens of Nepal or Bhutan or a PIO.

(i) the person has retired from employment in Remittance of proceeds of assets by NRIs/
India; PIOs
NRIs/PIOs, on submission of documentary
(ii) the person has inherited from a person who evidence, are allowed to remit up to US$ one
was resident in India; million per financial year:

(iii) the person is a non-resident widow/ (i) out of balances in NRO A/c or sale proceeds
widower and has inherited assets from her/ of assets or assets acquired in India by way
his deceased spouse who was an Indian of inheritance/legacy;
national resident in India.

6.44 BCAS
Referencer
2021-2022

(ii) in respect of assets acquired under a deed of Foreign Exchange Management Act, 1999
settlement made by either of his/her parents
or relative (as defined in Companies Act, during the lifetime of the owner/parent, it
2013); would tantamount to regular transfer by way
of gift and the remittance of sale proceeds
(iii) in cases where settlement is not done by of such property would be guided by the
retaining any life interest in the property i.e., existent instructions on remittance of balance
in the NRO A/c.

2

BCAS 6.45
Referencer
2021-2022

FEMA and International Taxation

Foreign Contribution (Regulation) Act, 2010

1. Introduction 3.1 Foreign Source
An Act to consolidate the law to regulate the It includes:–
acceptance and utilisation of foreign contribution
or foreign hospitality by certain individuals a. Government of any foreign country or any
or associations or companies and to prohibit agency of such Government;
acceptance and utilisation of foreign contribution
or foreign hospitality for any activities detrimental b. Any international agency except United
to the national interest and for matters connected Nations or any of its specialised agencies,
therewith or incidental thereto. World Bank, International Monetary Fund
or such other agency as the Central
2. Applicability Government may, by notification in the
It extends to whole of India, and also applies to Official Gazette, specify;

a. Citizens of India who are outside India. c. Foreign company;
d. Corporation, other than foreign company,
b. Associate branches or subsidiaries, outside
India, of companies or bodies corporate, incorporated outside India;
registered or incorporated in India. e. A multinational corporation;
f. A company where more than 50% of its
3. Foreign Contribution
FC means donation, delivery, or transfer made by share capital is held by a foreign government
any foreign source of:– or citizens of a foreign country or foreign
entity (includes company, corporations,
a. Any article other than personal gifts of market trusts, societies or other associations of
value not exceeding such sum as may be individuals registered in foreign country);
specified by the Central Government. g. A foreign trust or foreign foundation and
includes trust or foundation mainly financed
b. Any currency whether Indian or foreign. by a foreign country; and

c. Any security including foreign security. h. Citizen of a foreign country.

Notes: This will also cover: i. Foreign Trade Union, Society, Club or Other
Association.
a. Contribution received from any person who
has in turn received it from a foreign source Note: Amount received from a non-resident Indian
citizen in foreign currency, would not be treated
b. Interest accrued on FC deposited in the bank as foreign source.

However, any amount received, by any person 4. Restrictions on Accepting FC
from any foreign source in India, by way of The person having a definite cultural, economic,
fee (including fees charged by an educational educational, religious or social programme can
institution in India from foreign student) or towards accept FC, only if:
cost in lieu of goods or services rendered by such
person in the ordinary course of business, trade a. It is registered with the Central Government
or commerce, whether within India or outside under this Act or takes prior permission
India or any contribution received from an agent before receiving each contribution.
of a foreign source towards such fee or cost
shall be excluded from the definition of foreign b. It receives FC only through one designated
contribution. bank account.

6.46 BCAS
Referencer
2021-2022