2^]cT]cb PAGE
Foreword
I-5
About the Author
I-7
Preface to Fourth Edition
I-9
Acknowledgement
I-11
Chapter-Heads
I-13
DIVISION 1 FUNDAMENTALS CHAPTER 1 INTRODUCTION TO FOREIGN EXCHANGE MANAGEMENT ACT, 1999 1.1
Historical background - Foreign Exchange Management Act, 1999
3
1.2
Foreign Exchange Management Act, 1999 : A paradigm shift
4
1.3
Similarities and differences between FERA and FEMA
5
1.4
Regulatory framework
7
ANNEXURE 1.1 : Purpose codes for reporting forex transactions receipt purposes/
77
New purpose codes for reporting forex transactions payment purposes CHAPTER 2 SECTION-WISE ANALYSIS OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 2.1
87
Introduction
ANNEXURE 2.1 : Foreign Exchange Management (Authorised Persons) Regulations,
147
2026 CHAPTER 3 CURRENT AND CAPITAL ACCOUNT TRANSACTIONS 3.1
Introduction
156
3.2
Epicenter of FEMA
156
ANNEXURE 3.1 : Cabinet approves grant of permanent residency status to foreign
investors
I-19
192
CONTENTS
I-20 PAGE
ANNEXURE 3.2 : Legal Entity Identifier (LEI) for large value transactions in centralised
193
payment systems ANNEXURE 3.3 : Master Direction - Other Remittance Facilities
195
CHAPTER 4 RESIDENTIAL STATUS UNDER FEMA 4.1
Introduction
211
4.2
Person under FEMA
211
4.3
Person resident outside India
211
4.4
Person resident in India
213
4.5
Person resident but not permanently resident in India
220
4.6
Residential status of other entities
222 CHAPTER 5
CREGULATORS UNDER FEMA 5.1
Reserve Bank of India
224
5.2
Central Government
228 CHAPTER 6 CURRENCY AND EXCHANGE
6.1
Introduction
233
6.2
Convertibility of Indian currency
233
6.3
Export and import of currency
236
6.4
Possession or retention of foreign currency
241
6.5
Realisation and repatriation of foreign exchange
242
6.6
Surrender of foreign exchange
244
6.7
Manner and receipt of payments
246
ANNEXURE 6.1 : Internationalisation of rupee
248
ANNEXURE 6.2 : International trade settlement in Indian Rupees (INR)
252
CHAPTER 7 BALANCE SHEET APPROACH TO EVALUATE TRANSACTION UNDER FEMA 7.1
Introduction
254
7.2
Balance sheet approach to evaluate the transaction under Foreign Exchange Management Act, 2000
254
I-21
CONTENTS PAGE
CHAPTER 8 BANK ACCOUNTS 8.1
Introduction
259
8.2
Foreign currency account in India by a person resident in India
260
8.3
Foreign currency account outside India
269
8.4
Bank accounts by person resident outside India
276
CHAPTER 9 CASH 9.1
281
Introduction
9.2
Permissible limits and practical rules for holding and bringing cash
282
9.3
Foreign currency that can be carried in cash for travel abroad
283
9.4
Indian currency that can be brought in while coming into India
283
DIVISION 2 FOREIGN INVESTMENT CHAPTER 10 GOVERNING REGULATIONS OF FOREIGN INVESTMENT IN INDIA 10.1
Governing regulation
291
10.2
Shifting of power and earlier regulations with regard to foreign investment in India
291
10.3
Union Budget 2026 Proposals - Implementation Status
315
CHAPTER 11 FOREIGN INVESTMENT 11.1
Introduction
317
11.2
Meaning of foreign investment
317
11.3
Type of foreign investment
326
11.4
Operational framework for reclassification of FPI to FDI
332
CHAPTER 12 FOREIGN DIRECT INVESTMENT 12.1
Introduction
334
12.2
Definition
346
CONTENTS
I-22 PAGE
CHAPTER 13 ENTRY ROUTES AND PROCEDURE OF INVESTMENT 13.1
Introduction
363
13.2
Sectoral cap
363
13.3
Limits of investment
366
ANNEXURE 13.1 : Standard Operating Procedure (SOP) for processing Foreign Direct Investment (FDI) proposals
434
ANNEXURE 13.2 : Annual return on Foreign Liabilities and Assets (FLA) under FEMA, 1999
453
ANNEXURE 13.3 : Foreign Liabilities and Assets Information Reporting (FLAIR) – Online web based reporting system
462
CHAPTER 14 CONSIDERATION AND PRICING 14.1
Introduction
477
14.2
Pricing methodology to be followed
480
CHAPTER 15 MODE OF INVESTMENT 15.1
Introduction
491
15.2
Incorporation of new company
492
15.3
Acquisition by way of transfer of existing shares by person resident in or outside India
492
15.4
Transfer of shares and convertible debentures by way of gift
493
15.5
Acquisition of shares under the scheme of merger/amalgamation
494
15.6
Acquisition of shares under the FDI Scheme by a Non-resident on a recognised stock exchange
495
15.7
Allotment of shares to foreign investor
496
15.8
Conversion of ECB into equity
502
15.9
Issue of shares/preference shares against lump sum technical know-how fee, royalty due for payment
504
15.10 Investment by swap of shares
506
15.11 Transfer of equity instruments
514 CHAPTER 16
DOWNSTREAM INVESTMENT 16.1
Direct foreign investment
525
I-23
CONTENTS PAGE
16.2
Indirect foreign investment
526
16.3
Downstream investment
526
16.4
Total foreign investment
527 CHAPTER 17 FOREIGN PORTFOLIO INVESTORS
17.1
Introduction
543
17.2
Regulation of FPIs in India
546
17.3
Mode of payment and remittance of sale proceeds
562
CHAPTER 18 INVESTMENT IN DEBT INSTRUMENTS BY NON-RESIDENTS 18.1
Introduction
566
18.2
Debt instruments v. Non-debt instruments
566
18.3
Debt v. Debt instruments
566
18.4
Regulatory authorities and instruments involved
567
18.5
Eligible investors and eligible debt instruments
567
18.6
FPI investment in debt securities
568
18.7
Who qualifies as a foreign portfolio investor
569
18.8
Eligible debt instruments for Investment by Foreign Portfolio Investors (FPIs)
570
18.9
FPI debt investment routes
571
ANNEXURE 18.1 : Master Direction - Reserve Bank of India (Non-Resident Investment
573
in Debt Instruments) Directions, 2025 CHAPTER 19 FOREIGN DIRECT INVESTMENT IN LIMITED LIABILITY PARTNERSHIP 19.1
Introduction
590
19.2
Residential status of LLP under FEMA, 1999
590
19.3
Regulation of LLP
591
19.4
Calibrated opening of FDI in LLP
591
19.5
Policy of foreign investment in LLP
592
19.6
Ownership and management
596
19.7
Downstream investment by LLP
597
19.8
Overseas investment by LLP
599
19.9
Acquisition of immovable property outside India
599
19.10 Investment by NRIs
599
19.11 Investment by FIIs and FVCIs in LLPs
600
CONTENTS
I-24 PAGE
CHAPTER 20 FOREIGN VENTURE CAPITAL INVESTORS 20.1
Introduction
601
20.2
Regulation of FVCI
601
20.3
Investment by FVCI
604
20.4
Reporting of investment by FVCI
608
20.5
Benefits available to FVCI
609
20.6
Hedging
609 CHAPTER 21 LIAISON OFFICE/BRANCH OFFICE/PROJECT OFFICE
21.1
Introduction
611
21.2
Regulation of LO, BO and PO
611
21.3
Liaison office
615
21.4
Branch office
627
21.5
Project office
630
21.6
Others provisions applicable to LO, BO and PO
635
21.7
Comparison between foreign investment in different business forms
635
ANNEXURE 21.1 : Format of the letter of comfort
637
ANNEXURE 21.2 : Form IPI Declaration of immovable property acquired in India by a
638
person resident outside India who has established in India a branch office or other place of business, excluding a liaison office ANNEXURE 21.3 : FAQs on liaison/branch/project offices of foreign entities in India
639
ANNEXURE 21.4 : Summary of relevant compounding orders
643
CHAPTER 22 NON-RESIDENT INDIANS 22.1
Introduction
645
22.2
Definition of Non-Resident Indian
645
22.3
Residential Status of an individual as per FEMA, 1999
651
22.4
Bank account
651
22.5
Difference between NRE account and NRO account
663
22.6
Investments by Non-Resident Indians
665
22.7
Investment in immovable property in India
679
22.8
Remittance of assets
688
I-25
CONTENTS PAGE
22.9
689
Deposits by NRI
ANNEXURE 22.1 : FAQs on Purchase of immovable property in India by Non-Resident
693
Individuals CHAPTER 23 INVESTMENT IN REITs AND InvITs 23.1
695
Introduction CHAPTER 24 FDI IN A START-UP COMPANY
24.1
Introduction
704
24.2
Benefits of FDI in start-ups
704 CHAPTER 25
CROSS BORDER - MERGERS AND ACQUISITIONS 25.1
Introduction
716
25.2
Cross border merger
716
25.3
Relevant provisions of inbound merger and outbound merger
720
25.4
Deemed approval
722
25.5
Cross border demerger
722
ANNEXURE 25.1 : Companies (Compromises, Arrangements and Amalgamations)
724
Rules, 2016
DIVISION 3 CROSS BORDER ASSETS CHAPTER 26 ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA 26.1
Introduction
729
26.2
Restrictions in acquiring immovable property in India
729
26.3
Acquisition and transfer of property in India by a NRI or an OCI
730
26.4
Transfer of immovable property
733
26.5
Joint acquisition by the spouse of a NRI or an OCI
734
26.6
Acquisition of immovable property by the foreign national
734
26.7
Acquisition of immovable property by a foreign company
736
26.8
Repatriation of sale proceeds
737
26.9
Other conditions of acquisition
739
CONTENTS
I-26 PAGE
CHAPTER 27 ACQUISITION OF IMMOVABLE PROPERTY OUTSIDE INDIA 27.1
Introduction
740
27.2
Section 6(4)
740
27.3
Acquisition to be in accordance with the rules
741
27.4
No Restriction in certain cases
741
27.5
Acquisition by Indian entities
742
27.6
Acquisition of immovable property outside India by a resident individual
742
27.7
Limit of making remittance for acquisition of immovable property
743
27.8
Creation of charge on immovable property held outside India by Indian entity
744
27.9
Mode of payment
746
27.10 Tainted acquisition
746
27.11 Disclosure of foreign assets in ITR
747
27.12 Undisclosed assets held outside India
747
DIVISION 4 BORROWINGS CHAPTER 28 TRADE FINANCE 28.1
Introduction
751
28.2
Parties in trade finance
752
28.3
Pre-shipment finance and post-shipment finance
752
28.4
Products of trade finance
752
28.5
Types of trade finance
753
28.6
Factoring and forfaiting
757
28.7
Letter of credit
758
28.8
Cash advances
759
28.9
Open account
759
28.10 Receivables discounting
759 CHAPTER 29 BORROWING AND LENDING
29.1
Introduction
760
29.2
Regulatory framework
761
I-27
CONTENTS PAGE
29.3
Regulatory intent
761
29.4
Applicability and compliance
761
29.5
Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026
762
29.6
Currency of borrowing
771
29.7
Forms of borrowing
772
29.8
Transactions specifically excluded from ECB
773
29.9
Borrowing limits
774
29.10 Minimum average maturity
776
29.11 Cost of borrowing
778
29.12 Other costs associated with ECB
779
29.13 Arm’s length principle
779
29.14 End-use restrictions
779
29.15 Receipt and handling of ECB proceeds
783
29.16 Credit of ECB proceeds
784
29.17 Security for External Commercial Borrowings (ECB)
784
29.18 Refinancing of External Commercial Borrowings (ECB)
785
29.19 Minimum average maturity protection
786
29.20 Conditions for conversion of ECB into non-debt instruments
786
29.21 Change of parameters, terms and conditions
787
29.22 Conditions for conversion of ECB into non-debt instruments
788
29.23 Debt servicing
789
29.24 Reporting requirements
790
29.25 Role of Authorised Dealer Category-I Banks
791
29.26 Conclusion
793
ANNEXURE 29.1 : Foreign Exchange Management (Borrowing and Lending) (First
794
Amendment) Regulations, 2026/Master Direction No. A.P. (DIR Series) Circular No. 22, dated 16-2-2026 ANNEXURE 29.2 : Foreign Exchange Management (Borrowing and Lending) (First
795
Amendment) Regulations, 2026/Notification No. FEMA 3(R)(5)/2026RB, dated 9-2-2026 ANNEXURE 29.3 : Swap Facility for FCNR (B) deposits, External Commercial Borrow-
806
ings and Overseas Foreign Currency Borrowings CHAPTER 30 ACCEPTANCE OF DEPOSITS, PLEDGE OF SHARE AND CREATION OF CHARGE 30.1
Acceptance of deposits on repatriation basis
808
30.2
Acceptance of deposits on non-repatriation basis
809
CONTENTS
I-28 PAGE
30.3
Acceptance of deposits by Indian Companies from a person resident outside India for nomination as director
810
CHAPTER 31 FOREIGN EXCHANGE MANAGEMENT (GUARANTEES) REGULATIONS, 2026 – THE NEW REGULATORY FRAMEWORK 31.1
Introduction
818
31.2
Regulatory logic
818
31.3
Framework
819
31.4
Key Definitions under the 2026 regulations
819
31.5
Exemptions from the applicability of the guarantee regulations
820
31.6
Permission to act as a surety or a principal debtor
821
31.7
Permission to obtain a guarantee as a creditor
823
31.8
Late submission fee for delayed reporting
826
31.9
Comparison with the 2000 regulations
826
31.10 Principal-driven compliance
827
31.11 Reporting of guarantees under FEMA – Operational Framework (FEMA 8 (R), 2026)
828
CHAPTER 32 LOAN TO FOREIGN ENTITIES 32.1
Introduction
830
32.2
Provisions relating to debt instruments are governed by Reserve Bank of India
830
32.3
Meaning of financial commitment
831
32.4
Financial commitment by way other than equity capital
832
32.5
Direct loan to Step Down Subsidiary (SDS)
832
32.6
Conditions to be satisfied for providing debt/non-fund based facility to foreign entity
833
32.7
Financial commitment by an Indian entity by way of debt
834
32.8
Arms length basis
835
32.9
Duty of AD Bank towards loan facilities
837
32.10 Financial commitment by way of guarantee
837
32.11 Example
842
32.12 Financial commitment by way of pledge or charge
843
I-29
CONTENTS PAGE
DIVISION 5 IFSC CHAPTER 33 INVESTMENT IN IFSC 33.1
Introduction
849
33.2
About IFSC
849
33.3
Strategic objectives of setting up the IFSC
849
33.4
About International Financial Services Centres Authority (IFSCA)
850
33.5
About Foreign Exchange Management (International Financial Services Centre) Regulations, 2015
851
33.6
Benefits available to the entities setting up operations in IFSC
851
33.7
Promotion of investment in IFSC by CG
851
33.8
Overseas investment in IFSC by person resident in India
853
33.9
Overseas investment out of IFSC
855
ANNEXURE 33.1 : Foreign Exchange Management (Non-debt Instruments) Amendment
856
Rules, 2024
DIVISION 6 TRADE TRANSACTIONS CHAPTER 34 INTRODUCTION 34.1
Governing regulation
864
34.2
Restriction on exports
864
34.3
Exportability/Importability
865
34.4
Procedure of exports
866
34.5
EDF Approval for export of goods for re-imports
869
34.6
Direct dispatch of documents by the exporter
870
34.7
Accounts that can be maintained by exporters
871
34.8
Status holder certification
873 CHAPTER 35 OBLIGATIONS OF EXPORTER
35.1
Declaration
876
35.2
Obligation by software exporter
878
CONTENTS
I-30 PAGE
CHAPTER 36 REALISATION AND REPATRIATION OF PROCEEDS OF EXPORT OF GOODS/SOFTWARE/SERVICES 36.1
Realisation and repatriation of proceeds of export of goods/software/services
880
36.2
Duty of ‘person resident in India’ to realise export proceeds
881
36.3
Meaning of “Repatriate to India”
882
36.4
Long-term export advance
886
36.5
Refund of export proceeds
887
36.6
Export claims
888
36.7
Issuance of Electronic Bank Realisation Certificate (EBRC)
888
CHAPTER 37 NON-REALISATION 37.1
Consequences of non-realisation
892
37.2
Exporters’ caution list
892
37.3
Options available in cases of non-realisation of export proceeds
893
37.4
Conditions for write-off
895
37.5
Reduction in value of export invoice
897
37.6
Set-off of export receivables against import payables
898
37.7
Netting-off of export receivables against import payments – Units in Special Economic Zones (SEZs)
899
37.8
Reduction in invoice value in other cases
899
37.9
Shipments lost in transit
900 CHAPTER 38 TYPE OF EXPORTS
38.1
Introduction
901
38.2
Types of project exports
901
38.3
Project exports promotion council of India (Project EPC)
902
38.4
FEMA provisions with regard to project exports
902
38.5
Consignment exports
904
38.6
Export of goods by Special Economic Zones (SEZs)
904
38.7
Export of services by Special Economic Zones (SEZs) to DTA Unit
905
38.8
Free exports
907
38.9
Export of goods on lease, hire, etc.
907
38.10 Counter-trade arrangement
908
I-31
CONTENTS PAGE
38.11 Short shipments and shut out shipments
909
38.12 Third party exports
910
38.13 Deemed exports
910 CHAPTER 39 IMPORT
39.1
Governing regulation
911
39.2
No restriction on Imports
911
39.3
Time limit for settlement of import payments
914
39.4
Interest on import bills
915
39.5
Replacement imports
916
39.6
Press Release by ED, dated 3-3-2022
917
CHAPTER 40 MERCHANTING TRADE 40.1
Meaning
920
40.2
Guidelines for handling the merchanting Trade Transactions (MTT)
920
40.3
AD banks to satisfy themselves about the capabilities of the merchanting trader
922
40.4
Write-off of unrealized amount of export LEG
922
40.5
Third party payments
923
40.6
Payment of agency commission
923
40.7
Merchanting trade to Nepal and Bhutan
923
ANNEXURE 40.1 : Export and Import of Goods and Services
925
ANNEXURE 40.2 : Foreign Exchange Management (Export and Import of Goods and
934
Services) Regulations, 2026
DIVISION 7 CONTRAVENTION AND OFFENCE CHAPTER 41 CONTRAVENTION UNDER FEMA 41.1
Introduction
945
41.2
Consequences of non-compliance
946
41.3
Contravention in relation to section 4 of the Act
947
CONTENTS
I-32 PAGE
CHAPTER 42 COMPOUNDING 42.1
Powers to compound the contraventions
949
42.2
Pre-requisites for compounding process
954
42.3
Process of compounding
954
42.4
Others
958
ANNEXURE 42.1:
Details for payment of compounding application fee and compounding amount
961
ANNEXURE 42.2 : Foreign Direct Investment (FDI)
964
ANNEXURE 42.3 : Undertaking
967
ANNEXURE 42.4 : Form
968
ANNEXURE 42.5 : Guidance note on computation of the amount imposed under the
971
Foreign Exchange (Compounding Proceedings) Rules, 2024 ANNEXURE 42.6 : Popular cases of FEMA non-compliance
974
ANNEXURE 42.7 : FAQs on compounding of offence
977
ANNEXURE 42.8 : Launch of PRAVAAH, RBI retail direct mobile application and
980
FinTech Repository CHAPTER 43 LATE SUBMISSION FEES (LSF) 43.1
Introduction
984
43.2
Delays in reporting
985 CHAPTER 44 PENALTY, APPEAL AND ADJUDICATION
44.1
Penalty provisions
990
44.2
Adjudication
993
44.3
Procedure of adjudication
993
44.4
Appeal mechanism
995
44.5
Enforcement
1000
44.6
Special provisions relating to asset held outside India
1001
44.7
Miscellaneous provisions
1003
ANNEXURE 44.1 : Form I - Form of Appeal
1006
ANNEXURE 44.2 : Form II - Form of Appeal
1007
I-33
CONTENTS PAGE
CHAPTER 45 ENFORCEMENT DIRECTORATE 45.1
Introduction
1008
45.2
Regulatory framework
1008
45.3
Powers of ED
1012
45.4
Organisational structure enforcement directorate
1014
45.5
Dummy FDI under the scanner of ED
1014
45.6
Note on References to the Income-tax Act, 1961 (In the Context of Enforcement Officers under FEMA)
1015
45.7
Selective Press Release on FEMA contraventions
ANNEXURE 45.1 : Press Release 21-6-2022
1016 1018
DIVISION 8 OVERSEAS INVESTMENT CHAPTER 46 OVERSEAS INVESTMENT REGIME 46.1
Introduction
1037
46.2
Framework of rules, regulations and directions
1040
46.3
Non-Applicability of the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the Foreign Exchange Management (Overseas Investment) Regulations, 2022
1042
CHAPTER 47 DEFINITIONS 47.1
Introduction
1046
47.2
Analysis of each definition
1046 CHAPTER 48 ERSTWHILE INVESTMENTS
48.1
Introduction
1062
48.2
Grandfathering provisions
1062
48.3
LSF – A big relief
1063
CONTENTS
I-34 PAGE
CHAPTER 49 FRAMEWORK OF OI REGIME 49.1
Introduction
1064
49.2
Entities eligible to make overseas investment
1064
49.3
Pre-Conditions for making overseas investment
1065
49.4
Route of overseas investment
1065
49.5
Process of making overseas investment
1067
49.6
Pricing guidelines to be followed at the time of making OI
1070
49.7
Mode of making payment for overseas investment
1074
49.8
Restrictions and prohibitions on overseas investments
1077
CHAPTER 50 OVERSEAS INVESTMENT 50.1
Introduction
1081
50.2
Shift from direct investment to overseas investment in New OI regime
1081
50.3
Overseas direct investment
1081
50.4
Overseas portfolio investment
1083
50.5
Significance of differentiating a transaction between ODI and OPI
1086
50.6
Financial Commitment (“FC”)
1090 CHAPTER 51
INVESTMENT BY RESIDENT INDIVIDUALS 51.1
Introduction
1097
51.2
Liberalised Remittance Scheme (LRS) of USD 2,50,000 for resident individuals
1097
51.3
Routes of making overseas investment
1100
51.4
Overseas investment by RI as ODI
1102
51.5
Acquisition of equity capital as OPI
1106
51.6
Reinvestment by way of ODI v. Reinvestment by way of OPI
1108
51.7
Acquisition of units of investment funds
1108
51.8
Acquisition of foreign securities by way of inheritance
1112
51.9
Acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme or Sweat Equity Shares
1112
I-35
CONTENTS PAGE
CHAPTER 52 OVERSEAS INVESTMENT BY TRUSTS/SOCIETIES/AD BANKS/ DEPOSITORY/STOCK EXCHANGES ETC. 52.1
1127
Introduction
52.2
Overseas investment by registered trust or society
1127
52.3
Overseas investment by clearing corporations of stock exchanges and clearing members
1128
52.4
Acquisition and transfer of foreign securities by AD Bank
1128
52.5
Investment by sole proprietorship or unregistered partnership firms
1128
52.6
OI by mutual funds
1128 CHAPTER 53 ROLE AND RESPONSIBILITY OF AD BANKS
53.1
Introduction
1130
53.2
Provisions with regard to AD Bank under FEMA, 1999
1130
53.3
Specific obligations under the new OI Regime
1134
CHAPTER 54 EXIT FROM OVERSEAS INVESTMENT 54.1
Introduction
1138
54.2
Disinvestment of overseas investment
1138
54.3
Method of disinvestment
1139
54.4
Restructuring
1144 CHAPTER 55
OVERSEAS INVESTMENT BY AIFs AND VENTURE CAPITAL FUNDS 55.1
Introduction
1149
55.2
Meaning of alternative investment fund
1149
55.3
Registration of fund with SEBI
1150
55.4
Venture capital funds
1151
55.5
Overseas investments by Alternative Investment Funds (AIFs) and VCFs
1152
55.6
Reporting to RBI
1155
CONTENTS
I-36 PAGE
CHAPTER 56 CROSS BORDER TRANSACTION WITH REGARD TO VIRTUAL CURRENCIES 56.1
Introduction
1159
56.2
What is virtual currency
1159 CHAPTER 57
REPORTING OF OVERSEAS INVESTMENT 57.1
Introduction
1168
57.2
Reporting of overseas investment
1168
57.3
Legal entity identifier for cross-border transactions
1173
57.4
About the Forms
1174
57.5
Delay in reporting and late submission fees
1178
57.6
Restriction on further financial commitment or transfer
1179
57.7
Consequences of non-compliance with the reporting requirements
1180
C H A P T E R
3
2DAA4=C 0=3 20?8C0; 022>D=C CA0=B02C8>=B 3.1 INTRODUCTION This chapter covers some of the most relevant provisions of FEMA, 1999. Although the FEMA, 1999 comprises only 49 sections, yet it is very complex Act. It is a transaction based Act and each transaction is governed by different set of rules and regulations. Also, there are different norms for different type of entities. The purpose of FEMA is not revenue generation, it aims more for regulation, reporting and compliance. However, since it governs the transaction involving Foreign Exchange, it is always under the close scrutiny of regulatory authorities. Therefore, before undertaking any transaction, be it loan from foreign entity or making an investment in immovable property by NRI it is pertinent to have the proper understanding of the Act.
3.2 EPICENTER OF FEMA First and most important concept to understand under FEMA is the current and capital account transactions. The whole framework of FEMA, 1999 is based on the capital and current account transaction therefore an understanding of definition of current account and capital account transaction along with the difference between two is very essential. All the foreign exchange Transactions are divided into two categories: (1) Current Account Transactions (2) Capital Account Transactions For both current and capital account transaction, it is important to understand the following aspects and it has been discussed in the subsequent paragraphs: Definition
Characterisation
Allowability
Definition: What is meaning of both the terms i.e. Current Account Transaction and Capital
Account Transaction under FEMA and how is it defined in the Act. Characterisation: What is the character of transaction. Does it fall under the Current Account
or does it fall under the Capital Account Transaction? Allowability: Whether the transaction is allowed to be undertaken? Is yes, Whether the
transaction is allowed to be undertaken with or without restrictions. General rule: As a general rule, all the current account transactions under FEMA are permitted (except those specified) and all the capital account transactions are prohibited or regulated.
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!LL CURRENT ACCOUNT TRANSACTIONS ARE ALLOWED UNTIL PROHIBITED
Para 3.2
!LL CAPITAL ACCOUNT TRANSACTIONS ARE PROHIBITED UNTIL PERMITTED
Let us understand each of these two terms in detail.
3.2.1 Current Account Transactions 3.2.1.1 Definition The term Current Account Transaction has been defined under the Act. It is defined as under: As per section 2(j) of FEMA: “Current Account Transactions” means a transactions other than a capital account transactions and without prejudice to the generality of the foregoing such transactions includes: (i) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities 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, and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children”.
The definition of current account transaction is divided into two parts i.e.
!LL TRANSACTIONS WHICH ARE NOT THE #APITAL !CCOUNT 4RANSACTIONS
4RANSACTIONS SPECIFICALLY INCLUDED IN CURRENT ACCOUNT TRANSACTIONS EVEN IF THEY ARE CAPITAL ACCOUNT TRANSACTIONS
Transaction other than Capital Account Transaction: The definition of Current Account transaction says that it means a transaction other than a capital account transaction which gives the understanding that every transaction first needs to be checked whether it is capital account transaction or not and if it is not capital account transaction then it shall by default be taken as current account transaction. Meaning of “without prejudice to the generality of the foregoing”: The words ‘without prejudice to the generality of the foregoing such transactions includes’ imply that even if the transactions listed in the definition may fit into the definition of capital account transactions, such transactions shall be deemed as current account transaction. For example, resident of India imports goods from outside India on a short-term credit of less than six months, he is creating a liability outside India and thus, it can be treated a capital account transaction, but it is specifically included in the above definition under section 2(j)(i); therefore, it shall be treated as a current account transaction only. Includes the following transactions specifically: Current account transaction means a transaction other than capital account transaction and without prejudice to the generality of foregoing, includes the below mentioned transactions:
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158
(i) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities 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, and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children. Each of above clauses have been discussed in detail below: (i) Payment due in connection with – (a) Foreign trade (b) Other current business (c) Services (d) Short-term banking facilities (e) Credit facilities in ordinary course of business The clause (i) of section 2(j) mainly deals with corporates and with the requirement of day to day functioning of the corporates. Payment due in connection with credit facilities in the ordinary course of business are construed as the current account transaction. The ordinary course of business is dependent on the operating cycle of the business. The operating cycle of one business may be different from the operating cycle of other business. (ii) The payment of Interest on loans; and Net income from investment fall under the current account transaction. The clause (ii) of section 2(j) deals with income in the nature of:
Interest on loan
Net income from investment
Interest on loan: Interest on loan is specifically included in the current account transaction. There is no specific approval required for the purpose of buying foreign exchange for the purpose of remittance as interest on loan. However, there may be instances where in the interest is long pending to be paid. In such cases the approval from RBI shall be required to be taken for making the payment. Net income from investment: There is no specific approval required for the purpose payment by way of Net income from investment like dividends etc. However, the compliances needs to be undertaken w.r.t. Companies Act, 2013. There use to be requirement of dividend balancing. Such a requirement had been done away with. (iii) Remittances for living expenses of parent, spouse and children residing abroad; (iv) Expenses in connection with – (a) Foreign travel (b) Education (c) Medical care of parents, spouse and children While clauses (i) and (ii) of section 2(j) predominantly deals with corporates the clauses (iii) and (iv) deals with the resident individuals. There are specific limits for each of the expenses as mentioned in the clauses (iii) and (iv) under Foreign Exchange Management (Current Account Transactions) Rules, 2000 which needs to be complied with.
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Limit upto which remittance can be made without prior approval of RBI Remittances for current account transactions (viz. private visit; gift/donation; going abroad on employment; emigration; maintenance of close relatives abroad; business trip; medical treatment abroad; studies abroad) available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015, dated May 26, 2015 are subsumed under the Liberalised Remittance Scheme (LRS) of USD 2,50,000 per Financial Year (FY) with effect from May 26, 2015 [Instructions on LRS are available on Master Direction on Liberalised Remittance Scheme dated January 1, 2016]. Release of foreign exchange exceeding USD 2,50,000, requires prior permission from the Reserve Bank of India. The limits as specified in Current Account Rules is as follows: Remittances for Travel: Out of the overall foreign exchange (USD 250,000 per financial year) being sold to a traveller, exchange in the form of foreign currency notes and coins may be sold up to the limit indicated below: (i) Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States - not exceeding USD 3000 per visit or its equivalent. (ii) Travellers proceeding to Iraq or Libya - not exceeding USD 5000 per visit or its equivalent. (iii) Travellers proceeding to Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States - full exchange may be released. (iv) Travellers proceeding for Haj/Umrah pilgrimage- full amount of entitlement in cash or up to the cash limit as specified by the Haj Committee of India, may be released. Authorised Dealers may remit foreign exchange up to a reasonable limit, at the request of a traveller towards his hotel accommodation, tour arrangements, etc., in the countries proposed to be visited by him. Further, all tour related expenses including cost of rail/road/water transportation charges outside India and remittances relating towards cost of Euro Rail; passes/tickets, etc. for Indian travellers and overseas hotel/flight charges have been subsumed under the LRS limit of USD 2,50,000. Excess Limit is allowed in case of remittance for certain specified expenses:
1.1 Limit upto which remittance can be made without prior approval of RBI The remittances for current account transactions (viz, private visit, gift/donation, going abroad on employment, emigration, maintenance of close relatives abroad, business trip, medical treatment abroad, studies abroad, etc.) are available to resident individuals under Para 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015 are subsumed in the limit of Liberalised Remittance Scheme of USD 2,50,000. Any additional remittance in excess of the said limit for the aforementioned purposes shall require prior approval of the Reserve Bank of India.
1.2 Excess Limit is allowed in case of remittance for certain specified expenses. There is an exception to the above limits of USD 2,50,000 in case of expenses for emigration expenses, for expenses in connection with medical treatment abroad and studies abroad wherein individual may avail of an exchange facility for an amount in excess of the limit if it is so required by a country of emigration, medical institute offering treatment or the university, respectively.
1.3 Citizens of a foreign State and other specified citizens may remit up to their net salary Schedule III provides that for a person who is resident but not permanently resident in India and— (a) is a citizen of a foreign State other than Pakistan; or
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DIV. 1 : FUNDAMENTALS
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund, and other deductions). The Schedule further clarified that 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 assignments, the duration of which does not exceed 3 years, is a resident but not permanently resident. Process of determination of current account transaction #HART DETERMINING THE #URRENT !CCOUNT 4RANSACTIONS #HECK IF THE TRANSACTIONS IS #APITAL !CCOUNT 4RANSACTION 9ES
.O
#HECK IF IT IS FALLING UNDER SPECIFIC EXCLUSIONS 9ES )T IS #URRENT !CCOUNT 4RANSACTION
)T IS #URRENT !CCOUNT 4RANSACTION .O
)T IS A #APITAL !CCOUNT 4RANSACTION
Terms used in the definition: Most of the terms used in the definition have not been defined under FEMA. For i.e. the term ‘Foreign Trade’, ‘Other current business’, ‘Short term banking facilities’ etc. have not been defined anywhere. Only the term “ Services” is defined under section 2 of clause (zb) as “service” means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. For the terms not defined in the Act, the closest reference that can be taken is from Balance of Payment. Example An Indian resident imports machinery from a vendor in UK for installing in his factory on cash. Let us determine what kind of transaction is this. As per accounts and income tax law, machinery is a “capital expenditure”. However, under FEMA, it does not alter/create an asset in India for the UK vendor. It does not create any liability to a UK vendor for the Indian importer. Once the payment is made, the Indian resident or the UK vendor neither owns nor owes anything in the other country. Therefore, it is not a capital account transaction. Since it is not a capital account transaction, it is a Current Account Transaction. Let us alter the example to understand the second limb of the definition An Indian resident imports machinery from a vendor in UK for installing in his factory on a credit period of 3 months.
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CH. 3 : CURRENT AND CAPITAL ACCOUNT TRANSACTIONS
Para 3.2
As per accounts and income-tax law, for the credit period of 3 months, there is a liability of the Indian importer to the UK vendor. Technically under FEMA also, it is a liability outside India. However, as per the definition of Current Account Transaction “short-term banking and credit facilities in the ordinary course of business” are specifically included in the definition of Current Account Transaction and therefore, it is considered to be Current Account Transaction. What is short term credit for one industry may be long term for other. The term short term banking and credit facilities needs to be read with regard to the sector in which the entity undertaking the transaction is operating. Payment of Royalty is Current Account Transaction. There is no restriction on % of the royalty for use of technology or trademark. There was restriction on % of Royalty earlier, which had been removed in 2010. Vide press note 8 of 2009, 1RBI vide A. P. (DIR Series) Circular No. 52, dated May 13, 2010 did away with restriction on payment of Royalty. Relevant extracts from the circular is produced below:
“2. In terms of Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, prior approval of the Ministry of Commerce and Industry, Government of India, is required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump-sum payment exceeds USD 2 million [item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000]. The Government of India has reviewed the extant policy with regard to liberalization of foreign technology agreement and it was decided to omit item number 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, and the entry relating thereto. 3. Accordingly, AD Category-I banks may permit drawal of foreign exchange by persons for payment of royalty and lump-sum payment under technical collaboration agreements without the approval of Ministry of Commerce and Industry, Government of India.”
3.2.1.2 Allowability of Current Account Transactions All current account transactions are permitted until unless prohibited: A person can draw foreign exchange for the purpose of current account transaction; however, the Central Government has been given power to prohibit or restrict any current account transaction. As per section 5 of FEMA: “Any person may sell or draw foreign exchange to or from an authorized person, if such sale or drawal is a current account transaction: 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.”
Thus, a person can draw foreign exchange for the purpose of current account transaction; however, the Central Government has been given power to prohibit or restrict any current account transaction. Foreign Exchange Management (Current Account Transactions) Rules, 2000: In exercise of the power conferred under sections 5 and 46 of FEMA, the Central Government in consultation with the Reserve Bank of India (RBI) has framed Foreign Exchange Management (Current Account Transactions) Rules, 2000, (hereinafter referred as ‘CAT Rules, 2000’) as notified by the Government of India vide Notification No. G.S.R. 381(E) dated 3 May 2000 (Rules).
1. http://dipp.nic.in/English/policy/changes/pn8_2009.pdf.
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162
The CAT Rules, 2000 has 7 Rules in all:
Before understanding the framework of CAT Rules, 2000 it is very important to understand the meaning of term Drawal. The term “Drawal” is defined in rule 2(b) of the CAT Rules, 2000. The term “Drawal” is defined in rule 2 to mean! “drawal 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 any other thing by whatever name called which has the effect of creating foreign exchange liability”.
The scope of definition of Drawal is very vast as it not only covers the drawal by foreign exchange from an authorised person but it includes all other ways which has the effect of creating foreign exchange liability. Drawal as defined basically consists of the following: (1) drawal of foreign exchange from an authorised person and (2) includes opening of letter of credit or (3) use of international credit card or (4) international debt Card or ATM card or (5) any other thing by whatever name called which has the effect of creating foreign exchange liability. Section 5 of the Act, specifies that any person may sell or draw foreign exchange to or from an authorised person, if such sale of drawal is a current transaction. Provided that Central Government can impose reasonable restrictions for CAT. Pursuant to this, CAT Rules, 2000 have been framed. There are three type of restrictions raised in CAT Rules, 2000. (1) Transactions which are expressly prohibited. (Rule 3) (2) Transactions which are permitted by securing the approval from the Ministry/Department of the Government of India as specified therein. (Rule 4) (3) Transactions for which prior approval of the RBI is required if the amount exceeds the specified limits. The release of foreign exchange up to the threshold ceilings specified in Schedule III is delegated to the authorised dealer banks. (Rule 5)
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3CHEDULE ) 4RANSACTIONS 4OTALLY PROHIBITED
#URRENT !CCOUNT 4RANSACTIONS
2ULE
4RAVEL TO .EPAL "HUTAN
#AN TRANSACT IN 2UPEES
4RANSACTION WITH RESIDENT TO .EPAL "HUTAN 2EQUIRING PRIOR !PPROVAL OF 'OVERNMENT
2ULE
3CHEDULE )) 4RANSACTIONS
!PPROVAL FROM -INISTRY $EPARTMENT OF THE 'OVERNMENT
2EQUIRING PRIOR APPROVAL OF 2")
2ULE
3CHEDULE ))) 4RANSACTIONS
!PPROVAL FROM 2") IF THE LIMIT INCREASES
Authorised dealer banks are guided by the above rules for release of foreign exchange to persons resident in India for various current account transactions. Each of the three Rules have been detailed below: Prohibited Current Account Transactions: Rule 3 specifies the transactions which are prohibited. No foreign exchange can be drawn for any of these eight type of transactions. These transactions are as mentioned below: 1. Remittance out of lottery winnings. 2. Remittance of income from racing/riding, etc., or any other hobby. 3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc. 4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. 5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable. 6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco. 7. Payment related to “Call Back Services” of telephones. 8. Remittance of interest income on funds held in Non-resident Special Rupee Scheme A/c. If a person wants to draw foreign exchange for remittance out of lottery winnings that is not permissible. That is the remittance out of lottery winnings are not possible in any manner. We have already discussed the meaning of the “drawal” in detail. Now, reading the definition along with rule 3 and the example of lottery tickets will mean that a person cannot make remittance out of lottery proceeds in any manner be it by purchasing cash, by use of International debit card or in any other manner. Each of the prohibited items is discussed in detail below: 1. Remittance out of lottery winnings: The remittance is for activity which is speculative in nature that’s why are prohibited to be undertaken. 2. Remittance of income from racing/riding, etc., or any other hobby: The remittance is for activity which is speculative in nature that’s why are prohibited to be undertaken.
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164
3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc. The remittance is for activity which is speculative in nature that’s why are prohibited to be undertaken. 4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. Few of the Indian exporters appoint agents abroad for securing their export contracts and such agents are paid agency commission as a percentage of the value by the Indian exporters. Payment of commission on exports is allowed. Also, as per Notification No. FEMA 120/RB-2004 dated July 7, 2004, Indian companies are allowed to made equity investments in foreign subsidiary/JV by export of goods instead of bank transfer. As per FED Master Direction No. 16/2015-16 updated as on 19th Oct. 2020 Payment of commission on exports can be made: (i) AD Category–I banks may allow payment of commission, either by remittance or by deduction from invoice value, on application submitted by the exporter. The remittance on agency commission may be allowed subject to conditions as under: (a) Amount of commission has been declared on EDF/SOFTEX form and accepted by the Customs authorities or Ministry of Information Technology, Government of India/EPZ authorities as the case may be. In cases where the commission has not been declared on EDF/SOFTEX form, remittance may be allowed after satisfying the reasons adduced by the exporter for not declaring commission on Export Declaration Form, provided a valid agreement/written understanding between the exporters and/or beneficiary for payment of commission exists. (b) The relative shipment has already been made. (ii) AD Category–I banks may allow payment of commission by Indian exporters, in respect of their exports covered under counter trade arrangement through Escrow Accounts designated in US Dollar, subject to the following conditions: (a) The payment of commission satisfies the conditions as at (a) and (b) stipulated in paragraph (i) above. (b) The commission is not payable to Escrow Account holders themselves. (c) The commission should not be allowed by deduction from the invoice value. (iii) Payment of commission is prohibited on exports made by Indian Partners towards equity participation in an overseas joint venture/wholly owned subsidiary as also exports under Rupee Credit Route except commission up to 10 per cent of invoice value of exports of tea & tobacco. However as per the rule 3 no foreign exchange can be drawn to pay commission on such an export made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. 5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable. The condition of dividend balancing is not in existence anymore. The government abolished a dividend-balancing requirement in July 2000 through press note No.7 (wherein units
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CH. 3 : CURRENT AND CAPITAL ACCOUNT TRANSACTIONS
Para 3.2
operating in 22 consumer-goods industries had been subject to dividend balancing with matching export earnings for seven years). As per the dividend balancing the requirement was that the cumulative outflow of foreign exchange on account of payment of dividend over a period of seven years from the date of commencement of commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years. 6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco. Prior to February 20, 2004 the remittance for payment of commission on exports under Rupee state credit route was completely prohibited however, vide A.P. (DIR Series) Circular No. 71 it was decided to permit payment of commission in free foreign exchange for exports of tea and tobacco to Russia against repayment of State Credits upto 10 per cent of the invoice value. However, the clause is no more relevant as Rupee state credit Route as past been gone. 7. Payment related to “Call Back Services” of telephones. Looking into evolution of telecommunication medium, the clause is also no more relevant. 8. Remittance of interest income on funds held in Non-resident Special Rupee Scheme A/c. As per erstwhile FOREIGN EXCHANGE MANAGEMENT (DEPOSIT) REGULATIONS, 2000 there use to be NRSR account’ means a Non-Resident (Special) Rupee account scheme. Non-Resident Special Rupee [NRSR] Account could be opened and maintained by an NRI being a citizen of India or foreign citizens of Indian origin residing outside India. The accounts were non-convertible/non-repatriable and were maintained in Indian rupees in the form of savings, current and recurring or fixed deposit accounts. The Reserve Bank of India’s Notification No. FEMA 52/RB-2002.2 dt.1st March,2002 notifying “Full Convertibility of Deposit Schemes For Non-Resident Indians” has discontinued the said schemes w.e.f.1-4-2002. Hence, no fresh deposits will be accepted nor existing deposits will be renewed on or after 1-4-2002. Existing deposits upon maturity will be converted to NRO account at the option of the account holder. Hence, the above clause is also of only theoretical reference. Current Account Transactions that needs prior approval of Central Government: Rule 4 specifies the transactions which need prior approval from Central Government. Government functions by various ministries. Therefore, it means the approval from particular ministry is required. Following are the transactions which require approval of Central Government along with the Ministry/ department from which the approval is required. Purpose of Remittance 1. Cultural Tours
Ministry/Department of Govt. of India whose approval is required Ministry of Human Resources Development, (Department of Education and Culture)
2. Advertisement in foreign print media for the purposes Ministry of Finance, (Department of Economic Affairs) other than promotion of tourism, foreign investments and international bidding (exceeding USD 10,000) by a State Government and its Public Sector Undertakings 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 Ministry of Surface Transport, (Chartering Wing) Govt. Department or a PSU on c.i.f. basis (i.e. other than f.o.b. and f.a.s. basis) 2. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=582&Mode=0.
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Purpose of Remittance
166
Ministry/Department of Govt. of India whose approval is required
5. Multi-modal transport operators making remittance Registration Certificate from the Director General to their agents abroad of Shipping 6. Remittance of hiring charges of transponders by (a) TV Channels
Ministry of Information and Broadcasting Ministry of Communication and Information Technology
(b) Internet Service providers 7. Remittance of container detention charges exceeding Ministry of Surface Transport (Director General of the rate prescribed by Director General of Shipping Shipping) 8. Omitted 9. Remittance of prize money/sponsorship of sports Ministry of Human Resources Development activity abroad by a person other than International/ (Department of Youth Affairs and Sports) National/State Level sports bodies, if the amount involved exceeds USD 100,000. 10. Omitted 11. Remittance for membership of P&I Club
Ministry of Finance (Insurance Division)
Compounding Order for contravention of Rule 4 In the matter of TV Today Network Limited The applicant was incorporated as T.V. Today Network Limited on December 28, 1999 under the Companies Act, 1956 (CIN: L92200DL1999PLC103001). The applicant is engaged in the business of broadcasting of news television channels in India and abroad. At the time of launch of its first news channel, the applicant received permission of Ministry of Information and Broadcasting (MIB) on December 04, 2000 to uplink using the infrastructure facilities of Videsh Sanchar Nigam Limited (VSNL), which was a Government of India owned entity at the time. On December 23, 2002, the applicant entered into an agreement with Intelsat Global Sales and Marketing Ltd., UK (Intelsat), for a period ranging from March 2003 to December 2005. The applicant received approval from Ministry of Information and Broadcasting (MIB) for the arrangement. The applicant also sought approval from RBI for making payment to the overseas service provider, which was granted vide our letter dated on April 17, 2003. Foreign Exchange Management (Current Account Transactions) Rules, 2000, were amended with effect from September 13, 2004, whereby it was notified that remittances towards hiring of transponders by TV channels would require specific prior approval of Ministry of Information and Broadcasting. Thereafter, due to technical issues, the applicant shifted its uplinking to a new satellite where the service provider was PanAmSat Corporation. The applicant obtained approvals from MIB for uplinking, but specific approval for remittances towards hiring of transponders was not taken. Subsequently, PanAmSat merged with Intelsat and Intelsat Corporation came into existence. Therefore, the applicant made remittances to Intelsat Corporation from July, 2006 onwards. In July, 2014, MIB issued an advisory wherein the requirement of specific approval of MIB before making remittances in foreign exchange towards hiring charges of transponders was mentioned. The applicant, thus, applied for post facto approval and MIB granted it vide their letters Nos. 1402/07/2015-TV (I) Pt. (II) dated May 18 and 1402/07/2015-TV (I) Pt. I dated May 19, 2016, subject to compounding by RBI. All the remittances were in contravention of Rule 4 read with item 6(a) of Schedule II to Foreign Exchange Management (Current Account Transactions) Rules, 2000.