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CA Final Course Paper 4 Chapter 23 Corporate And Allied Laws CA

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Description

Foreign Exchange Management Act,1999

(Coverage- Approx

Definitions: Sec

Authorised Person means an authorized dealer,

off-shore banking unit or any other person for the time being authorized under Sec

Authorised person

Authorized Dealer,

eBanks,

Two Works:A

Buy& Sale Forex

Money Changer,

One Work:- to buy and sale Forex

Off-shore banking unit

Person authorized U/S 10(1) of FEMA

Restricted Money Changer,

e He can only buy Forex and then surrender it to AD

Full Fledged Money Changer,

Branch of Bank Situated in SEZ

Three idiots of FEMA

Current Account Transaction

Authorized Person

Capital Account Transact

Capital Account Transaction means a transaction which alters the assets or liabilities,

including contingent liabilities,

assets or liabilities in India of Person Resident Outside India,

AND Includes transactions referred to in Section 6(3)

Current Account Current Account Transaction Transaction

Means a transaction other than a capital account transaction Sec

and short-term banking and credit facilities in the ordinary course of business,

payments due as interest on loans and as net income from investments,

remittances for living expenses of parents,

spouse and children residing abroad,

expenses in connection with foreign travel,

education and medical care of parents,

Currency Sec

Foreign Currency Indian Currency

Currency includes all currency notes,

bills of exchange and promissory notes,

credit cards or such other similar instruments,

Foreign Currency means any currency other than Indian currency

Foreign exchange means foreign currency and includes: deposits,

credits and balances payable in any foreign currency

letters of credit or Bills of Exchange------expressed or drawn in Indian currency but payable in any foreign currency,

letters of credit or Bills of Exchange-----drawn by banks,

but payable in Indian currency

Foreign Security Foreign Security means any security,

debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency,

but where redemption or any form of such as interest or dividend is payable in Indian currency

Security Security means shares,

Government Sec

deposit receipts in respect of deposits of securities and units of the Unit Trust of India or of any mutual fund and includes certificates of title to securities,

but doesn’t include Promissory Notes or Bills of Exchange

Person Sec

Person includes: an individual,

 an association of persons or a body of individuals,

 every artificial judicial person,

not falling within any of the preceding sub- clauses,

office or branch owned or controlled by such person

Person resident in India (PRI) Sec

(A) a person who has gone out of India or who stays outside India (a)for or on taking up employment outside India,

or (b)for carrying on a business or vocation outside,

or 9(c) for any other purpose,

in such circumstances as would indicate his intention to stay outside India for an uncertain period

(B) a person who has come to or stay in India,

otherwise than a) for or on taking up employment in India,

or b) for carrying on a business or vocation in,

in such circumstances as would indicate his intention to stay in India for

Person resident in India (PRI) any person or body corporate registered or incorporated in India,

branch or agency in India owned or controlled by a Person Resident Outside India

branch or agency outside India owned or controlled by a PRI

'Person resident outside India' means a person who is not resident in India

Section 2(w),

A had resided in India during the FY 2011-2012 far less than 183 days

He had come to India on an April,

What would be his residential status during the FY 2012-13

? Courtesy- Study material of ICAI Ans

of days of Previous F/Y Financial Year Residential Status Stay in F/Y 2012-13 PROI Less than 183 2011-2012 days Mr

A had come to India far taking up employment

However,

he was in India far less than 183 days

Since he has not fulfilled the condition of staying in India far more than 182 days,

he cannot be considered as PRI during the FY 2012-13 notwithstanding the purpose or duration of his stay

Now Commentary

An Individual has to satisfy the following conditions for being PRI 1

The Individual shall be residing in India for at least 183 days during the preceding financial year

The Individual shall be residing in India for at least 183 days during the preceding financial year for any one of the three following reasons

for or on taking up employment in India,

(b) for carrying on a business or vocation in,

in such circumstances as would indicate his intention to stay in India for an uncertain period

The Individual shall NOT go out of India for any residing in India for at least 183 days during the preceding financial year for any one of the three following reasons

(a) for or on taking up employment outside India,

or (b) for carrying on a business or vocation outside,

in such circumstances as would indicate his intention to stay outside India for an uncertain period Conditions (1) has to be satisfied in preceding financial year

Conditions (2) and (3) has to be satisfied in preceding financial year and also in financial year

Ek hi financial year me ek person PRI bhi ho sakta ha and PROI bhi ho sakta ha…

Aur phir se PRI bhi ho sakta ha…

X had resided in India during the FY 1999-2000 far less than 183 days

He had come to India on April 1,

He intends to leave the business on April 30,

What would be his residential status during the FY 2000-01 and during 2001-02 upto the date of his departure

? Courtesy- Study material of ICAI No

of days of Previous F/Y Stay in F/Y Less than 183 1999-00 days More than 182 2000-01 days

Financial Year

Residential Status

2000-01

2001-02

Till 30th June-PRI After that PROI

X cannot be considered 'PRI' during the FY 2000-01,

because his day of stay is less than 183 days in the preceding financial year

As regards FY 2001-02,

X had been in India in the preceding FY (2000-01) for a period exceeding 182 days

Accordingly,

he would be 'resident' in India during FY 2001-02

However,

if he leaves India for the purpose of taking up employment or business,

Vocation outside India,

or for any other purpose as would indicate his intention to stay outside India for an uncertain period,

he would cease to be PRI form the date of his departure

In the given situation Mr

X has left India as on 30th June 2001,

showing his intension to permanently settle outside India,

Hence till 30th June 2001 he is PRI and after that he would become PROI

Answer would not be different even if MR

X is a foreign citizen,

Z had resided in India during the FY 1999-2000

He left India on 1st August,

What would be his residential status during FY 2000

? Courtesy- Study material of ICAI Ans

of days of Previous F/Y Financial Year Residential Status Stay in F/Y PRI 2000-01 More than 182 1999-00 days 2001-02 PROI Less than 183 2000-01 days Mr

Z had resided in India during FY 1999-2000 for more than 182 days

Further,

he has gone to USA for higher studies

In other words,

or stayed outside India for or on taking up employment,

or for carrying an business or any other purpose,

in not circumstances as would indicate his intention to stay outside India for an uncertain period

Accordingly he would be 'PRI' during the FY 2000-01

For the FY 2001-02,

he would not have been in India in the preceding FY (2000-01) for period exceeding 182 days

Accordingly,

he would not be 'PRI' during the FY 2001-02

(4) Toy is an Japanese company having several business units all over the world

It has a robotic Unit with its head quarter in Mumbai and has a branch in Singapore

Headquarter at Mumbai controls the branch of robotic unit

What would be the residential status of robotic unit in Mumbai and that of the Singapore branch

? Courtesy- Study material of ICAI ANS

TOY Japanese Company Registered outside India PROI Head quarter in Mumbai PRI an office,

branch or of TOY agency in India owned or controlled by a Person Resident Outside India

SINGH of

in Singapore (Controlled by Mumbai Branch

branch or agency outside India owned or controlled by a PRI

Toy being an Japanese company would be a Person Resident Outside India

Section 2(u) defines,

'person' Under clause (viii) thereof person would include any agency,

office or branch owned or controlled by such person'

The term such person appears to refer to a person who is included in clauses (i) to (vi)

Accordingly robotic unit in Mumbai,

Section 2(v) defines 'PRI'

Under clause (iii) thereof 'PRI' would include an office,

branch or agency in India owned or controlled by a PRO I

Robotic unit in Mumbai owned or controlled by a Person Resident Outside India,

(5) Miss in an air-hostess with the British Airways

She flies for 12 days in a month and thereafter a break for 18 days

During the break,

she is accommodated of 'base' which is normally the city where the airways is headquarter

However,

During the FY,

she was accommodated at Mumbai for more than 182 days

What would be her residential status under FEMA

? Courtesy- Study material of ICAI Ans

Miss stayed in India at Mumbai ' base' for more than 182 days in the preceding FY

The issue here is whether staying can be considered to 'residing'

While the FERA emphasized 'stay',

FEMA emphasizes 'residing'

'Stay' is a physical attribute,

while 'residing' denotes permanency

while Miss may have stayed in India for more than 182 days,

but it is doubtful whether she can be said to have resided in India for more than 182 days

Further,

she would become resident only if she has come to or stayed in India for employment

It would be doubtful and debatable,

whether by staying at Mumbai base during the break,

Miss can be said to have come to a stayed in India for or on taking up employment

Hence Miss would continue to be non-resident

Examine whether the following branches can be considered as a 'Person resident in India' under Foreign Exchange Management Act,

a company incorporated in India Established a branch at London on 1st January,

a foreign company established a branch at New Delhi on 1st January,

The branch at New Delhi controls a branch at Colombo 2003-May Ans

London XYZ,

a foreign company Branch of XYZ at Delhi

Branch of XYZ at Colombo

PROI PRI PRI

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 FEMA,

Establishment Printex Computer' is a Singapore headquarters in Pune Branch in Dubai

Residential Status PROI

Reasons

PRI PRI

Regulation and Management of Foreign Exchange Dealing Foreign exchange etc

Save as otherwise provided in this Act,

rules or regulations made there under,

or with the general or special permission of the RBI,

no person shall– a) Deal in or transfer any foreign Exchange or foreign security with any person not being an authorized person

b) Make any payment to or for the credit of any Person Resident Outside India in any manner

c) Receive otherwise through an authorized person any payment by order or on behalf of any Person Resident Outside India in any manner

Following transactions are contravention

☺receiving through an authorised person any payment by order or on behalf of a nonresident without a corresponding inward remittance from any place outside India

d) 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

Example of Hawala Transaction Example-1

Hawala Peddler-1 in Dubai Black money

Don in Dubai

Hawala Peddler-2 In India

it is necessary that when a person receives a payment without corresponding inward remittance,

then he shall be deemed to have received the payment,

otherwise than through an authorised person

Deliver Indian currency

Don in India

Example-2

Hawala Peddler-1

Deliver currency

Don in Dubai

Hawala Peddler-1 Black Money

In case,

any payment is received outside India without corresponding inward remittance,

then the recipient shall be deemed to have violated the provisions of FEMA

Don in India

Now Commentary

Reserve Bank has granted general permission General to any person to receive any payment made in rupees by order or on behalf of a Permission granted by person resident outside India during his stay in India by converting the foreign exchange into rupees by sale to an RBI

♦ Made by means of a cheque drawn on a bank outside India or a bank draft or travellers cheques issued outside India or made in foreign currency notes directly,

from out of India provided the cheques,

drafts or foreign currency is sold to an authorised person within 7 days of its receipt

♦ By means of a postal order or postal money order issued by a post office outside India

Hospitality for PROI

Reserve Bank has also granted general permission to a person resident in India To pay expenses of hospitality of a person visiting India If PROI is on a visit to India,

then a PRI may pay expenses for Boarding,

Purchase of If PROI purchase gold or silver in any form from outside India

gold or silver • Import is made in accordance with Foreign Trade (Development and Regulation) Act

• a PRI may make payment for such gold or silver by way of a crossed cheque or a draft General permission has also been granted to a company in India to make payment General of Permission sitting fees or granted to commission or company remuneration or travel expenses to and from or within India to its whole time director who is on a visit to India for company's work subject to the terms and conditions mentioned elsewhere in the notification

Holding of foreign exchange etc

rules or regulations made there under,

or with the general or special permission of the RBI,

no Person Resident of India shall acquire,

own possess or transfer any foreign Exchange,

foreign security or any immovable property situated outside India

CURRENT ACCOUNT TRANSACTIONS (SEC

Any person may sell or draw foreign Exchange to or form an authorized person if such sale or drawl is a Current Account Transaction

However,

in public interest and in consultation with the RBI,

impose such reasonable restrictions for Current Account Transactions as may be prescribed

Foreign Exchange Management (Current Account Transactions)Rules,

Drawl of foreign exchange by any person for the following purpose is prohibited,

namely: (a) a transaction specified in the Schedule I: or (b) a travel to Nepal and/or Bhutan

or (c) a transaction with a person resident in Nepal or Bhutan (Provided that it may be exempted by RBI subject to such terms and conditions as it may consider necessary to stipulate by special or general order)

Prior approval of Government of India

No person shall draw foreign exchange for a transaction included in the Schedule II without prior approval of the Government of India:

Prior approval of RBI

No person shall draw foreign exchange for a transaction included in the Schedule III without prior approval of the RBI:

Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign currency Account and Exchange Earner Foreign currency Account of the remitter

Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign currency Account and Exchange Earner Foreign currency Account of the remitter

However,

CG may on consultation with RBI,

regulate or control CuATs FEM (CuAT) Rules

Normally CuATs are free Any Person can draw or sell forex to AP for CuATs

Prohibited CuATs

Visit to Nepal & Bhutan

Transaction requiring Prior approval of CG Sch-II

Any transactions with a person resident in Nepal & Bhutan

Transaction requiring Prior approval of RBI

No approval Required if the payment is made out of funds held in

Schedule I 1

Remittance out of lottery winnings

Remittance of income from racing/riding,

Remittance for purchase of lottery tickets,

Payment of commission on exports made towards equity investment in Joint Venture / 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

Now commentary 'Call back services'---Payment related to 'Call back services' of telephones----some overseas communication organizations offer 'call back services' i

where the receiver of call has to make payment

In such cases as per Indian Telegraph Rules,

a subscriber has to make all payments in respect of call charges made or received by his telephone to telegraph authorities only

such remittance in respect of call back charges to overseas organizations is not permissible unless they are licensed/ authorised by the Department of Telecommunications

In view of this,

the Rule prohibits drawal of foreign exchange for 'call back services'

Schedule II Purpose of Remittance 1

Cultural Tours

Advertisement in foreign print media for the purposes other than promotion of tourism,

foreign investments and international bidding (exceeding US$ 10,000) by a State Government and its PSUs

Remittance of freight of vessel charted by a PSU 4

Payment of import by a Govt

Department or a PSU on C

S Basis 5

Multi-modal transport operators making remittance to their agents abroad 6

Remittance of hiring charges of transponders by

V channel b

Internet service provider

Remittance of container detention charges exceeding the rate prescribed by Director

General of Shipping 8

Remittances under technical collaboration agreements where payment of royalty exceeds

Remittance of prize money/sponsorship of sports activity abroad by a person other than

International/National/State Level sports bodies,

if the amount involved exceeds US $ 100,000 10

Payment for securing Insurance for health from a company abroad—omitted 11

Remittance for membership of Protection and indemnity Club

Now Commentary

Approval shall be required in such cases even though remittance is made out of the funds held in EEFC A/C,

Drawl means Drawl of Foreign Exchange from an authorised person and includes opening of letter of credit or use of international Credit card or international debit card or ATM Card or anything by whatever name called which have the effect of creating foreign exchange Liability

SCHEDULE III Transactions

Prescribed Limit

Private Visits

Release of exchange exceeding US$ 10,000 or its equivalent in one financial year for one or more private visits to any country (except Nepal and Bhutan)

Gift remittance exceeding US$ 5,000 per financial year per remitter or donor other than resident individual

Donation exceeding US$ 5,000 per financial year per remitter or donor other than resident individual

Donations by corporate,

exceeding one per cent of their foreign exchange earnings during the previous three financial years or US$ 5,000,000,

for,(a) creation of Chairs in reputed educational institutes

(b) to funds (not being an investment fund) promoted by educational institutes

and (c) to a technical institution or body or association in the field of activity of the donor company

Exchange facilities exceeding US $ 100,000 for persons going abroad for employment

Gift Donation

Exchange facilities

Exchange facilities for emigration exceeding US $ 100,000 or amount prescribed by country of emigration

Remittance for maintenance of close relatives abroad,

Remittance (i) exceeding net salary (after deduction of taxes,

contribution to provident fund and for maintenance other deductions) of a person who is resident but not permanently resident in India of close and— (a) is a citizen of a foreign State other than Pakistan

or relatives (b) is a citizen of India,

who is on deputation to the office or branch or abroad subsidiary or joint venture in India of such foreign company,

(ii) exceeding US$ 100,000 per year per recipient,

Explanation : For the purpose of this item,

a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignment,

the duration of which does not exceed three years,

is a resident but not permanently resident

Emigration

Specified Visit

Medical treatment

Release of foreign exchange,

exceeding US $ 25,000 to a person,

irrespective of period of stay,

or attending a Conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad,

or for accompanying as attendant to a patient going abroad for medical treatment/check-up

Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/doctor abroad

AD may release foreign Exchange upto US$100,000 or its equivalent for medical treatment abroad,

without insisting on any estimate from a hospital/ Doctor on the basis of declaration from the applicant that he is buying exchange for medical treatment abroad

Release of exchange for studies abroad exceeding the estimates from the institution abroad or US $ 100,000] [per academic year],

Commission,

to agents abroad for sale of residential flats or Commission commercial plots in India exceeding US $ 25,000 or 5% of the inward remittance whichever is more

Remittances exceeding US$ 10,000,000 per project,

for any consultancy services in Consultancy respect of infrastructure projects and US$ 1,000,000 per project for other Services consultancy services procured from outside India

Explanation : For the purposes of this item number 'infrastructure project' is those related to (i) Power,

and (vii) Urban infrastructure (water supply,

Remittance exceeding 5% of the investment brought in India or US $1,00,000 pre whichever is higher,

by an entity in India by way of reimbursement of pre incorporatio incorporation expenses

Studies abroad

CAPITAL ACCOUNT TRANSACTIONS (SEC

Subject to the provisions of Sub-Section (2),

any person may sell or draw foreign Exchange to or from an authorized person for a capital account transaction

RBI may,

in consultation with the Central Government,

any class or classes of capital account transactions which are permissible

the limit up to which foreign Exchange shall be admissible for such transactions

RBI may,

restrict or regulate the following:– a

transfer or issue of any foreign security by a PRI b

transfer or issue of any security by a Person Resident Outside India c

transfer or issue of any security or foreign security by any branch,

office of agency in India of a Person Resident Outside India d

any borrowing or lending in foreign Exchange or by whatever name called

any borrowing or lending in rupees or by whatever name called between a PRI and Person Resident Outside India

deposits between PRI and Person Resident Outside India

import or holding of currency or currency notes

transfer of immovable property outside India,

other than a lease not exceeding five years,

acquisition or transfer of immovable property in India,

other than a lease not exceeding five years,

by a Person Resident Outside India

giving of a guarantee or surety in respect of any debt,

obligation or other liability incurred,– (i) by a PRI and owed to a Person Resident Outside India

or (ii) by a Person Resident Outside India

Two exceptions

Exemption For PROI

Exemption For PRI

A PRI may hold,

transfer or invest in foreign currency,

foreign security or any immovable property situated outside India if such currency,

security or property was acquired,

held or owned by such PRI when he was resident outside India or inherited from a Person Resident Outside India

A Person Resident Outside India may hold,

transfer or invest in Indian currency,

security or any immovable property situated in India if such currency,

held or owned by such person when he was PRI or inherited from a PRI

CAT Sec

Any Person may sell or draw forex to or from an A

P for a permissible CAT

[Sec 6 (1)] RBI may in Consultation with CG make regulations to specify the list of permissible CATs [Sec 6 (2)]

Prohibited CATs

RBI may make regulation to Prohibit restrict or regulate establishment in India of a branch office by PROI

FEM (Permissible CATs) Reg

Permissible CATs for PRI Sch-I

Permissible CATs for PROIs Sch-II

the RBI may by regulation prohibit,

or regulate establishment in India of a branch,

office or other place of business by a Person Resident Outside India for carrying on any activity relating to such branch,

office or other place of business

Foreign Exchange Management ( Permissible Capital Account Transactions)Regulation,

of a Person Resident Outside India

any person may sell or draw foreign exchange to or form an Authorised Person for a CAT specified in the Schedules: Provided that the transaction is within the limit,

if any specified in the regulations relevant to the transaction

Prohibition

Save as otherwise provided in the Act,

rules or regulations made there under,

(a) no person shall undertake or sell or draw foreign exchange to or form an Authorised Person for any CAT,

(b) no Person Resident Outside India shall make investment in India,

in any company or partnership firm or proprietary concern or any entity,

which is engaged or proposes to engage – (i)

(iii) in agricultural or plantation activities,

or (iv) in real estate business,

or construction of farm houses,

or (v) in trading in Transferable Development Rights (TDRs)

Now Commentary For the purpose of this regulation,

“real estate business” shall not include development of townships,

construction of residential/commercial premises,

Transferable Development Rights means certificate issued in respect category of land acquired for public purpose either by Central Government or SG in consideration of surrender of land by the owner without monetary compensation,

which are transferable in part or whole

Method of payment for investment--- The payment for investment shall be made by remittance from abroad through normal banking channels or by debit to an account of the investor maintained with an Authorised Person in accordance with the regulations made by the RBI under the Act

Declaration to be furnished-- Every person selling or drawing foreign exchange to or from an Authorised Person for a CAT shall furnish to the RBI,

a declaration in the form and within the time specified in the regulations relevant to the transaction

Permissible CATs SCHEDULE

SCHEDULE –II

Classes of CATs Permissible to PRI

Classes of CATs Permissible to PROI

(a) Investment in India by a Person b

Foreign currency loans raised in India and Resident Outside India,

issue of security by a body corporate or abroad by a PRI

an entity in India and investment therein c

Transfer of immovable property outside India by a Person Resident Outside India

Investment by a PRI in foreign securities

Guarantees issued by a PRI in favour of a II

investment by way of contribution by a Person Resident Outside India to the Person Resident Outside India

capital of a firm or a proprietorship e

Export,

import and holding of concern or an association of persons in currency/currency notes

Loans and overdrafts (borrowings) by a PRI (b) Acquisition and transfer of immovable from a Person Resident Outside India

property in India by a Person Resident g

Maintenance of foreign currency accounts in Outside India

India and outside India by a PRI

(c) Guarantee by a Person Resident outside h

Taking out of insurance policy by a PRI from an India in favour of,

a insurance company outside India

Loans and overdrafts by a PRI to a Person (d) Import and export of currency/currency Resident Outside India

notes into/from India by a Person j

Remittance outside India of capital assets of a Resident Outside India

(e) Deposits between a PRI and a Person k

Sale and purchase of foreign exchange Resident Outside India

derivatives in India and abroad and commodity (f) Foreign currency accounts in India of a derivatives abroad by a PRI

Person Resident Outside India

(g) Remittance outside India of capital assets in India of a Person Resident Outside India

Examine whether the following transactions are permissible under FEMA

(i) Payment of remuneration to foreign technician

(ii) Remittance of dividend to non-residents

2003-Nov

State also the Procedures to be followed with regard to payment of dividend to non residents

(i) Salary payable to a foreign technician is a current account transaction

As per Section 5 of FEMA,

any person can sell or draw foreign exchange to or from Authorized person if such sale or drawl is a current account transaction and reasonable restrictions on current account transaction can be imposed by the Central Government in public interest,

all current account transaction are free,

unless specifically restricted by the Central Government

Hiring of foreign nationals as technician is

permissible without any restrictions

There is no ceiling on salary,

which can be paid as per contract

Their salary can be remitted abroad,

(ii) Remittance of dividend: Since remittances of dividend on investment are current account transaction,

these are permitted without restrictions,

if the shares were issued as per guidelines/regulations/permission

Dividend is restricted only when permission for issue of shares to non-residents was granted with condition for dividend balancing

left India for employment in U

Ram purchased a flat at New Delhi for Rs

His brother,

Gopal employed in New Delhi,

also purchased a flat in the same building in September,

15 lakhs

Gopal's flat was financed by a loan from a Housing Finance Company and the loan was guaranteed by Mr

Examine with reference to the provisions of Foreign Exchange Management Act,

Ram are Capital Account transactions and whether these transactions are permissible Ans

Section 2( e) of FEMA,

including contingent liabilities,

outside India of persons resident in India (b) a transaction which alters assets or liabilities in India of persons resident outside India and includes transactions referred to in Section 6(3) According to the definition,

a transaction which alters the contingent liability will be considered as capital account transaction in the case of person resident in India,

but it is not so in the case of person resident outside India

Guarantee will be considered as a capital account transaction in the following cases: (1) Guarantee in respect of any debt,

obligation or other liability incurred by a person resident in India and owed to a person resident outside India

(2) Guarantee in respect of any liability,

debt or other obligation incurred by a person resident outside India,

In this case,

Ram a resident outside India gives a guarantee in respect of a debt incurred by a person resident in India and owed to a person resident in India

it would appear that guarantee by Mr

Ram cannot be considered as a capital account transaction within the meaning of Section 2(e),

particularly because it is a contingent liability

All capital account transactions are prohibited unless specifically permitted

RBI is empowered to issue regulations in this regard [Section 6(3)]

Permissible capital account transactions by person resident outside India are given in Schedule II to Foreign Exchange Management (Permissible Capital Account Transactions) Regulations,

According to the said regulations both the purchase of immovable property by Mr

Ram and guarantee by Mr

Ram are permissible

Explain the meaning of the term "Current Account Transaction" and the right of a citizen to obtain Foreign Exchange under the Foreign Exchange Management Act,

It means a transaction other than a capital account transaction and

includes: (i) Payments due in connection with foreign trade in the ordinary course of business

(ii) Payments due as interest on loans and as net income from investments

(iii) Remittances for living expenses of parents,

spouse and children residing abroad,

(iv) Expenses in connection with foreign travel education and medical care of parents,

According to Section 5 of FEMA,

Provided that the Central Government may in public interest and in consultation with the Reserve Bank,

impose such reasonable restrictions for current account transactions as may be prescribed

Further,

any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction subject to the provisions of Section 6 (2)

an Indian national desires to obtain Foreign Exchange on current account transaction for the following purposes: (i) Commission on exports made towards equity investment in wholly owned subsidiary abroad of an Indian Company

(ii) Remittance of hiring charges of transponder

(iii) Remittance for use of trade mark in India

Advise G whether he can obtain Foreign Exchange and,

Drawl of foreign exchange for Payment of commission on exports made towards equity investment in wholly owned subsidiary abroad of an Indian company,

is prohibited science it is an item concerned in Schedule-l of FEM (Current Account Transactions) Rules,

Drawl of foreign exchange for remittance of hiring charges of transponder,

can be made with the prior approval of the Central Government science it is an item specified in Schedule-II of FEM (Current Account Transactions) Rules,

However approval of CG is not required if payment is made through RFC or EEFC Account

So far as remittance for use of Trademark in India is concerned,

the foreign exchange can be obtained without any permission of the Reserve Bank of India or Central Government

because it does not fall in any of the Schedules

an Indian National desires to obtain foreign exchange for the following purposes: a) Remittance of US Dollar 10,000 for payment for goods purchased from a party situated in Nepal

b) US Dollar 10,000 for remitting as commission to his agent in USA for sale of commercial plot situated near Bangalore,

consideration in respect of which was received by Mr

Atul by way of foreign currency inward remittance amounting to US Dollar 1,00,000

Advise him,

if he can get the Foreign Exchange and under what conditions

2007] Ans

GSR (404(E) dated 3

RBI has w

Nepal or Bhutan resident in Nepal or Bhutan

Payment in foreign exchange is not allowed

(b) Rule 5 of the FEMA (Current Account Transactions) Rules,

provides that no person can draw foreign exchange for certain transactions without the RBI's approval

However,

besides other permissible transactions,

RBI's approval is not needed for payment of commission to agents abroad for sale of residential plots/commercial plots in India not exceeding $ 25,000 or 5 per cent of the inward remittance,

in the given case remittance of US Dollar 10,000 shall be permissible without approval of the RBI

an Indian national desires to obtain foreign exchange for the following purposes: a

Remittance of US Dollar 50,000 out of winnings on a lottery ticket

US Dollar 100,000 for sending a tour of a cultural group to U

US Dollar 50,000 for meeting the expenses of his business tour to Europe

Advise him,

if he can get the Foreign Exchange and under what conditions

Old Syllabus] Ans

Under provisions of Section 5 of the Foreign Exchange Management Act,

As per these Rules,

drawal foreign exchange for some of the Current Account transactions is prohibited

As regards some other Current Account transactions,

foreign exchange can be drawn with prior permission of the Central Government or Reserve Bank of India: a)

Remittance out of lottery winnings is prohibited and it is included in First Schedule to the Foreign Exchange Management (Current Account Transactions) Rules,

Kale cannot withdraw foreign exchange for this purpose

Foreign exchange for meeting expenses of cultural tour,

can be withdrawn by any person after obtaining permission from Government of India,

Ministry of Human Resources Development,

as prescribed in Second Schedule to the Foreign Exchange Management (Current Account Transactions) Rules,

Kale can withdraw the foreign exchange after obtaining the permission of CG

However approval of CG is not required if payment is made through RFC or EEFC Account

The type of payment as envisaged is covered under Third Schedule to the Foreign Exchange Management (Current Account Transactions) Rules,

Kale will require the prior permission of the Reserve Bank of India

However approval of RBI is not required if payment is made through RFC or EEFC Account

Referring to the provisions of the Foreign Exchange Management Act,

state the kind of approval required for the following transactions : a) M requires U

$ 5,000 for remittance towards hire charges of transponders

$ 14,000 per annum for donation to Mr

White in U

$ 2,000 for payment related to call back services of telephones

a company incorporated in India under the Companies Act,

for short-term credit to its overseas office situated in Australia May,2010

Ramesh of Nagpur wants to travel to Nepal and for this purpose he proposes to draw Foreign Exchange

Specify

Ramesh draw any Foreign Exchange for his journey

? Export of Goods and Realisation of Foreign Exchange Export of goods and services (Sec

containing true and correct containing material particulars,

including the amount representing the full export true material value or,

if the full export value of the goods is not ascertainable at the particulars,

expects to receive on the and full goods in a market outside India

export value (b) furnish to the RBI such other information as may be required by the RBI for the purpose of ensuring the realization of the export proceeds by such exporter

Direction to RBI may,

for the purpose of ensuring that the full export value of the goods or Exporter by such reduced value of the goods as the RBI determines,

is received without any delay,

direct any exporter to comply with such requirements as it deems fit

Every exporter of services shall furnish to the RBI a declaration in such form as declaration by exporter may be specified,

containing the true and correct material particulars in relation to payment for such services

of services Realisation and repatriation of foreign Exchange (Sec

Save as otherwise provided in this Act,

where any amount of foreign Exchange is due or has accrued to any PRI such person shall take all reasonable step to realise and repatriate to India such foreign Exchange within such period and in such manner as may be specified by the RBI

Exemption from realization and repatriation in certain cases (Sec

The provisions of Sec

Upto specified limit

Oossession of foreign currency or foreign coins by any person up to such limit as the RBI may specify

(b)Upto the Foreign currency account held or operated by such person or class of persons and Limit of Forex the limit up to which the RBI may specify

A/C (c)Old Currency

Foreign Exchange acquired or received before the 8th day of July,

(d)Gift or Foreign Exchange held by a PRI up to such limit as the RBI may specify,

if such foreign Exchange was acquired by way of gift or inheritance from a person inheritance referred to in clause (c) including any income arising there from

Foreign Exchange acquired from employment,

inheritance or any other legitimate means up to such limit as the RBI may specify

such other receipts in foreign Exchange as the RBI may specify

FEM (Export of Goods and Services) Regulation,

Every exporter of goods or software to any place outside India (other than Nepal and Bhutan) shall furnish to the specified authority a declaration in the prescribed form

In respect of export service to which none of the forms specified apply,

the exporter may export such services,

without furnishing any declaration

But exporter shall comply with Sec

Export of goods or services may be made without furnishing the declaration in the following cases,

Trade samples of goods and publicity material supplied free of payment

Personal effects of travelers,

whether accompanied or unaccompanied

Ship’s stores,

and goods supplied under the orders of C

naval or air force authorities in India for military,

naval or air force requirements

Goods or software not more than UD$ 25,000 in value

By way of gift,

Aircrafts or aircraft engines and spare parts for repairs abroad subject to their re-import into India within a period of 6 months

Goods imported free of cost on re-export basis

Goods not exceeding US $ 1000 or its equivalent in value per transaction exported to Myanmar under Barter Trade Agreement between Central Government and the Government of Myanmar

Type of Export

Form to be submitted to

Export otherwise than by post,

Including Commissioner of Customs

export of software in physical form i

To be appended to shipping bill,

Commissioner of Customs

For Export by Post

Postal Authorities

SOFTEX For Export of software otherwise than in Designated official of ministry physical form

of information technology at STP/SEZ/EPZ

Period within which export value of goods / software to be realized and repatriated

Direct sale

The amount representing the full export value of goods or software exported shall be realized and repatriated to India within 9 months from the date of export

Goods are exported to a warehouse

Where the goods are exported to a warehouse established outside India with the permission of RBI,

the amount representing the full export value of 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 shipment of goods

Time extension

RBI or the authorized dealer may,

for a sufficient and reasonable cause shown,

extend the said period of 6 months or 15 months as the case may be

Some more Relaxation

Situation

Relaxation

Goods software exported by status holder Within 12 months

exporter as defined under EXIM policy

Goods software exported by the units in SEZ

Delay in receipt of Payment Where in relation to goods or software the specified period has expired and the payment therefore has not been made as aforesaid,

the RBI may give to any person who has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof such directions as appear to it to be expedient,

for the purpose of securing: (a) the payment therefore,

if the goods or software has been sold,

and (b) the sale of goods and payment thereof,

if goods or software has not been sold or re-import therefore into India as the circumstances permit,

within such period as RBI may specify in this behalf

Submission of export documents The documents pertaining to export shall,

within 21 days from the date of export,

be submitted to the authorized dealer

However,

subject to the directions issued by RBI from time to time the authorized dealer may accept the documents pertaining to export submitted after the expiry of the specified period of 21 days,

for reasons beyond the control of exporter

Certain Exports requiring prior approval

Lease or hire

No person shall,

except with the prior permission of RBI,

see or air any goods from India to any place outside India on lease or hire or in any other manner other than sale or disposal of such goods

Special arrangement

Export of goods under special arrangement between C

and Government of a foreign state,

or under rupee credits extended by C

to Government of a foreign state shall be governed by the terms and conditions set out in the instructions issued from time to time by RBI

Exim Bank

An export under the line of credit extended to a bank or a financial institution operating in a foreign state by the Exim Bank for financing exports from India

Any arrangement involving adjustment of value goods imported into India against Adjustment of value value of goods exported from India,

shall require prior approval of RBI

FEM (Possession And Retention of Foreign Currency) Regulation

For the purpose of section 9(a) and (e) of the Act,

RBI specifies the following limits for possession or retention of foreign currency or foreign coins,

namely – (i) Possession without limit of foreign currency and coins by an Authorised Person within the scope of his authority

(ii) Possession without limit of foreign coins by any person

(iii) retention by a PRI of foreign currency notes,

bank notes and foreign currency travellers’ cheques not exceeding USA $ 2000 or its equivalent in aggregate,

provided that such foreign exchange in the form of currency notes,

bank notes and travelers cheques

(a) was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India,

from any person not resident in India and who is on a visit to India,

as honorarium or gift or for services rendered or in settlement of any lawful obligation

(c) was acquired by him by way of honorarium or gift while on a visit to any place outside India

or (d) represents unspent amount of foreign exchange acquired by him from an Authorised Person for travel abroad

Possession of foreign exchange by a PRI but not permanently resident therein A PRI but not permanently resident therein may possess without limit foreign currency in the form of currency notes,

bank notes and travelers cheques,

if such foreign currency was acquired,

held or owned by him when he was resident outside India and,

has been brought into India in accordance with the regulations made under the Act

Now commentary Not permanently resident means a PRI 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

To possess or to retain means to possess or to retain in physical form

AUTHORISED PERSON (Sec

RBI may,

on an application made to it in this behalf,

authorize any person to be known as Authorised Person to deal in foreign exchange or in foreign securities,

money changer or off-shore banking unit or in any other manner as it deems fit

An authorization may be revoked by the RBI at any time if the RBI is satisfied that (a) it is in public interest so to do

or (b) Authorised Person has failed to comply with the condition subject to which the authorization was granted or (c) Authorised Person has contravened any of the provisions of the Act or any rule,

direction or order made there under

However,

no such authorization shall be revoked unless the Authorised Person has been given a reasonable opportunity of making a representation in the matter

Condition of Grant of Recognition

Authorised Person shall,

comply with general or special directions of the RBI

Except with the previous permission of the RBI,

an Authorised Person shall not engage in any transaction which is not in conformity with the terms of his authorization

Declaration to An Authorised Person shall,

before undertaking any transaction in foreign exchange on behalf of any person,

require that person to make such declaration and to give such Authorised information as will reasonably satisfy him that the transaction will not involve,

any Person contravention of this Act or of any rule,

and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith Authorised Person shall refuse in writing to undertake the transaction and shall report the matter to RBI

Surrender of If any person,

other than an Authorised Person,

who has acquired foreign Exchange for Forex to any purpose mentioned in the declaration made by him to authorized person does not use it for such purpose or does not surrender it to authorized person within the Authorised specified period or uses the foreign Exchange so acquired for any other purpose for person

which acquisition of foreign Exchange is not permissible under the provisions of the Act shall be deemed to have committed contravention of the provisions of the Act

Reserve Bank’s powers to issue directions to authorized person (Sec

Direction by RBI to Authorised Person

The RBI may,

for the purpose of securing compliance with the provisions of this Act give to the authorized persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign Exchange or foreign security

RBI may,

for the purpose of ensuring the compliance with the provisions of this Act direct any Authorised Person to furnish such information,

in such manner as it deems fit

Where any Authorised Person contravenes any direction given by RBI under this Act Penalty for or fails to file any return as directed by RBI,

RBI may after giving reasonable Authorised opportunity of being heard,

impose on Authorised Person a penalty which may extend Person in case to Rs

Power of RBI to inspect Authorised Person (Sec

RBI may,

cause an inspection to be made by any officer of the RBI specially Grounds authorized in writing by the RBI in this behalf,

of the business of any Authorised Person as for inspection may appear to it to be necessary or expedient for the purpose of – verifying the correctness of any statement,

information or particulars furnished to the RBI

obtaining any information or particulars which such authorized person has failed to furnish on being called upon to do so

securing compliance with the provisions of this Act or of any rules,

directions or orders made thereunder

Duty of every authorized person

It shall be the duty of every authorized person,

and where such person is a company or a firm,

partner or other officer of such company of firm,

to produce to any officer making an inspection under sub-section (1),

accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person,

company or firm as the said officer may require within such time and in such manner as the said officer may direct

CONTRAVENTION AND PENALTIES (Sec

If any person ⎯ contravenes any provisions of this Act,

direction or order issued in exercise of the powers under this Act,

or ⎯ contravenes any condition subject to which an authorization is issued by the RBI,

be liable to a penalty ⎯ up to thrice the sum involved in such contravention where such amount is quantifiable,

2 lacs,

where the amount is not quantifiable,

where such contravention is a continuing one,

further penalty which may extend to Rs

[Sub section (1)] Confiscation

Any Adjudicating Authority (Adjudicating Authority)