After reading this chapter, you will be able to understand:
The act extends to the whole of India. It also applies to:
The authorized dealers and money changers have been clubbed together under the definition of ‘Authorized Person’. In addition it also includes an ‘offshore banking unit’.
The definitions of capital account transaction and current account transaction have been inserted keeping in mind the possibility of introduction of capital account convertibility.
The definitions of ‘export’ and ‘import’ have been inserted on similar lines as The Customs Act, 1962.
The definition of ‘person’ has been inserted and the definition of ‘person resident in India’ has been aligned with the Income Tax Act, 1961. This has probably been done considering the difficulties arising due to different definitions and different interpretations. All non-resident accounts with the banks were on the basis of the definition in the FERA. Now according to the FEMA definition, very few of them will be non-resident accounts. However, the EXIM policy definition still remains different.
The FEMA is a much smaller enactment—49 sections as against 81 sections of the FERA.
The theme of FERA was: ‘everything that is specified is under control’. While the theme of the FEMA is: ‘everything other than what is expressly covered is not controlled’. Thus, there is a lot of deregulation.
In the process of simplification many of the ‘laid downs’ of the erstwhile the FERA have been withdrawn.
Many provisions of the FERA like the ones relating to blocked accounts Indians taking up employment abroad employment of foreign technicians in India contracts in evasion of the act, vexatious search and culpable mental state have no appearance in the FEMA.
A person includes individual, HUF, company, firm, AOP whether incorporated or not and any agency, office or branch owned or controlled by such person.
A person residing in India for more than 182 days during the course of the preceding financial year but does not include—
‘Printex Computer’ is a Singapore based company having several business units all over the world. It has a unit for manufacturing computer printers with its headquarters in Pune. It has a branch in Dubai which is controlled by the headquarters in Pune. What would be the residential status under the FEMA, 1999 of printer units in Pune and that of Dubai branch?
Mr. Ram had resided in India during the financial year 1999–2000, for less than 183 days. He again came to India on 1 May 2000 for higher studies and business and stayed up to 15 July 2001. State under the Foreign Exchange Management Act, 1999:
Examine whether the following branches can be considered as a ‘person resident in India’ under the Foreign Exchange Management Act, 1999:
Examine, with the reference to the provisions of the Foreign Exchange Management Act, 1999 the residential status of the branches mentioned below:
It includes all the currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange, promissory notes, credit cards or such other similar instruments as may be prescribed by the Reserve Bank of India (RBI).
The RBI has notified that debit cards, ATM cards or any other instrument which can be used to create a financial liability is currency.
A foreign currency is any currency other than the Indian currency, dollar, euro and yen are examples of foreign currency.
Foreign exchange means foreign currency and includes the following:
Any security in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency and includes the securities expressed in foreign currency but where redemption or any form of return such as interest or dividend is payable in Indian currency.
This is for every person who is not a person resident in India.
The RBI cannot do all the transactions in Foreign Exchange itself. Hence the RBI delegates its powers to the ‘authorized persons’ with suitable guidelines.
An ‘Authorized person’ means an authorized dealer, money changer, off-shore banking unit or any other person authorized by the RBI to deal in Foreign Exchange and foreign securities.
Generally, all the nationalized banks and foreign banks are appointed as the ‘authorized dealers’ to deal in Foreign Exchange. ‘Authorized dealers’ can deal in all other transactions in Foreign Exchange like bill of exchange, cheques, letter of credit and deposits.
The ‘authorized person’ should deal in Foreign Exchange and foreign securities as per the guidelines issued by the RBI. They should submit reports to the RBI as prescribed. Their accounts can be inspected by the RBI.
Every authorized person granted permission by the RBI shall follow certain guidelines as under:
The RBI can authorize any person as ‘authorized person’. The authorization shall be in writing and subject to the conditions.
The authorization granted by the RBI may be revoked at any time if the RBI is satisfied that it is in public interest to do so the authorized person has failed to comply with the conditions or any provisions of the act. Such a revocation can be done only after the dealer has given an opportunity for making the representation. The RBI can issue directions to the authorized persons and ask them to furnish information.
The RBI can impose a penalty upto ₹ 10,000 for contravention of any direction. In case of continuing contravention a penalty upto ₹ 2000 per day can be imposed by the RBI (Section 11).
The RBI can inspect the accounts of an authorized person for verification, obtaining information and seeking compliance. The authorized person is duty bound to produce all the records books and accounts at the time of inspection (Section 12).
Any transaction other than capital account transaction is current account transaction. It includes the following:
All the current account transactions are generally permitted. A person may sell or draw Foreign Exchange to or from an authorized person if there is such a sale or drawal in the current account transaction.
However, the Central Government may, in public interest and in consultation with the Reserve Bank impose such reasonable restrictions for the current account transactions.
The current account transactions are divided in to the following three categories:
Drawal of Foreign Exchange for the following transactions is prohibited:
The prior approval of the Central Government shall be required for the drawal of Foreign Exchange (by any person) for the purposes listed below:
Purpose of Remittance | Permission Granting Authority |
---|---|
1. Cultural Tours | Ministry of HRD (Department of Education and Culture). |
2. Advertisement in foreign print media for the purposes other than the promotion of tourism, foreign investments and international bidding (exceeding US $10,000) by a State Government and its Public Sector Undertakings | Ministry of Finance, Department of Economic Affairs. |
3. Remittance of Freight of vessel chartered by a PSU | Ministry of Surface Transport (Chartering Wing). |
4. Payment of import through ocean transport by a Government Department or a PSU on c.i.f. basis (i.e. other than f.o.b. and f.a.s. basis) | Ministry of Surface Transport (Chartering Wing). |
5. Multi-modal transport operators making remittance to their agents abroad | Registration Certificate from the Director General of Shipping. |
6. Remittance of hiring charges of transponders by
|
Ministry of Information and Broadcasting. Ministry of Communication and Information Technology. |
7. Remittance of container detention charges exceeding the rate prescribed by the Director General of Shipping | Ministry of Surface Transport (Director General of Shipping). |
8. Remittances under technical collaboration agreements, and payment of royalty | No Permission needed |
9. Remittance of prize money/sponsorship of the sports activity abroad by a person other than International/ National/State Level sports bodies if the amount involved exceeds US $1,00,000 | Ministry of HRD (Department of Youth Affairs and Sports). |
10. Remittance for membership of P&L Club | Ministry of Finance (Insurance Division). |
Prior approval of the Central Government is not required where the payment is made out of funds held in the RFC/EEFC account of the remitter.
Prior approval of the RBI shall be required for the drawal of Foreign Exchange by any person for the purposes listed below. A permission is required to be obtained when the drawal is in excess of the limit prescribed.
Examine, whether the following transactions are permissible or not under the above act as the capital account transactions:
Mr. Basu desires to draw Foreign Exchange for the following purposes:
Advise him whether he can get Foreign Exchange and if so, under what conditions.
Mr. Atul, an Indian national desires to obtain Foreign Exchange for the following purposes:
Mr. Sane, an Indian national desires to obtain Foreign Exchange for the following purposes:
US $50,000 for meeting the expenses of his business tour to Europe. Advise him whether he can get Foreign Exchange and if so, under what conditions?
State which kind of approval is required for the following transactions under the Foreign Exchange Management Act, 1999:
The export of goods and services is current account transaction. The RBI can direct any exporter to comply with the prescribed requirements to ensure that full export value of the goods or such reduced value of the goods as the RBI determines is received without delay.
Every exporter of goods or software in physical form or through any other form, either directly or indirectly to any place outside India, other than Nepal and Bhutan shall furnish to the specified authority, a declaration in one of the forms set out in the schedule. The declaration should be submitted within 21 days from the export.
The declaration should be supported by the evidence specified containing true and correct material particulars including the amount representing the full export value of the goods or services. If the full export value is not ascertainable at the time of export, the exporter shall indicate the amount he expects to receive.
In respect of the export of services to which none of the forms specified in these regulations apply, the exporter may export such services without furnishing any declaration but shall be liable to realize the amount of Foreign Exchange which becomes due or accrues on account of such export and to repatriate to India as per the act.
However, in the following cases, the export of goods or services may be made without furnishing the declaration:
The importer–exporter code number shall be indicated on all copies of the declaration forms submitted by the exporter to the specified authority and in all correspondence of the exporter with the authorized dealer or the Reserve Bank.
On realization of the export proceeds, the authorized dealer shall after due certification submit the duplicate of the EDF or as the case may be SOFTEX form to the nearest office of the Reserve Bank.
The amount representing the full export value of goods or software exported shall be realized and repatriated to India within 6 months from the date of export.
However, if the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of the goods exported shall be paid to the authorized dealer, as soon as it is realized and in any case within 15 months from the date of the shipment of goods. This period of 6 months/15 months can be extended by the RBI or the authorized dealer as per the directions issued by the RBI for a sufficient and reasonable cause. The export on elongated credit terms beyond 6 months can be given only with the approval of the RBI.
An authorized dealer may accept for negotiation or collection, shipping documents, including the invoice and the bill of exchange, covering the exports from his constituent. The person submitting the documents has to give declaration regarding full value of the export goods.
A capital account transactions means, a transaction which alters the assets or liabilities positioned outside India of the persons resident in India or assets or liabilities in India of the persons resident outside India. The liabilities also include the contingent liabilities.
The term capital account transactions include the following:
A person may sell or draw Foreign Exchange from an authorized person for a capital account transaction under an act within the limit.
The capital account transactions can be divided into the following two categories:
Any person who is a resident outside India cannot make investment in India in any company or partnership firm or proprietary concern or any entity which is engaged:
‘Real estate business’ shall not include development of townships construction of residential/commercial premises roads or bridges.
State whether there are any restrictions in respect of the following transactions:
A person resident outside India who is a citizen of India may acquire any immovable property in India other than agricultural/plantation/farm house subject to the following conditions:
A person of Indian origin resident outside India may acquire property other than agricultural/plant/farm from out of the funds received in India by way of inward remittance or the fund held in the NR Account on the following conditions:
A person resident outside India who has established in India a branch/place of business in accordance with the RBI regulations can acquire any immovable property which is necessary for or incidental to carrying on such activity:
A person resident in India can acquire/transfers any immovable property situated outside India as per the following conditions. In other cases general/special permission of the RBI will be required.
The restrictions do not apply to a property held by a person resident in India who is a national of a foreign state or was acquired on or before 1947 or had inherited from the person who was resident outside India.
The person resident in India acquires immovable property outside India by way of gift/inheritance from person resident in India.
The person resident of India also acquires property outside India by way of purchase out of Foreign Exchange held in the RFC account maintained.
The person resident in India has acquired immovable property outside India as per the above provisions; he may transfer it by way of gift to his relative who is the person resident in India.
It means a place of business to act as a channel of communication between the principal place of business/H.O. by whatever name called and the entities in India but which does not undertake any commercial/trading/industrial activity directly or indirectly.
No person resident outside India shall without prior approval of the RBI establish in India a branch or liaison office or project office or any other place of business. However, no approval is necessary for the banking company if it has obtained the necessary approval from the RBI.
A citizen of Pakistan, Bangladesh, China, Iran and Sri-Lanka cannot establish branch or liaison office or project office or any other place of business without the permission of the RBI.
The person resident outside India desiring to establish branch/liaison office shall apply to the RBI in FNC-1.
Where a person resident outside India has secured from India a company contract to execute a project in India and the project is funded by bilateral international finance agency shall apply to the RBI in FNC-1 for the permission to establish a project/site office in India.
The person resident outside India and permitted by the RBI may undertake or carry such activities as specified in the regulation.
The person resident outside India permitted by the RBI to establish project/site office in India shall not undertake or carry on any activity other than activity relating to the execution of the project.
The permitted activities of a person resident outside India for a branch in India:
The person resident outside India permitted by the RBI to establish a branch/project office in India may remit outside India, the profit of branch or surplus of project on its completion, net applicable to taxes on the production of the prescribed documents and establishing net profits.
The deposit includes deposit of money with bank, company, proprietary concern, firm, trust or any other person.
The funds raised through the ADR/GDR can be held in the deposit in foreign currency accounts with bank outside India, pending its utilization or repatriation in India.
The company incorporated in India, the NBFC registered with the RBI may accept deposits from the NRI on repatriation basis subject to following conditions:
Same provisions as above are applicable but repatriation is not permitted.
If the export/import of currency is outside the prescribed norms permission of the RBI will be required.
Any person resident in India may take outside India (other than to Nepal and Bhutan) currency notes of the Government of India and the RBI notes upto an amount not exceeding ₹ 5000 per person.
The person resident of India who had gone out of India on a temporary visit may bring into India at the time of his return from any place outside India (other than from Nepal and Bhutan), currency notes of the Government of India and the RBI notes upto an amount not exceeding ₹ 5000 per person.
No person shall take or send out of India, the Indian coins which are covered by the Antique and Art Treasure Act, 1972.
The person may send into India without the limit of Foreign Exchange in any form other than the currency notes, bank notes and traveller cheques.
Any person can bring into India from any place outside India without limit Foreign Exchange (other than un-issued notes) in form of currency notes, bank notes and traveller cheques. He has to make a declaration in form CDF, if (a) the aggregate value of the Foreign Exchange in the form of currency notes, bank notes or traveller cheques brought in by such person at any one time exceeds US $10,000 or its equivalent and/or (b) the aggregate value of the foreign currency notes brought in by such a person at any one time does not exceed US $5000 or its equivalent.
An authorized person may send out of India, foreign currency acquired in the normal course of business.
Any person may take or send out of India (i) Cheques drawn on foreign currency account maintained. (ii) Foreign Exchange obtained by him by drawal from an authorized person in accordance (iii) currency in the safe of vessels or aircrafts which has been taken on board a vessel or aircraft with the permission of the Reserve Bank.
Any person may take out of India—(i) Foreign Exchange possessed by him in accordance with the FEMA Regulations (ii) un-spent Foreign Exchange brought back by him to India while returning from travel abroad and retained in accordance with the FEMA Regulations.
Any person resident outside India may take out of India un-spent Foreign Exchange which he had brought in India. If the amount exceeds the prescribed limit (of 5000/10,000 US $) he should have made a declaration in the CDF form on his arrival in India.
A person may (i) take or send out of India to Nepal or Bhutan, currency notes of the Government of India and the RBI notes (other than notes of denominations of above ₹ 100), (ii) bring into India from Nepal or Bhutan, currency notes of Government of India and the RBI notes (other than notes of denominations of above ₹ 100 and (iii) take out of India to Nepal or Bhutan or bring into India from Nepal or Bhutan currency notes bring the currency of Nepal or Bhutan.
Mr. Loma, an Indian national desires to obtain Foreign Exchange for the following purposes:
Advise him whether he can get Foreign Exchange and if so, under what condition?
The restrictions are only for the physical possession and retention of foreign currency and not in respect of foreign currency kept in permissible accounts with the authorized dealer’s banks.
Foreign currency or foreign coins can be possessed and retained’ subject to the following limits:
‘Not permanently resident’ means a person resident in India for employment of a specified duration (irrespective of length thereof) or for a specific job or assignment the duration of which does not exceed three years.
A person who is entitled to obtain Foreign Exchange should surrender it to ‘authorized dealer’. He can retain with himself in only as per provisions of the regulations. The provisions of these regulations do not apply to Foreign Exchange in the form of currency of Nepal or Bhutan.
The person, resident in India to whom any amount of Foreign Exchange is due or has accrued shall take all reasonable steps to realize and repatriate to India such Foreign Exchange.
On realization of the Foreign Exchange due a person shall repatriate the same to India, i.e. bring into or receive in India, and
The person shall be deemed to have repatriated the realized Foreign Exchange to India when he receives in India a payment in rupees from the account of a bank or an exchange house situated in any country outside India maintained with an authorized dealer.
The person shall sell the realized Foreign Exchange to an authorized person within:
If a person who has acquired or purchased Foreign Exchange for any purpose mentioned in the declaration made by him to an authorized person does not use it for such purpose or for any other purpose for which the purchase or acquisition of Foreign Exchange is permissible he shall surrender such Foreign Exchange or the unused portion thereof to an authorized person within a period a 60 days from the date of its acquisition or purchase by him.
If Foreign Exchange acquired or purchased by any person from an authorized person, is for the purpose of foreign travel then the un-spent balance of such Foreign Exchange shall be surrendered to an authorized person:
The directors of enforcement, additional director, special director, deputy director and asst. director of enforcement are appointed by the Central Government. These officers have powers similar to those conferred on the I.T. Act to the income tax authority:
It may happen that during investigation, draft/cheque/other instrument may come in possession of E.A. That instrument can be given to the RBI/Authorized person for encashment. They will encash the instrument and credit the proceeds realized to separate A/c in name of ‘Directorate of Enforcement’.
The RBI/authorized person who encashes cheque/draft/instrument will be identified by the Central Government for any liability that may be incurred by them.
The amount in credit may be returned to the person by the adjudicating authority if it is found that these is no contravention. The Indian currency seized will be returned at the rate 6% interest.
The Central Government can authorize certain officers as a adjudicating authority. They can adjudicate cases in respect of violation of the FEMA. These are quasi-judicial authority. They have to follow the principles of natural justice by giving the opportunity of making representation.
The adjudicating authority can hold enquiry only on receiving complaint from the authorized officer. The person can appear either in person or take assistance of the legal practitioner. The adjudicating authority shall dispose off the complaint within one year. If it is not possible he should record the reason for not disposing off the complaint within one year.
A penalty can be imposed, up to thrice the sum involved in such contravention where the amount is quantifiable. If the amount is not quantifiable a penalty up to ₹ 2,00,000 can be imposed.
The adjudicating authority can order the confiscation of any currency, security or any other money property in respect of which contravention has taken place. The authority can direct that the Foreign Exchange holding of any person committing contravention shall be brought back to India.
Right/obligations/proceedings/appeal shall not abate by reason of death or insolvency of the person liable. A proceeding can be continued by or against legal representative.
The person to whom penalty is imposed, is required to make a payment within 90 days of receipt of notice. If such payment is not made he is liable to civil imprisonment up to six months if the demand is for less than ₹ 1 crore if the demand exceeds ₹ 1 crore civil imprisonment can be up to three years. If a person to whom show cause notice is issued does not appear before the adjudicating authority warrant of arrest can be issued.
Every application for compounding shall be made along with a fee of ₹ 5000 by way of demand draft in favour of the compounding authority. The application can be made before the commencement of the adjudication or during the process of adjudication but not after the determination of penalty through adjudication.
The offence once compounded, will not be a subject matter of adjudication at any time in future. An application for compounding shall be disposed off by the respective authority within a period of 180 days and the compounding fee so determined shall be paid within a period of 15 days failing which it is presumed that the offence has not been compounded. An offence once compounded and then a similar offence cannot be compounded again within a period of three years. No contravention shall be compounded unless the amount involved in such contravention is quantifiable.
One copy of the order made shall be supplied to the applicant and the adjudicating authority as the case may be.
All resident individuals are eligible to avail of the facility under the scheme. The facility is not available to corporate, partnership firms, HUF and Trusts.
This facility is available for making remittance upto $ 2,50,000 per financial year for any current or capital account transactions or a combination of both but including remittances towards gift and donation by a resident individual.
The remittance facility under the scheme is not available for:
Bring out the significant differences between the Foreign Exchange Regulation Act, 1973 and Foreign Exchange Management Act, 1999.
(Ref. Para-16.2)
(Ref. Para-16.3)
Define the term ‘person resident in India’ and ‘person resident outside India’.
(Ref. Para-16.3)
How will you determine whether a particular business unit like a factory or office, is ‘person resident in India’ under the FEMA?
(Ref. Para-16.3)
What do you mean by the expression ‘authorized person’? Explain the provisions relating to the authorized person.
(Ref. Para-16.4)
What are the duties of the authorized person?
(Ref. Para-16.4)
What do you understand by the current account transactions?
(Ref. Para-16.5)
Which are the current account transactions for which drawal of Foreign Exchange is prohibited?
(Ref. Para-16.5)
Which are the current account transactions for which the Foreign Exchange can be drawn subject to the prior approval of the Central Government?
(Ref. Para-16.5)
Which are the current account transactions for which the Foreign Exchange can be drawn subject to the prior approval of the RBI?
(Ref. Para-16.5)
What are the provisions of the FEMA, relating to the export of goods and services?
(Ref. Para-16.6)
In which cases can exports of goods or services be made without furnishing the declaration?
(Ref. Para-16.6)
Explain the meaning of the term ‘capital account transaction’ under the FEMA?
(Ref. Para-16.7)
Which are the prohibited capital account transactions?
(Ref. Para-16.7)
Explain the provisions for acquiring and transferring immovable property in India by the foreign nationals.
(Ref. Para-16.8)
Explain the provisions for acquiring and transferring immovable property out of India by the Indian citizen or persons of Indian origin.
(Ref. Para-16.9)
What are the provisions for opening and maintaining the branch office or place of business in India by the person resident out of India?
(Ref. Para-16.10)
What are the provisions for acceptance of deposit by Indian company from NRI/PIO?
(Ref. Para-16.11)
Write a short note on import and export of Indian currency.
(Ref. Para-16.12)
What are the provisions in respect of possession and retention of foreign currency?
(Ref. Para-16.13)
What are the provisions relating to realization and repatriation of Foreign Exchange?
(Ref. Para-16.14)
Explain the meaning of the term ‘adjudicating authority’ under the FEMA.
(Ref. Para-16.16)
What are the penalties provided under the FEMA for the contravention of provisions of Act?
(Ref. Para-16.16)
Explain the provisions relating to the compounding of offence under the act?
(Ref. Para-16.17)
Explain about the liberalized remittance scheme for the resident individual.
(Ref. Para-16.18)
ANSWER KEYS