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May, 2011
CHARTERED ACCOUNTANTS
Preamble to FEMA
Post liberalization (i.e.
(i e New Industrial policy of 1991) there
was need to remove shackles of regulatory and legal
provisions
Need to consolidate and amend the law relating to foreign
exchange with the objectives of facilitating external trade and
payments and for promoting the orderly development and
maintenance of foreign
g exchange
g market in India.
Need to take various steps to make New Industrial Policyworkable and meaningful.
Industrial licensing was made pragmatic and objective
objectiveoriented
It was decided to review provisions of Foreign Exchange
Regulation Act,
Act 1973 (FERA)
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CHARTERED ACCOUNTANTS
Preamble to FEMA
Intention was to bring
gp
provisions of FERA so as make it fall
in line with emerging trends of liberalization so as to remove
obstacles in the inward flow of foreign exchange and foreign
investment
Accordingly, on June 1, 2000, the Foreign Exchange
Management Act, 1999 (FEMA) brought in force to replace
the then existing FERA.
It is an act to manage the foreign exchange of India as
opposed to FERA which was enacted to regulate/control the
foreign exchange.
CHARTERED ACCOUNTANTS
Structure of FEMA
Applies
pp
to the whole of India and all branches,, offices and
agencies outside India which are owned or controlled by a
person resident in India.
FEMA has 49 sections of which 9 ((section 1 to 9)) are
substantive and the rest are procedural/ administrative
Section 46 of FEMA grants power to Central Government to
makes rules to carry
y out the p
provision of FEMA
Section 47 of FEMA grants power to RBI to make regulations
to implement its provisions and the rules made there under
RBI is entrusted with the administration and implementation
of FEMA
CHARTERED ACCOUNTANTS
Substantive Provision
Section 1 application
pp
and commencement of FEMA
Section 2 Important definitions like Authorized Person,
Person, Person Resident in India etc.
Section 3 Power to RBI for giving general or special
permission for transactions involving foreign exchange or
any receipt or payments between resident and non- resident
Section 4 Prohibits a person resident in India to acquire,
hold, own, possess or transfer any foreign exchange, foreign
security or immovable property situated outside India
except as provided in the Act
Section 5 - Permits any person to sell or buy foreign exchange
to or from an authorized person on account of any current
account transaction
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CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
Authorised Person
Capital Account Transaction
Current Account Transaction
E
Export
t
Foreign Exchange
Person
Person Resident in India
Person resident outside India
Repatriate to India
d
Security
Transfer
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CHARTERED ACCOUNTANTS
Implementation IT Act
A t visavis
i
i FEMA
Under Income Tax,, issue is of taxability
y of income which
is determined for the full year, therefore generally
amendments are annual
Whereas FEMA regulations are for undertaking
transaction (generally between Resident & Non
Resident) itself & therefore clarity at the time of
undertaking transaction is a must
Therefore amendments keep
p p
pace with changes
g taking
g
place in economy
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
Corresponding Notification
Transfer or issue of any foreign security by Notification No. 120 dated July 7, 2004 Foreign
a person resident in India
Exchange Management (Transfer or Issue of Any
Foreign Security) Regulations, 2004
Transfer or issue of any security or foreign Notification No. 2 dated May 3, 2000 - Foreign
security by any branch, office or agency in Exchange Management (Issue of Security in India by a
India of a person resident outside India
branch, office or agency of a person resident outside
India) Regulations, 2000
Any borrowing or lending in rupees in Notification No. 3 dated May 3, 2000 - Foreign
whatever form or by whatever name Exchange Management (Borrowing or Lending in
called
ll d
F i Exchange)
Foreign
E h
) Regulations,
R
l ti
2000
Any borrowing or lending in rupees in Notification No. 4 dated May 3, 2000 - Foreign
whatever form or by whatever name Exchange Management (Borrowing and Lending in
called between a person resident in India Rupees) Regulations, 2000
and
d a person resident
d
outside
d India
d
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CHARTERED ACCOUNTANTS
10
Corresponding Notification
Deposits between persons resident in Notification No. 5 dated May 3, 2000 - Foreign Exchange
India and persons resident outside India Management (Deposit) Regulations, 2000
Export, import or holding of currency or Notification No. 6 dated May 3, 2000 - Foreign Exchange
currency
y notes
Management
g
((Export
p
and Import
p
of Currency)
y)
Regulations, 2000
Transfer of immovable property outside Notification No. 7 dated May 3, 2000 - Foreign Exchange
India, other than a lease not exceeding Management (Acquisition and Transfer of Immovable
five years, by a person resident in India
Property outside India) Regulations, 2000
Acquisition or transfer of immovable Notification No. 21 dated May 3, 2000 - Foreign
property in India, other than a lease not Exchange Management (Acquisition and transfer of
exceeding five years, by a person resident Immovable Property in India) Regulations, 2000
outside India
Giving
Gi
i off a guarantee
t or surety
t in
i respectt N
Notification
tifi ti No.
N 8 dated
d t d May
M 3,
3 2000 - Foreign
F i Exchange
E h
of any debt, obligation or other liability Management (Guarantees) Regulations, 2000
incurred (i) by a person resident in India and
owed to a person resident outside India
(ii) by a person resident outside India
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
Definition of PIO
Under FEMA 13/2000
/
((Remittance of Assets):)
'Person of Indian Origin' means a citizen of any country other than
Bangladesh or Pakistan if
a)) He
H att anytime
ti
h ld Indian
held
I di passport;
t or
b) He or either of his parents or any of his grand-parents was a
citizen of India by virtue of the Constitution of India or the
Citizenship Act, 1955 (57 of 1955); or
c) The person is a spouse of an Indian citizen or a person referred
);
to in sub-clause ((a)) or ((b);
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CHARTERED ACCOUNTANTS
Definition of PIO
Under FEMA 21/2000 ((Acquisition
q
immovable property in India):-
and
transfer
of
17
CHARTERED ACCOUNTANTS
Definition of PIO
Under FEMA 24/2000 ((Investment in Firm or p
proprietary
p
y
concern in India):'Person of Indian Origin' means a citizen of any country other than
Bangladesh
g
or Pakistan or Sri Lanka,, if
a) He at any time held India passport; or
b) He or either of his parents or any of his grandparents was a
citizen of India by virtue of the Constitution of India or the
Citizenship Act, 1955 (57 of 1955); or
c) The person is a spouse of an Indian citizen or a person referred
to in sub
sub-clause
clause (a) or (b);
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
21
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
b)
c)
d))
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
Schedule II:
1. Cultural tours
2. Remittance of container detention charges exceeding the rate
prescribed by Director General of Shipping
27
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
Deposits By Non-residents
Deposit,
p
a capital
p
account transaction referred to in
section 6(3)(f) and sub-section (2) of sec. 47 of FEMA,
includes deposit of money with a bank, company,
proprietary
p
p
y concern, p
partnership
p firm, corporate
p
body,
y
trust or any other person.
Acceptance of deposits by an authorized dealer/bank
from persons resident outside India would be as under:
- Non-resident (Ordinary) Account Scheme (NRO Account)
- Non-resident (External) Account Scheme (NRE Account)
- Foreign Currency (Non-resident) Account Banks Scheme
(FCNR(B) Account)
35
CHARTERED ACCOUNTANTS
FCNR(B) ACCOUNT
NRE ACCOUNT
NRO ACCOUNT
(Individuals
of
Who can open an NRI
Bangladesh / Pakistan
account?
nationality / ownership
requires prior approval
of RBI)
NRI (Individuals of
Bangladesh / Pakistan
nationality / ownership
requires prior approval
of RBI)
Repatriable
Type of account
Current,
Savings, Current, Savings, Recurring or
Recurring
or
Fixed Fixed Deposit Accounts
Deposit Accounts
Joint accounts
CHARTERED ACCOUNTANTS
FCNR(B) ACCOUNT
NRE ACCOUNT
NRO ACCOUNT
Nomination
Permitted
Permitted
Permitted
Currency
in
which
account
denominated
Indian Rupees
Indian Rupees
Operations
by
Power
of
Attorney (POA)
in favour
f
off a
resident by the
non-resident
account holder
Operation
in
the
account in terms of POA
is
restricted
to
withdrawals
hd
l
f
for
permissible
local
payments or remittance
to the account holder
himself
se tthrough
oug normal
o a
banking channels.
Operation
in
the
account in terms of
POA is restricted to
withdrawals
hd
l
f
for
permissible
local
payments
or
remittance
to
the
accountt holder
accou
o de himself
se
through
normal
banking channels.
37
CHARTERED ACCOUNTANTS
FCNR(B) ACCOUNT
Permissible
Credits
Remittance in permitted
foreign
currency,
proceeds of foreign
currency / bank notes
tendered
during
temporary visit to India,
transfer from other NRE
/ FCNR account etc.
Permissible
Debits
Local
disbursements,
remittance
outside
India, transfer to other
NRE / FCNR account
etc.
NRE ACCOUNT
Remittance
in
permitted
foreign
currency, proceeds of
foreign currency /
bank notes tendered
during temporary visit
to India, transfer from
other NRE / FCNR
account etc.
Local disbursements,
remittance
outside
India, transfer to other
NRE / FCNR account
etc.
38
NRO ACCOUNT
Remittance in permitted
foreign currency, Deposit by
account
holder
during
temporary visit to India,
Transfer from rupee account
of non-resident banks, Dues
in India of accountholder
Local
rupee
payments,
Remittance outside India of
current income in India (net
of taxes)
CHARTERED ACCOUNTANTS
NRE ACCOUNT
Rupee Loan India million
Upto
Rs.
NRO ACCOUNT
Rupee Loan 10
India - Permitted
Outside India Not
permitted
Outside
India
Permitted provided no
funds are remitted back
to India and are used
abroad only
Not permitted
Not permitted
39
CHARTERED ACCOUNTANTS
FCNR(B) ACCOUNT
NRE ACCOUNT
NRO ACCOUNT
P
Purpose
P
Purpose
P
Purpose
In India
In India
In India
F
For direct
di t investment
i
t
t in
i
India in firms / companies
on non-repatriation basis
F
For direct
di t investment
i
t
t in
i
India in firms / companies
on non-repatriation basis
For
personal
purpose
or
business purpose
except
for
relending
or
agricultural
/
plantation activity
or for investment
in
real
estate
business
Outside India
Outside India
40
Outside India
Not permitted
CHARTERED ACCOUNTANTS
NRE ACCOUNT
Rupee Loan India million
Upto
Rs.
NRO ACCOUNT
Rupee Loan 10
India - Permitted
Outside India Not
permitted
Outside
India
Permitted provided no
funds are remitted back
to India and are used
abroad only
Not permitted
Not permitted
Not permitted
41
CHARTERED ACCOUNTANTS
FCNR(B) ACCOUNT
NRE ACCOUNT
NRO ACCOUNT
P
Purpose
P
Purpose
P
Purpose
In India
In India
In India
Outside India
Outside India
For
personal
purpose
or
business purpose
except
for
relending
or
agricultural
/
plantation activity
or for investment
in
real
estate
business
42
Outside India
Not permitted
CHARTERED ACCOUNTANTS
43
CHARTERED ACCOUNTANTS
Inbound Investments
CHARTERED ACCOUNTANTS
Background
FDI p
policy
y is formulated by
y Government of India
FEMA regulations prescribe the mode of investments
i.e. manner of receipt of funds, issue of
shares/convertible
h
/
tibl debentures
d b t
and
d preference
f
shares
h
and reporting of the investments to RBI
45
CHARTERED ACCOUNTANTS
Investor
(Other than
citizen &
entity of
Pakistan))
NRI
NonResident
Proposed
p
Activity in
India
Prohibited
Activities
Approval
Route
Automatic
Route
Mode of
Remittance
NRE
Inward
Remittance
46
Procedural
Compliance
at the time
of
Investment
Annual
Compliance
CHARTERED ACCOUNTANTS
Inbound Investments
Corporate
Entity
Fresh Investment
FDI, Portfolio
Investment,
FVCI,
Investment on
non-repatriation
basis, Investment
in securities other
than shares &
debentures
Partnership
firm/
Proprietary
concern
Limited
Liability
Partnership
Venture
Capital Fund
Establishment of
Branch / Liaison
/ Project office
Transfer of
existing
shares
To NonResident
By Non
NonResident
47
CHARTERED ACCOUNTANTS
Inbound Regulations
Broad Framework
CHARTERED ACCOUNTANTS
Inbound Regulations
B d Framework
Broad
F
k
Regulation 4 Except as provided in FEMA or Rules or
Regulations made thereunder,
thereunder an Indian entity shall not issue
any security to any person resident outside India or record in its
books any transfer of security from or to such person.
Regulation 5 - prescribes various schemes under inbound
investment for NR and NRIs
Regulation 6 & 7 - Acquisition of Right Shares & under
merger/de merger
merger/de-merger
Regulation 8 - Issue of shares under ESOP
g
9 & 10 - p
provisions relating
g to transfer of shares
Regulation
by/to Non Resident
Regulation 11 - Repatriation of sale proceeds
49
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
FDI Scheme
FDI Scheme is divided into 3 parts:
p
51
CHARTERED ACCOUNTANTS
Besides above foreign investment in any form, foreign technology collaboration in any
form including licensing for franchise,
franchise trademark,
trademark brand name,
name management contract is
also completely prohibited for Lottery Business and Gambling and Betting activities.
52
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
56
CHARTERED ACCOUNTANTS
57
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
R
Reporting
ti off issue
i
off shares:
h
Shares shall be issued within 180 days from the date of from the date of
receipt of fund (from the date of receipt of the inward remittance or date of
debit to NRE/FCNR(B)
/
( ) account))
If the shares are not issued within 180 days, then amount received shall be
refunded back
Refund / allotment of shares beyond a period of 180 days from the date of
p of fund may
y be considered by
y RBI, on the merits of the case.
receipt
Report to be filed in Part A of form FC-GPR within 30 days from the date of
issue of shares alongwith valuation certificate and certificate from the
Company Secretary for compliance of Companies Act, 1956
Annual Return in shall be filed in the revised format by 15tth July every year
59
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
If y
you learn onlyy methods you
y will
be tied to your methods,
but if you learn principles you can
device your own methods.
methods