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Fema - Rules and Regulations - Summary
Part I - Rules and Regulations, of interest to Foreign Investors
Current Account Transactions
(GSR 381 E dated 3rd May, 2000)
In terms of provisions of section 5 of Foreign Exchange Management Act, any person may sell or draw foreign exchange to or from an authorised dealer if such sale or withdrawal is a current account transaction.
The provisio to section 5 empowers Government of India, in public interest and in consultation with the Reserve Bank to impose reasonable restrictions on certain current account transactions.
Drawal of foreign exchange for the following purposes in terms of Rule 3 of GSR381 and Schedule 1 specified therein is prohibited:
Remittance out of lottery winnings; Remittance of income from racing/riding, etc. or any other hobby; Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes, etc.; Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiary abroad of Indian companies; Remittance of dividend by any company to which the requirement of dividend balancing is applicable; Payment of commission on exports under Rupee State Credit Route; Payment related to "Call Back Services" of telephones; Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c; or
Travel to Nepal or Bhutan; or
A transaction with a person resident in Nepal or Bhutan. This prohibition may be exempted by RBI subject to terms and conditions, by special or general order.
Exchange facilities for transactions included in Schedule II to the Rules may be permitted by authorised dealers provided the applicant has secured the approval from the Ministry / Department of Government of India indicated against the transactions.
Under rule 5 no person shall draw Foreign Exchange unless out of such person Resident Foreign Currency Account for a transaction included in Schedule III attached thereto without prior approval of the Reserve Bank of India i.e.
Release of Exchange exceeding US$ 10,000 or its equivalent in one calendar year for One or more private visits to any country (except Nepal and Bhutan)
Gift Remittances exceeding US$ 5,000 per remitter/donor per annum
Donations exceeding US$ 5,000 per remitter/donor per annum
Exchange facilities exceeding US$ 1,00,000 for person going abroad for employment
Exchange facilities exceeding US$ 1,00,000 for emigration or exceeding the amount prescribed by country of emigration
Remittance for maintenance of close relatives abroad:-
(a) Exceeding net salary (after deduction of taxes, contribution to Provident Fund and other deductions) of a person who is resident but not permanently resident in India and the citizen of Foreign state other than Pakistan
(b) Exceeding US$ 1,00,000 per year per recipient in all other casesRelease of Foreign Exchange exceeding US$ 25,000 to a person irrespective of period of stay for business travel or attending conference or specialized training or for maintenance expenses of a patient going abroad for medical treatment or checkup abroad or for accompanying as attendant to a patient going abroad for medical treatment / check
(8) Release of Foreign Exchange for meeting expenses for medical treatment exceeding US$ 1,00,000 or its equivalent.
(9) Release of Foreign Exchange for studies abroad exceeding the estimates from the institution abroad or US$ 1,00,000 per academic year which is higher
(10) Release of Foreign Exchange towards commission to agent abroad for sale of residential flats / commercial plots in India exceeding the limits of US$ 25,000 or 5% of the inward remittance per transaction whichever is higher
(11) Remittance towards consultancies services exceeding US$ 1,000,000 (One million dollars) per project for any consultancy services procured from outside India
(12) Remittance towards purchase of Trade Marks / Franchise
(13) Remittance exceeding US$ 1,00,000 by an entity in India by way of reimbursement of pre-incorporation expenses
Subject to certain conditions, restrictions imposed by Rule 4 and 5 shall not apply to payments of Foreign Exchange out of Exchange Earnings Foreign Currency (EEFC) account of the remitter. Also vided Govt. notification 33 of 15th January, 2003 nothing contained in Rule 5 shall apply to the use of International Credit Card for making payments by a person towards meeting expenses while such person is on a visit outside India.
The existing procedure to be followed by Indian companies for entering into collaboration arrangements with overseas collaborators would continue.
There would be no restriction regarding receipt of advance payment or back-to-back letter of credit for merchanting trade transactions.
IIn terms of Notification GSR 386(E) regarding .Borrowing or Lending in Foreign Exchange, approval of Reserve Bank would be required for importers availing of supplier's Credit beyond 180 days and Buyer's Credit irrespective of the period of credit.
Remittances of surplus freight / passage collections by shipping airline companies or their agents, remittances by break bulk agents, multi-modal transport operators, remittance of freight pre-paid on inward consolidation of cargo, operating expenses of Indian airline / shipping companies etc. may be permitted by authorised dealers after verification of documentary evidence in support of the remittance.
Permissible Capital Account Transactions
(GSR 384 E) dated 3rd May, 2000)
(Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities (a) outside India of persons resident in India; or (b) in India of persons resident outside India, and includes transactions referred to in Section 6(3) of FEMA, 1999).
In terms of these Regulations investment in India by a person resident outside India in any business of Chit Fund or as a Nidhi Company or in Agricultural or Plantation activities or in Real Estate business (other than development of townships, construction of residential / commercial premises, roads or bridges) or construction of farm houses or trading in Transferable Development Rights (TDRs) is prohibited.
Following Capital Account Transactions are permissible:-
By persons resident in India: - According to Schedule I, following transactions are permitted:
For Investment in foreign securities; Foreign currency loans raised in India and abroad; Transfer of immovable property outside India; Guarantees issued in favour of a person resident outside India; Export, import and holding of currency/currency notes; Loans and overdrafts (borrowings) from a person resident outside India; Maintenance of foreign currency accounts in India and outside India; Taking out of insurance policy from an insurance company outside India; loans and overdrafts to a person resident outside India, Remittance outside India of capital assets; Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad. Save as otherwise provided in the Act, Rules and Regulations no person shall undertake or sell or draw Foreign Exchange to / from an authorised person for any Capital account transaction provided that subject to the provisions of the Act and Rules and Regulations a resident individual may draw from an authorised person Foreign Exchange not exceeding US$ 25,000 per calendar year from a capital account transaction specified in Schedule I. Where the drawl of Foreign Exchange for a capital account exceeds US 25,000/- per calendar year the limit specified in the regulations relevant to the transaction shall apply. Provided further that no part of the above referred Foreign Exchange of US$ 25,000 drawn shall be used for remittance to countries notified as non cooperative countries and territories by Financial Action Task Force (FATF) from time to time and communicated by RBI to all concerned.
By persons resident Outside India: - According to Schedule II, the following transactions are permitted:
For Investment in India; Acquisition and transfer of immovable property in India; Guarantee in favour of, or on behalf of, a person resident in India; Import and export of currency/currency notes into/from India; Deposits between a person resident in India and a person resident outside India; Foreign currency accounts in India; Remittance outside India of capital assets in India.