Role of FEMA and

repatriation of
assets in India
Corporate Law
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Mohd Yasir Khan

B.A LL.b (H)&th Sem
Faculty of Law
Jamia Millia Islamia
11/10/2014

INDEX

ACKNOWLEDGEMENT
All praise to the Al-Mighty who created the man and gave him the power of knowledge, and
He taught man what he knew not
I would like to extend my heartfelt gratitude to my teacher, Dr. Eqbal Hussain , without
whose able guidance and support this project would not have been possible. The resources of
my college library as well as the internet have been extremely contributory in the completion
of my project. I want to express my sincere thanks to my parents and friends for their love,
support, co-operation and help during the making of this project.

INTRODUCTION TO FEMA
When a business enterprise imports goods from other countries, exports its products to them
or makes investments abroad, it deals in foreign exchange. Foreign exchange means 'foreign
currency' and includes:(i)

deposits, credits and balances payable in any foreign currency;

(ii)

drafts, travellers' cheques, letters of credit or bills of exchange, expressed or drawn

in Indian currency but payable in any foreign currency; and

(iii)

Drafts, travellers' cheques, letters of credit or bills of exchange drawn by banks,

institutions or persons outside India, but payable in Indian currency.

In the light of economic reforms and the liberalised scenario, FERA was replaced by a new
Act called the Foreign Exchange Management Act (FEMA),1999.The Act applies to all
branches, offices and agencies outside India, owned or controlled by a person resident in
India. FEMA emerged as an investor friendly legislation which is purely a civil legislation in
the sense that its violation implies only payment of monetary penalties and fines. However,
under it, a person will be liable to civil imprisonment only if he does not pay the prescribed
fine within 90 days from the date of notice but that too happens after formalities of show
cause notice and personal hearing. FEMA also provides for a two year sunset clause for
offences committed under FERA which may be taken as the transition period granted for
moving from one 'harsh' law to the other 'industry friendly' legislation.

Broadly, the objectives of FEMA are:

(i)

To facilitate external trade and payments;

(ii)

To promote the orderly development and maintenance of foreign exchange market.

The Act has assigned an important role to the Reserve Bank of India (RBI) in the
administration of FEMA. The rules, regulations and norms pertaining to several
sections of the Act are laid down by the Reserve Bank of India, in consultation with
the Central Government. The Act requires the Central Government to appoint as
many officers of the Central Government as Adjudicating Authorities for holding
inquiries pertaining to contravention of the Act. There is also a provision for
appointing one or more Special Directors (Appeals) to hear appeals against the order
of the Adjudicating authorities. The Central Government also establish an Appellate
Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating
Authorities and the Special Director (Appeals). The FEMA provides for the
establishment, by the Central Government, of a Director of Enforcement with a
Director and such other officers or class of officers as it thinks fit for taking up for
investigation of the contraventions under this Act.

FEMA permits only authorised person to deal in foreign exchange or foreign security. Such
an authorised person, under the Act, means authorised dealer, money changer, off-shore
banking unit or any other person for the time being authorised by Reserve Bank. The Act thus
prohibits any person who:

Deal in or transfer any foreign exchange or foreign security to any person not being
an authorized person;

Make any payment to or for the credit of any person resident outside India in any
manner;

Receive otherwise through an authorized person, any payment by order or on behalf

of any person resident outside India in any manner;

Enter into any financial transaction in India as consideration for or in association with
acquisition or creation or transfer of a right to acquire, any asset outside India by any
person is resident in India which acquire, hold, own, possess or transfer any foreign
exchange, foreign security or any immovable property situated outside India.

APPLICABILITY OF FEMA
The Foreign Exchange Management Act 1999 was enacted to consolidate and amend the law
relating to foreign exchange with the objective of facilitating external trade and promoting
the orderly development and maintenance of foreign exchange market in India. FEMA
extends to the whole of India. The Act also applies to all the branches, offices, and agencies
outside India owned or controlled by a resident in India and also to any contravention
committed there under outside India by any person to whom this Act is applied.

REPATRIATION OF ASSETS UNDER FEMA

NRIs remit their earnings to India from their savings abroad but would like to enjoy the
flexibility of repatriating the same in case of adversity. With this in view, the government of
India has provided for repatriation of funds from the non-resident's forex or rupee funds.
RBI directives with respect to repatriation of funds from India:
The government of India and the RBI has set up certain directives to facilitate NRI
repatriation to India.
1. Current Income Repatriation

All income either in the nature of interest, dividends, rent, MFund distribution from
any type of deposit, investment or properties is allowed for repatriation net of income
tax in India. This includes income earned from business in India by a NRI as
proprietor, partner or joint venture entity.
2. Immovable Property

The sale proceeds of the property is permitted for repatriation as under:

1. Exempted from RBI permission

1. Property held for more than 10 years: NRIs/PIOs are permitted to
repatriate the funds held in their NRO A/c up to US$ 100,000 a year
where sale proceeds of immovable property held by them for period of
not less than 10 years is subject to payment of taxes.

I.

The property was acquired by the seller in accordance with the

provisions of foreign exchange law in force at the time of
acquisition.

II.

If the property is sold after 3 years of date of Purchase Deed or

final payment of Purchase consideration which ever is later.
However, the above lock in period of 3 years is not applicable
in case of such property sold by NRI/PIO on or after
19.08.2002

III.

Further exemption from RBI permission comes only up to the

value of purchase consideration paid in Foreign Exchange.

2. RBI permission essential

For NRI who had acquired immovable property in India, and who is not
eligible under clause I above. Sale proceeds of such immovable property can
be repatriated by obtaining special permission of the RBI on the ground of
adversity.
3. Inheritance, Legacy or Bequest

The sale proceeds or realization of assets can be allowed for repatriation only under
the following grounds.

I.

Exempted from RBI Permission:

NRIs/PIOs will be able to remit up to US$100000 per calendar year
out of the assets in India acquired by them by way of
inheritance/legacies. This has been enhanced to an overall limit
(including remittances of proceeds of immovable property held for
more than 10 years, remittance for education and medical purposes) of
US$ 1 million.

II.

RBI permission essential:

Besides the clause I seeking exemption from RBI permission and for
any other assets, repatriation is allowed only after obtaining special
permission of the Reserve Bank India on specific reasons such as
adversity and subject to conditions as specified in the permission.

4. Other assets (Without repatriation Rights)

The sale proceeds or realization of NRI assets is permitted for repatriation as follows:
- Deposits with Banks/Firms/Companies.
- P.F/Superannuation Balance
- Life Insurance Maturity income/claims
- Sale proceeds from shares & securities
- Any other assets/Immovable Property

NRI repatriation is allowed only by obtaining special permission of the RBI on the
ground of adversity etc. and subject to conditions as specified in the permission.

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5. NRIs/PIOs are allowed to repatriate the funds held in their NRO A/c for:

i. education of their children, where they can spend up to USD 30000 per academic
year.
ii. the medical expenses abroad of the account holder or his family members up to
USD 100000.
Although, this individual limit has been enhanced to an overall limit of US$ 1 million,
as effective from 13 January 2003 subject to further review by RBI. This can be
considered aggregate of remittances of proceeds of immovable property held for more
than 10 years, proceeds of inherited property, remittance for education and medical
purposes.

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Role of FEMA in Acquisition and Transfer of Immovable Property in India

by a person resident outside India
Acquisition of immovable property in India by persons resident outside India (foreign
national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act
(FEMA), 1999 as well as by the regulations contained in the Notification No. FEMA
21/2000-RB dated May 3, 2000, as amended from time to time. Section 2 (v) and Section 2
(w) of FEMA, 1999 defines `person resident in India' and a `person resident outside India',
respectively. Person resident outside India is categorized as Non- Resident Indian (NRI) or a
foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. The
Reserve Bank does not determine the residential status. Under FEMA, residential status is
determined by operation of law.

In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India
can hold, own, transfer or invest in Indian currency, security or any immovable property
situated in India if such currency, security or property was acquired, held or owned by such
person when he was a resident in India or inherited from a person who was a resident in
India.
The regulations under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended
from time to time, permit a NRI or a PIO to acquire immovable property in India, other than
agricultural land or, plantation property or farm house. Further, foreign companies who have
been permitted to open a Branch or Project Office in India are also allowed to acquire any
immovable property in India, which is necessary for or incidental to carrying on such activity.
Such dispensation is however not available to entities which are permitted to open liaison
offices in India.
The restrictions on acquiring immovable property in India by a person resident outside India
would not apply where the immovable property is proposed to be acquired by way of a lease
for a period not exceeding 5 years or where a person is deemed to be resident in India.

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In order to be deemed to be a person resident in India, from FEMA angle, the person would
need to comply with the provisions of Section 2(v) of FEMA 1999.

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