OVERVIEW OF FEMA BARODA BRANCH OF WIRC OF ICAI 16 th April, 2016 By: CA Manoj Shah

OVERVIEW OF FEMA BARODA BRANCH OF WIRC OF ICAI 16 th April, 2016 By: CA Manoj Shah e-mail :manoj@shahmodi.com

CHARTERED ACCOUNTANTS Shah & Modi 2 Transition from Foreign Exchange Regulation Act, 1973 to Foreign Exchange Management Act, 1999 Post liberalization (i.e. New Industrial policy of 1991) there was need to remove shackles of regulatory and legal provisions. Need to consolidate and amend the law relating to foreign exchange with the objectives of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Need to take various steps to make ‘New Industrial Policy’- workable and meaningful. Industrial licensing was made pragmatic and objective- oriented. It was decided to review provisions of Foreign Exchange Regulation Act, 1973 (FERA).

CHARTERED ACCOUNTANTS Shah & Modi 3 Transition from Foreign Exchange Regulation Act, 1973 to Foreign Exchange Management Act, 1999 Intention was to bring provisions of FERA in line with emerging trends of liberalization so as to remove obstacles in the inward flow of foreign exchange and foreign investment. Accordingly, on June 1, 2000, the Foreign Exchange Management Act, 1999 (FEMA) brought in force to replace the then existing FERA. It is an act to manage the foreign exchange of India as opposed to FERA which was enacted to regulate/control the foreign exchange.

CHARTERED ACCOUNTANTS Shah & Modi 4 Structure of FEMA Applies to the whole of India and all branches, offices and agencies outside India which are owned or controlled by a person resident in India. FEMA has 49 sections of which 9 (section 1 to 9) are substantive and the rest are procedural/ administrative Section 46 of FEMA grants power to Central Government to make rules to carry out the provision of FEMA Section 47 of FEMA grants power to RBI to make regulations to implement its provisions and the rules made there under RBI is entrusted with the administration and implementation of FEMA

CHARTERED ACCOUNTANTS Shah & Modi 5 Substantive Provisions SectionDescription 1 Application and Commencement of FEMA 2 Definitions 3 to 9 Provisions relating to Regulations and Management of Foreign Exchange 10 to 12 Provisions relating to Authorized Person 13 to 15 Provisions relating to Contraventions and Penalties 16 to 38 Provisions relating to Adjudication, Appeal and Directorate of Enforcement 39 to 49 Miscellaneous Provisions

CHARTERED ACCOUNTANTS Shah & Modi 6 Rationalization of FEMA Notifications FEMA was enacted with 25 original notifications in 1999 and over years had more than 360 amendments. A need was felt to consolidate the regulations and rationalize them. Accordingly, RBI has started revising regulations issued under FEMA. Consequently on issue of revised regulations original notifications and subsequent amendments stand repealed. Revised regulations will carry the same numbers as in the old regulations with a suffix ‘(R)’ along with the year in which they are published. Till date 12 notifications are revised. [5(R), 6(R), 7(R), 9(R), 10(R), 11(R), 12(R), 13(R), 15(R), 18(R), 22(R), 23(R)]

CHARTERED ACCOUNTANTS Shah & Modi 7 Master Directions RBI has come up with Master Directions covering foreign exchange transactions. Master Directions consolidate instructions rules and regulations. One Master Direction will be issued for each subject matter covering all instructions on the subject. Master Directions will be updated as and when there is change in rules/regulations or change in policy. Existing set of Master Circulars will be stand withdrawn with issue of Master Directions. In Jan 2016, 17 Master Directions were issued by RBI. https://www.rbi.org.in/scripts/FS_Notification.aspx?fn=5& fnn=2764 https://www.rbi.org.in/scripts/FS_Notification.aspx?fn=5& fnn=2764

CHARTERED ACCOUNTANTS Shah & Modi 8 A.P. (Dir Series) Circulars and Master Directions Directions issued by RBI u/s. 10(4) and 11(1) of FEMA to Authorized Persons (AP) These directions are called – A.P. (Dir Series) Circulars APs are Authorized Dealers, Money Changers and banks who are authorized to deal in Foreign Exchange These Circulars are operational instructions to AP by RBI Legal validity of these Circulars have been upheld in the case of Prof. Krishnaraj Goswami v. RBI, [2007 (6) Bom. CR 565] Court upheld the power of RBI to issue such Circulars based on powers conferred to RBI u/s. 10(4) & 11(1) & negated the contention that RBI has no jurisdiction to issue such Circulars Master Directions shall be issued by RBI every year. First 17 Master Directions have been issued on 1 st January 2016 subsuming the position as on date and consolidating all the existing changes (subject wise).

CHARTERED ACCOUNTANTS Shah & Modi 9 Some of the important definitions Authorized Person Capital Account Transaction Current Account Transaction Export Foreign Exchange Person Person Resident in India Person resident outside India Repatriate to India Security Transfer

CHARTERED ACCOUNTANTS Shah & Modi 10 Current and Capital Account Transaction Capital Account transaction means a transaction which alters assets or liabilities including contingent liabilities outside India of person resident in India and vice-versa. It’s an economic definition rather than an accounting or legal definition. Current Account transaction is transaction other than a capital account transaction. Current Account transactions are freely permitted unless prohibited - they are regulated by Central Government. Capital Account transactions are prohibited unless generally permitted - they are regulated by RBI.

CHARTERED ACCOUNTANTS Shah & Modi 11 FEMA looks transaction from Balance of payment position of Country Examples -  Import of machinery on payment of cash - Current A/c transaction  Machinery is purchased on hire - Capital A/c transaction. There is an obligation to make future payment to the non-resident  Consideration for goods & Services – Current A/c transaction  Transaction represents a creation or acquisition of wealth, shares, loans or immovable properties – Capital A/c transaction Current and Capital Account Transaction

CHARTERED ACCOUNTANTS Shah & Modi 12 Capital Account Transaction  RBI has been empowered under section 6(2) of FEMA to specify, in consultation with the Central Government, any class or classes of Capital account transactions, involving debt instruments, which are permissible [i.e. the transactions which are not included under section 6(2A)].  Section 6(2A) of FEMA – Central Government is empowered to specify in consultation with RBI, the class of capital account transactions, not involving debt instruments, which are permissible.  Every transaction listed in this section is regulated by a corresponding notification

CHARTERED ACCOUNTANTS Shah & Modi 13 Notifications under FEMA Notifications are issued by the Central Government in the Official Gazette Section 47 of FEMA grants power to RBI to make regulations. RBI had initially issued 25 notifications, covering capital account transaction prescribed in Sec 6(3) & certain miscellaneous provisions 15 related to capital account transactions, 1 on Export of goods and services and 9 for other regulations As on date, the total number of notifications issued by RBI stand at 362. As mentioned in earlier slide, need is felt to revisit the notifications and therefore RBI has started revising the notifications and till date has issued 12 revised notifications carrying suffix (R) for easy identification along with the year in which they are published.

CHARTERED ACCOUNTANTS Shah & Modi 14 Sr. No. TransactionsCorresponding Notification Corresponding Section of FEMA 1Permissible Capital Account TransactionsNo. 1Sec 6(2) read with Sec 47 (2) 2Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India No. 2Sec 6(3)(c) read with Sec 47(2) 3Any borrowing or lending in foreign exchange in whatever form or by whatever name called No. 3Sec 6(3)(d) read with Sec 47(2) 4Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India No. 4Sec 6(3)(e) read with Sec 47(2) 5Deposits between persons resident in India and persons resident outside India No. 5(R) dated 01.04.2016 6(3)(f) read with Sec 47(2) Capital Account Transaction

CHARTERED ACCOUNTANTS Shah & Modi 15 Capital Account Transaction Sr. No. TransactionsCorresponding Notification Corresponding Section of FEMA 6Export, import or holding of currency or currency notes No. 6(R) dated 29.12.2015Sec 6(3)(g) read with Sec 47(2) 7Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India No. 7(R) dated 21.01.2016Sec 6(3)(h) read with Sec 47(2) 8Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred - (i)by a person resident in India and owed to a person resident outside India (ii)by a person resident outside India No. 8Sec 6(3)(j) read with Sec 47(2) 9 InsuranceNo. 12(R) dated 29.12.2015Sec 47(2)

CHARTERED ACCOUNTANTS Shah & Modi 16 Capital Account Transaction Sr. No. TransactionsCorresponding Notification Corresponding Section 10Remittance of AssetsNo. 13 (R) dated 01.04.2016 Sec 47 11Transfer or issue of any Foreign Security No. 120 dated July 07, 2004 - Sec 6(3)(a) read with Sec 47 12Transfer or issue of any security by a person resident outside India No. 20Sec 6(3)(b) read with Sec 47 13Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India No. 21Sec 6(3)(i) read with Sec 47(2) 14Establishment in India of Branch or Office or other place of business No. 22 (R) dated 31.03.2016 Sec 6(6) 15 Investment in Firm or Proprietary Concern in India No. 246(3)(h) read with Sec 47(2)

CHARTERED ACCOUNTANTS Shah & Modi 17 Capital Account Transaction Notification FEMA - 1/2000-RB dated 3-5-2000: Relates to permissible capital account transaction Capital account transactions of a person may be classified under the following heads, namely- A. Transaction, specified in Schedule I, of a person resident in India B. Transactions, specified in Schedule II, of a person resident outside India Subject to the provisions of the Act or the rules or the regulations or directions or orders made or issued thereunder, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction specified in the Schedules

CHARTERED ACCOUNTANTS Shah & Modi 18 Capital Account Transaction Schedule I [Regulation 3(1)(A)]: Classes of capital account transactions of persons resident in India a)Investment by a person resident in India in foreign securities b)Foreign currency loans raised in India and abroad by a person resident in India c)Transfer of immovable property outside India by a person resident in India d)Guarantees issued by a person resident in India in favour of a person resident outside India e)Export, import and holding of currency/currency notes f)Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India

CHARTERED ACCOUNTANTS Shah & Modi 19 Capital Account Transaction g)Maintenance of foreign currency accounts in India and outside India by a person resident in India h)Taking out of insurance policy by a person resident in India from an insurance company outside India. i)Loans and overdrafts by a person resident in India to a person resident outside India. j)Remittance outside India of capital assets of a person resident in India. k)Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad by a person resident in India.

CHARTERED ACCOUNTANTS Shah & Modi 20 Capital Account Transaction Schedule II [Regulation 3(1)(B)]: Classes of capital account transactions of persons resident outside India. a)Investment in India by a person resident outside India, that is to say, i. Issue of security by a body corporate or an entity in India and investment therein by a person resident outside India; & ii. Investment by way of contribution by a person resident outside India to the capital of a firm or a proprietorship concern or an association of persons in India. b)Acquisition and transfer of immovable property in India by a person resident outside India. c)Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India.

CHARTERED ACCOUNTANTS Shah & Modi 21 Capital Account Transaction d) Import and export of currency/currency notes into/from India by a person resident outside India. e)Deposits between a person resident in India and a person resident outside India. f)Foreign currency accounts in India of a person resident outside India. g)Remittance outside India of capital assets in India of a person resident outside India.

CHARTERED ACCOUNTANTS Shah & Modi 22 Capital Account Transactions - Prohibited No person resident outside India shall make investment in India, in any form, in any Company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage - i.In the business of chit fund, or ii.As Nidhi Company, or 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)

CHARTERED ACCOUNTANTS Shah & Modi 23 Capital Account Transactions – Prohibited For the purpose of this regulation 'real estate business' shall not include development of townships, construction of residential/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014). In terms of FEM (Permissible Capital Account Transactions) Second Amendment Regulations 2015 dated 02-03-2015, NRIs shall be eligible to subscribe on non-repatriation basis, to chit funds through normal banking channels.

CHARTERED ACCOUNTANTS Shah & Modi 24 Capital Account Transaction Section 6(4) – a person resident in India may hold, own, 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 person when he was resident outside India or inherited from a person who was resident outside India Section 6(5) – a person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India

CHARTERED ACCOUNTANTS Shah & Modi Capital Account Transaction under Section 6(4) RBI has vide its A.P. (DIR Series) Circular No. 90 dated January 9, 2014 clarified that the following transactions shall be covered under section 6(4) of FEMA, 1999: a)Foreign currency accounts opened and maintained by such a person when he was resident outside India; b) Income earned through employment or business or vocation outside India taken up or commenced, or from investments made, or from gift or inheritance received while such a person was resident outside India; c) Foreign exchange including any income arising there from, and conversion or replacement or accrual to the same, held outside India acquired by way of inheritance from a person resident outside India; 25

CHARTERED ACCOUNTANTS Shah & Modi Capital Account Transaction under Section 6(4) A person resident in India may freely utilize all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of RBI. 26

CHARTERED ACCOUNTANTS Shah & Modi Other Notifications 27 Sr. No. TransactionCorresponding Notification Corresponding Section of FEMA 1Realisation, Repatriation and Surrender of Foreign Exchange No. 9 (R)Sec 8, 10(6) and 47(2)(c) 2Foreign Currency Accounts by a Person Resident in India No. 10 (R)Sec 9 and 47(2)(e) 3Possession and retention of Foreign CurrencyNo. 11 (R)Sec 9(a) & (e) and 47((2)(d) & (g) 4 Inclusion of Debit cards, ATM Cards and such other instruments in the definition of ‘currency’ No. 15 (R)Sec 2(h) 5Manner of Receipt and PaymentNo.14Sec 47 6Receipt from, and payment to, Non- Resident in India No. 16Sec 3 7 Dealing with Nepal/ BhutanNo. 17Sec 3 8 Post Office as Authorized Person No. 18 (R)Sec 3 9 Foreign Exchange Derivative ContractsNo. 25Sec 47(2)(h)

CHARTERED ACCOUNTANTS Shah & Modi Other Notifications 28 Sr. No. Corresponding Notification & Section 10 Export of Goods and ServicesNo. 23 (R) dated 12 th January 2016 - Sec 7(1)(a), 7(3)(a) & 47(2) Withdrawal of General Permission to OCBs Notification No. 101 dated October 3, 2003- Sec 6(3)(b),(d), (e) & (f) read with Sec 47

CHARTERED ACCOUNTANTS Shah & Modi 29 Analysis of Sec 3 of FEMA Sec 3- Dealings in Foreign Exchange: Save as otherwise provided in the Act- No person shall 3(a) Deal in or transfer any foreign exchange or foreign security to any person not being an authorised person Analysis of Sec 3(a): Deal in is a wide term and should include- purchase, acquire, borrow, sell or otherwise transfer or lend or to exchange with (FERA’s corresponding Sec 8(1) had expansive meaning which specifically included all these types of transactions) It must be noted that contravention under clause (a) of Section 3 cannot be compounded by RBI but only by Directorate of Enforcement.

CHARTERED ACCOUNTANTS Shah & Modi 30 3(b)-no person shall- Make any payment to, or for the credit of Any person resident outside India (NR) in any manner Intention is to prohibit direct and indirect payment to NR However, a resident individual may make a gift or grant loan to an NRI who is a close relative, in rupees by way of crossed cheque/electronic transfer to NRO A/c vide Notification No. 237 dated 25.09.2012 w.r.e.f. 16.09.2011 Close relative shall have the same meaning as that of ‘relative’ under the Companies Act, 1956 The amount so paid must be within the permissible limit specified under LRS Analysis of Sec 3 of FEMA

CHARTERED ACCOUNTANTS Shah & Modi 31 3(c) Receive otherwise through an A.P. any payment by order or on behalf of any NR in any manner Expln to above- where a resident receives any payment without corresponding inward remittance than such payment would be regarded as having been received otherwise than through authorised person 3(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 Analysis of Sec 3 of FEMA

CHARTERED ACCOUNTANTS Shah & Modi 32 Current Account Transaction Current account transaction is a transaction other than a capital account transaction Current account transactions are governed by Foreign Exchange Management (Current Account Transaction) Rules, 2000 ("Current Account Transactions Rules"). Current account transactions are divided into 3 schedules in Current Account Transactions Rules:- Schedule I – Prohibited Transactions Schedule II – Transactions requiring prior approval of Government of India Schedule III – Transactions requiring prior approval of RBI

CHARTERED ACCOUNTANTS Shah & Modi 33 Current Account Transaction Schedule I (Rule 3): Transactions which are prohibited  Remittance out of lottery winnings  Remittance of income from racing/riding etc., or any other hobby  Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc.  Payment of commission on exports made towards equity investment in JV/WOS abroad of Indian companies.  Payment of commission on exports under Rupee State Credit route except commission up to 10% of invoice value of exports of tea and tobacco.  Payment related to ‘Call Back Services’ of telephones  Remittance of interest income of funds held in Non-resident Special Rupee Scheme A/c.

CHARTERED ACCOUNTANTS Shah & Modi 34 Current Account Transaction Schedule II (Rule) Transactions requiring prior approval of Government:  Cultural tours  Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping  Advertisement in foreign print media for purpose other than promotion of tourism, foreign investments and international bidding (exceeding USD 10,000) by a State Government and its Public sector undertaking  Remittance of freight of vessel charted by PSU  Payment of import by govt. dept or PSU on CIF basis (through ocean transport)  Multi modal transport operators making remittance to their agents abroad  Remittance for membership of P & I club  Remittance of price money/sponsorship of sports activity abroad by a person other than International/National/State Level sports bodies if amount exceeds USD 1,00,000

CHARTERED ACCOUNTANTS Shah & Modi 35 Current Account Transaction Schedule III (Rule 5): Prior Approval of RBI Facilities for Individuals - Individuals can make remittance within limit of USD 2,50,000 for following facilities. However, any additional remittance in excess of said limit shall require RBI approval. i.Private visits to any country (except Nepal and Bhutan) ii.Gift or donation iii.Going abroad for employment iv.Emigration v.Maintenance of close relatives abroad vi.Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check up abroad, or for accompanying as attendant to a patient gong abroad for medical treatment/check up. vii.Expenses in connection with medical treatment abroad viii.Studies abroad ix.Any other current account transaction.

CHARTERED ACCOUNTANTS Shah & Modi 36 Current Account Transaction For items mentioned at (iv), (vii) and (viii), individual may remit amount in excess of USD 2,50,000 if it is so required by a country of emigration, medical institute offering treatment or the university. A person who is resident but not permanently resident and is:  A citizen of a foreign state other than Pakistan; or  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. [for 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 three years, is a resident but not permanently resident]

CHARTERED ACCOUNTANTS Shah & Modi 37 Current Account Transaction Facilities for persons other than individuals – Following remittances by persons other than individuals shall require prior approval of RBI  Donations exceeding 1% of their foreign exchange earnings during the three financial years or USD 5,00,000 whichever is less.  Commission per transaction to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or 5% of inward remittance whichever is more.  Remittances exceeding USD 1,00,00,000 per project for any consultancy services in respect of infrastructure projects and USD 10,00,000 per project for other consultancy services procured from outside India.  Remittances exceeding 5% of investment brought into India or USD 1,00,000 whichever is higher for reimbursement of pre- incorporation expenses by entity in India.

CHARTERED ACCOUNTANTS Shah & Modi 38 Residential Status under FEMA Under FEMA residential status is of two types:  Person resident in India  Person resident outside India Under FERA, citizenship was considered as deciding factor FEMA lays emphasis on 'residing' which denotes permanency

CHARTERED ACCOUNTANTS Shah & Modi PERSON RESIDENT IN INDIA [Sec. 2(v)(i) of FEMA]: Residing in India for > 182 days during the course of preceding F.Y. but doesn’t include  going out of India or staying outside India for taking up employment for carrying business or vocation for any other purpose in such circumstances as would indicate his intention to stay outside India for uncertain period  coming to India or staying in India otherwise than for taking up employment for carrying business or vocation for any other purpose in such circumstances as would indicate his intention to stay in India for uncertain period PERSON RESIDENT OUTSIDE INDIA[Sec. 2(w) of FEMA]: a person who is not resident in India. 39 Residential Status under FEMA

CHARTERED ACCOUNTANTS Shah & Modi Person to be resident in India, has to reside in India for more than 182 days during the previous financial year Exclusion to this is - if a person stays outside India for employment, for vocation or for any other purpose for uncertain period, then even if he has resided in India for more than 182 days he will become a ‘person resident outside India’ Moreover a person to be treated as person resident in India he has to satisfy not only the condition of period of stay (i.e. 182 days) but has to also comply with the conditions of the 'purpose' of stay i.e. for taking up employment, carrying on business or vocation in India or for any other purpose which would indicate his intention to stay in India for an uncertain period 40 Residential Status under FEMA

CHARTERED ACCOUNTANTS Shah & Modi 41 RBI may ignore the arithmetic condition (i.e. of 182 days) and treat the person who comes to or stays in India for any of the three purposes set out in section 2(v)(i)(B) as ‘person resident in India’ even though he may not have resided in India for a period of 182 days or more during the preceding financial year. However legal tenability of such a view cannot be said to be free from doubt. RBI has a very narrow approach towards non resident acquiring immovable property in India. It gives a weighted significance to the arithmetic condition of staying in India for more than 182 days during the preceding financial year. RBI does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority. Residential Status under FEMA

CHARTERED ACCOUNTANTS Shah & Modi Residential Status under FEMA – Indian Students Studying Abroad A.P. (DIR Series) Circular No. 45 dated December 8, 2003  While taking up studies, students may have to take up job or seek scholarships to supplement their income. As a result their stay gets prolonged than what is intended while leaving India.  They are not dependent for a dominant part of their expenses on remittances from their households in India. Hence, their stay will be for more than 182 days and intention will also be to stay outside India for uncertain period. Thus they can be treated as Non Resident Indians (NRI). 42

CHARTERED ACCOUNTANTS Shah & Modi FEMA Notification No. 5(R) – Foreign Exchange Management (Deposit) Regulations, 2016 Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such country as may be specified by the Central Government, satisfying following conditions: a.Who was a citizen of India by virtue of the constitution of India or the Citizenship Act, 1955 (57 of 1955); or b.Who belonged to a territory that became part of India after 15 th Day of August 1947; or c.Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or d.Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c) (Person of Indian Origin includes Overseas Citizen of India cardholder within meaning of Section 7(A) of the Citizenship Act, 1955) 43 Definition of Person of Indian Origin (PIO) under various Notifications

CHARTERED ACCOUNTANTS Shah & Modi FEMA Notification No. 21 – Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 Person of Indian Origin (PIO) means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who a.at any time held India Passport, or b.Who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1955) or 44 Definition of Person of Indian Origin (PIO) under various Notifications

CHARTERED ACCOUNTANTS Shah & Modi FEMA Notification No. 24 – Foreign Exchange Management (Investment in Firm or Proprietary Concern) Regulations, 2000 Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan or Sri Lanka, if a.He at any time held India Passport, or b.He or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955 (57 of 1955) or c.The person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b). 45 Definition of Person of Indian Origin (PIO) under various Notifications

CHARTERED ACCOUNTANTS Shah & Modi Repatriation to India Repatriate to India means bringing into India the realised foreign exchange and- (i) the selling of such foreign exchange to an authorised person in India in exchange for rupees, or (ii) the holding of realised amount in an account with an authorised person in India to the extent notified by the reserve Bank And includes use of the realised amount for discharge of a debt or a liability denominated in foreign exchange and the expression “repatriation” shall be construed accordingly. (Section 2(y) of FEMA) 46

CHARTERED ACCOUNTANTS Shah & Modi Repatriation outside India ‘Repatriation outside India’ means buying or drawing of foreign exchange from an authorised dealer in India and remitting it outside India through normal banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency. (Notification no. 21) 47

CHARTERED ACCOUNTANTS Shah & Modi 48 Snapshot of Investment Opportunities by NR under FEMA Investment opportunitiesNon- Resident Indian Non- Resident Repatriation basis Non- repatriation basis Interest free Loans to close "relatives" under USD 250,000 scheme  Lending in foreign currency in the form of ECB to Indian corporate who is holding at least 25% equity   Loans to persons other than companies  Deposit with proprietorship concern, partnership firm & companies (not through fresh remittances)  Investment in partnership firm or proprietary concern 

CHARTERED ACCOUNTANTS Shah & Modi 49 Snapshot of Investment Opportunities by NR under FEMA Investment opportunitiesNon- Resident Indian Non- Resident Repatriation basis Non-repatriation basis Deposits under FCNR /NRE /NRO Account  Investment in Immovable Properties  ** Investment in Portfolio Scheme   (RFPI)  Investment under FDI scheme (Schedule 1)  Domestic Investment under Schedule 4  Investment in Limited Liability Partnership (LLP) (Schedule 9) 

CHARTERED ACCOUNTANTS Shah & Modi 50 Snapshot of Investment Opportunities by NR under FEMA Investment opportunitiesNon- Resident Indian Non- Resident Repatriation basis Non-repatriation basis Investment in Non Convertible Debentures (Schedule 5 of FEMA 20)  Investment in Government Securities, treasury bills, units of mutual funds (Schedule 5 of FEMA 20)  Investment in National Plan/Savings Certificate, National Pension Scheme (Schedule 5 of FEMA 20) 

DEPOSIT ACCOUNTS – NRE/NRO/FCNR FEMA NOTIFICATION NO. 5(R) & MASTER DIRECTION NO. 14

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 52 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non-Resident) Account (Bank) (FCNR(B) Account) Who can open an account Person resident outside India (Individuals of Pakistan nationality and entities of Pakistan and Bangladesh ownership require RBI approval. Individuals of Bangladesh nationality may be allowed by AD Bank subject to holding of valid visa and residential permit issued by FRO and FRRO) NRIs and PIOs Repatriable / Non- Repatriable Non-Repatriable (Except under USD 1 million per F.Y. scheme) Repatriable Type of account Current, Savings, Recurring or Fixed Deposit Accounts Fixed deposits

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 53 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non-Resident) Account (Bank) (FCNR(B) Account) Joint accounts Jointly with residents on ‘former or survivor’ basis. NRIs and / or PIOs may hold account jointly with other NRIs and / or PIOs. Joint accounts can be opened by two or more NRIs and/or PIOs or with a resident relative(s) on ‘former or survivor’ basis. Same as NRE account Major Permissible Debits Local rupee payments including payments for investments, Remittance outside India of current income in India (net of taxes), transfer to other NRO accounts, settlement of charges on International Credit Cards. Local disbursements, remittance outside India, transfer to other NRE / FCNR account, Investment in shares/ securities/ commercial paper of an Indian company or purchase of immovable property in India etc. Same as NRE account

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 54 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non-Resident) Account (Bank) (FCNR(B) Account) Major Permissible Credits Remittance in permitted foreign currency, Deposit by account holder during temporary visit to India, Transfer from other NRO accounts, legitimate dues in India of accountholder.  Remittance in permitted foreign currency,  proceeds of personal cheques, proceeds of foreign currency / bank notes tendered during temporary visit to India,  transfer from other NRE / FCNR account,  interest accrued on funds held in account,  current income due in India,  maturity of sales proceeds of permissible investment in India,  refund of shares or debentures to new issue,  refund of application/earnest money/purchase consideration on account of non allotment of flat etc. Same as NRE account

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 55 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non-Resident) Account (Bank) (FCNR(B) Account) Loan – to account holders  Rupee loan against security of fixed deposits for personal purpose or business purpose except for relending or agricultural / plantation activity or for investment in real estate business  Overdraft For personal purpose or business purpose except for relending or agricultural / plantation activity or for investment in real estate business For direct investment in India in firms / companies on non- repatriation basis For purchase of flat in India for own residential purpose Same as NRE account

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 56 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non- Resident) Account (Bank) (FCNR(B) Account) Loan – to third parties Loans / overdrafts to R / firms / Indian companies against security of FD in NRO account subject to conditions Fund based / non-fund bases to R / firms / India companies against security of FD in NRE account subject to conditions Same as NRE account Loan – outside India Not allowedAuthorised dealers may allow their branches/correspondents outside India to grant loans to or in favor of non-resident depositor or third parties at the request of depositor for bona fide purpose except for purpose of relending or carrying on agricultural/plantation activities or for investment in real estate business against security of funds held in NRE accounts in India and also agree for remittance of the funds from India, if necessary, for liquidation of the outstanding. Same as NRE account

CHARTERED ACCOUNTANTS Shah & Modi Features of deposits schemes under FCNR /NRE /NRO account 57 ParticularsNon-Ordinary Rupee Account (NRO Account) Non-Resident (External) Rupee Account Scheme (NRE Account) Foreign Currency (Non- Resident) Account (Bank) (FCNR(B) Account) Change of residential status of the account holder NRO accounts may be designated as resident accounts on the return of the account holder to India for any purpose indicating his intention to stay in India for an uncertain period. Likewise, when a resident Indian becomes a person resident outside India, his existing resident account should be designated as NRO account. NRE accounts should be designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts, at the option of the account holder, immediately upon the return of the account holder to India for taking up employment or on change in the residential status. In case account holder becomes resident, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. AD Banks should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account, at the option of the accountholder.

CHARTERED ACCOUNTANTS Shah & Modi Deposits under FCNR /NRE /NRO account Interest on NRO deposit would be non repatriable and would be taxable.  Interest on NRO A/c should be regarded as investment income and hence 20% rate should apply. (AAR no.784 dated 17 th December, 2008 in the case Dr. Virendrakumar Raina)  In case NRI is able to access treaty entered by India and if treaty rate is lower than 20% such lower rate can be adopted. For e.g. UAE treaty provides for 12.5% withholding tax on interest 58

CHARTERED ACCOUNTANTS Shah & Modi Transfer from NRO to NRE A/c NRI shall be eligible to transfer funds from NRO Account to NRE Account overall ceiling of USD one million per financial year subject to payment of taxes. {A. P. (DIR Series) Circular No.117 dated May 07, 2012} 15 CA- CB is required

CHARTERED ACCOUNTANTS Shah & Modi Investment by way of deposits to proprietorship concern, partnership firm & companies on non- repatriation basis from NRIs or PIOs Schedule 7 – FEMA Notification No. 5 (R) – Acceptance of Deposit Regulations  Investment in deposits by NRIs will be on non repatriation basis.  The maturity period of deposit shall not exceed 3 years  The amount of deposit shall be received by debit to NRO account only, provided that the amount of the deposit shall not represent inward remittances or transfer of funds from NRE/FCNR(B) accounts into the NRO account. (substituted by FEM (Deposit)(Amendment) Regulations, 2004.) 60

CHARTERED ACCOUNTANTS Shah & Modi Resident Foreign Currency (RFC) Account in India FEMA Notification No. 10(R)/2015-RB dated January 21, 2015 - A person resident in India may open, hold and maintain with AD in India a RFC account out of foreign exchange - Received as pension or any other superannuation or other monetary benefits from his employer outside India; or Realised on conversion of assets referred to in section 6(4) of the act and repatriated to India; or Received or acquired as gift or inhertiance from a person referred to in Section 6(4) of the Act; or Acquired or received before 8th July 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of general or special permission of RBI or acquired as gift or inheritance therefrom; or Received as proceeds of life insurance policy claims/maturity/surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the IRDA

CHARTERED ACCOUNTANTS Shah & Modi Crystallization of Inoperative Foreign Currency Deposits FEMA Notification No. 10A/2014-RB dated March 21, 2014 Deposit means and includes account balances or deposit of money with an Authorised Bank. If a foreign currency denominated deposit (with fixed maturity) remains inoperative for a period of three years or more, AD Bank shall convert the balances lying in foreign currency into Indian rupees at the end of third year. In case of a foreign currency denominated deposit (with no fixed maturity) remaining inoperative for a period of three years or more, after giving three month notice to depositor AD Bank shall convert the balances lying in foreign currency into Indian rupees at the end of the noticeperiod.

ACQUISITION & TRANSFER OF IMMOVABLE PROPERTY IN INDIA FEMA NOTIFICATION NO. 21 & MASTER DIRECTION NO. 12

CHARTERED ACCOUNTANTS Shah & Modi Investment in Immovable Properties in India Immovable Property (IP) is neither defined in FEMA nor in Notification No.21 Investment in Agricultural Property (AP), Plantation (PL) and Farm House (FH) not permitted PIO has to sell property to Resident Indian only. Sale to other NRI or PIO would require prior RBI approval. Transactions involving acquisition of immovable property under these regulations shall be subject to the applicable tax laws in India.-A.P. (DIR Series) Circular No. 38 dated November 20, 2014 64

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Acquisition/ transfer by an Indian citizen Resident Outside India (ICROI): Purchase of immovable property : An ICROI can acquire by way of purchase any immovable property (other than agricultural land/ plantation property/ farm house) in India. Transfer of immovable property : (a) An ICROI may transfer any immovable property in India to a person resident in India; (b) An ICROI may transfer any immovable property (other than agricultural land or plantation property or farm house) to an ICROI or a PIO resident outside India. 65

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Payment for Acquisition of Immovable Property by ICROI: a.out of funds received in India through normal banking channels by way of inward remittance from any place outside India or by debit to NRE/ FCNR (B)/ NRO account; b.No payments to be made either by travelers cheque or by foreign currency notes or by other mode except those specifically mentioned above. 66

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Acquisition of Immovable Property by a Person of Indian Origin resident outside India(PIOROI) by way of purchase of any immovable property (other than agricultural land/ plantation property / farm house) in India. By way of Gift of any immovable property (other than agricultural land/ plantation property / farm house) in India from person resident in India or ICROI or PIOROI. any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force or FEMA regulations, at the time of acquisition of the property or from a person resident in India. 67

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Transfer of immovable property by a PIOROI: A PIOROI can transfer (a)by way of sale, any immovable property in India (other than agricultural land/ farm house/ plantation property), to a person resident in India; (b)by way of gift or sale, agricultural land/ farm house/ plantation property in India, to a person resident in India who is a citizen of India; (c)by way of gift, residential or commercial property in India, to a person resident in India or to an ICROI or to a PIOROI. 68

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Payment for Acquisition of Immovable Property in India by PIOROI: (a)for acquisition of immovable property in India (other than agricultural land/ farm house/ plantation property) by way of purchase out of funds received by inward remittance through normal banking channels or by debit to his NRE/ FCNR (B) / NRO account; (b)(b) No payments to be made either by travellers cheques or by foreign currency notes or by other mode other than those specifically mentioned above. 69

CHARTERED ACCOUNTANTS Shah & Modi Acquisition and Transfer of Immovable Property in India Prohibition on Acquisition and Transfer of Immovable Property in India by citizens of certain countries: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong shall not acquire or transfer immovable property in India, other than lease, not exceeding five years without prior permission of the Reserve Bank. (Note: Macau and Hong Kong being Special Administrative regions of China, they are also included in list of prohibited countries vide A.P. (DIR Series) Circular No. 83 dated March 11, 2015 and FEMA Notification No. 335/2015-RB dated February 04, 2015) 70

CHARTERED ACCOUNTANTS Shah & Modi Acquisition / Transfer of property in India by an ICROI ICROI Acquire IP other than AP / PL / FH PurchaseAnyoneGift R / ICROI / PIOROI InheritanceR / ROI Transfer IP IP ( including AP / PL / FH acquired as Resident / inherited) R IP other than AP / PL / FH ICROI /PIOROI 71 ICROI - Indian Citizen Resident Outside India PIOROI - Person of Indian Origin Resident Outside India R - Resident ROI - Resident outside India

CHARTERED ACCOUNTANTS Shah & Modi Acquisition / Transfer of property in India by an PIOROI PIOROI Acquire IP Other than AP / PL / FH Purchase Anyone Gift R / ICROI / PIOROI Any IP Inheritance R / ROI Transfer IP Other than AP / PL / FH Sale R AP / PL / FH (acquired by way of inheritance) Gift / Sale R & COI Residential / commercia l property Gift R / ICROI / PIOROI ICROI - Indian Citizen Resident Outside India PIOROI - Person of Indian Origin Resident Outside India R - Resident ROI - Resident outside India COI- Citizen of India 72

CHARTERED ACCOUNTANTS Shah & Modi Investment in Immovable Properties Repatriation of sales proceeds: Regulation 6(a) of FEMA 21 - Prior approval of RBI is required to be obtained to repatriate sale proceeds of immovable property outside India by persons referred to in Section 6(5) or his successor who had acquired such property when he was resident in India or inherited from a person resident in India.  Section 6(5) refers to person resident outside India and includes NRI or PIO  However, NRIs and PIOs in terms of FEMA 13(R) can repatriate under USD 1 million per financial year sales proceeds of immovable property.  Thus, the restriction under Regulation 6(a) of FEMA 21 applies to all persons residents outside India except NRIs and PIOs 73

CHARTERED ACCOUNTANTS Shah & Modi Investment in Immovable Properties Repatriation under USD 1 millions scheme: Sale proceeds of residential property purchased by NRI / PIO to the extent of the original cost of immovable property in foreign exchange. Restricted to 2 such properties. Capital appreciation thereon can be credited to the NRO account and can be remitted out of NRO account upto USD 1 million per financial year {Except for Section 6(5)} Refund in case of non-allotment of flat / plot / cancellation of bookings / contracts (Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non Indian Origin): Refund together with interest (net of income tax) can be credited to NRE / FCNR (B) account provided:  the original payment was made out of NRE/FCNR (B) account or remittance from outside India through normal banking channels; and  the authorised dealer is satisfied about the genuineness of the transaction. 74

CHARTERED ACCOUNTANTS Shah & Modi Availing loan for purchase of immovable property Housing loan to NRI or PIOROI for acquisition of a residential accommodation in India subject to following conditions:  Quantum of loans, margin money and repayment period shall be same as for housing loans to Resident.  Shall not be credit to NRE / FCNR / NRNR account  Fully secured by equitable mortgage of property proposed to be acquired and if required, by lien on the borrower’s other asset in India  EMI and other charges to be paid by way of remittance or out of funds in NRE / FCNR / NRNR / NRO / NRSR account in India or rental income or by any 'relative' (as defined under sec. 6 of the Companies Act) in India by crediting the borrower’s loan account through the bank account of such relative.  Rate of interest shall conform to RBI or NHB directives. 75

ACQUISITION & TRANSFER OF IMMOVABLE PROPERTY OUTSIDE INDIA FEMA NOTIFICATION NO. 7(R) & MASTER DIRECTION NO. 12

CHARTERED ACCOUNTANTS Shah & Modi Acquisition/Transfer of Immovable Property Outside India Acquisition of Immovable Property outside India by a person resident in India:  by way of gift from persons referred to in Section 6(4) of the Act.  by way of purchase out of funds held in RFC Account.  May acquire property jointly with person resident outside India (provided there is no outflow of funds from India)  By way of gift or inheritance from a person resident in India who had acquired such property on or before July 8, 1947 and continued to be held by him with the permission of the Reserve Bank 77

CHARTERED ACCOUNTANTS Shah & Modi Acquisition/Transfer of Immovable Property Outside India Acquisition under the Liberalised Remittance Scheme (LRS): A resident individual can send remittances under the Liberalised Remittance Scheme for purchasing immovable property outside India. Companies having overseas offices A company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, provided total remittances do not exceed the following limits prescribed for initial and recurring expenses, respectively: a) 15 per cent of the average annual sales/ income or turnover of the Indian entity during the last two financial years or up to 25 per cent of the net worth, whichever is higher; b) 10 per cent of the average annual sales/ income or turnover during the last two financial years. 78

BORROWING AND LENDING IN INDIAN RUPEES FEMA NOTIFICATION NO. 4 & MASTER DIRECTION NO. 6

CHARTERED ACCOUNTANTS Shah & Modi Borrowing and Lending transactions in Indian Rupees Persons Resident in India borrowing in INR from NRIs/PIOs: Available routes for borrowing: Persons resident in India may borrow in INR from NRIs/PIOs under the following two routes: Borrowing in INR by persons other than companies in India. Borrowing in INR by companies in India: 80

CHARTERED ACCOUNTANTS Shah & Modi Borrowing in INR by persons other than companies Regulation 4 of FEMA 4  Borrowing shall be only on a non-repatriation basis;  Mode of receipt  Inward remittance through normal banking channel or through NRE/ NRO/ FCNR-B account of the lender maintained by AD  Rate of Interest  Shall not exceed (2% + prevailing bank rate on date of availment of loan ) (Current Bank Rate as per RBI website)  Maturity Period  Shall not exceed 3 years  Mode of Repayment  If amount borrowed through other mode – Repayment through account desired by lender (NRO or NRSR account). 81

CHARTERED ACCOUNTANTS Shah & Modi Borrowing in INR by Indian companies Regulation 5 of FEMA 4  Borrowing shall be on repatriation or non-repatriation basis  Borrowing shall be by way of issue of Non-convertible Debentures (NCDs) through Public Offer  Mode of receipt  Inward remittance through normal banking channel or through NRE/ NRO/ FCNR-B account of the lender maintained by AD  Rate of Interest  Shall not exceed (3% + PLR of SBI as on the date of resolution approving the issue passed in general meeting by borrower company)  Borrowing company does not and shall not: a)Carry on agricultural/plantation/real estate business; or b)Trade in transferable development rights; or c)Act as Nidhi or Chit fund company. 82

CHARTERED ACCOUNTANTS Shah & Modi Borrowing in INR by Indian companies  Reporting with RBI  Within 30 days of receipt of funds, details as to names and addresses of NRIs who have invested on repatriation / non-repatriation basis, amount and date of receipt of funds, rupee equivalent, name and addresses of AD through whom remittance has been received.  Details of issue of NCDs, number of NCDs issued, whether on repatriation/non-repatriation basis and a CS certificate.  Additional conditions:  % of NCDs issued to the total paid up capital of company shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures under FDI.  Borrowing by way of Preference Shares other than those which fully and mandatorily convertible into equity within specified time (on or after 30 th April 2007) and by way of convertible debentures other than fully and mandatorily convertible into equity within specified time, to a person resident outside India, shall be considered as debt and shall comply with Regulation 6 of FEMA 3. 83

CHARTERED ACCOUNTANTS Shah & Modi Restriction on use of Borrowed Funds Regulation 6 The borrowed funds shall not be used for any other purpose except the borrowers business other than the business of:  Agriculture or plantation activities  Real estate business or construction of farm houses  Trading in Transferable Development Rights  Chit fund  Nidhi Company The borrowed funds shall not be used for any investment by any means (capital or otherwise) in any company, partnership firm, proprietorship concern or any entity or for relending. RBI may permit resident entities/companies to use borrowed funds for:  On lending / relending to infrastructure sector; or  Keeping FD with banks in India pending utilization for permissible end-uses. 84

CHARTERED ACCOUNTANTS Shah & Modi Loans in Rupees to non-residents Regulation 7 - Authorised Dealer may grant loan to non- residents:  Against security of shares or other securities  Against security of immovable property (other than agricultural or plantation property or farm house) subject to following conditions:  Loan to be utilised for meeting borrower’s personal requirements or his business purposes  Loan not to be utilised for prohibited activities like business of chit funds, nidhi company, agricultural or plantation activities or real estate business or construction of farm houses or trading in TDRs  Loan amount not to be credited to NRE/FCNR account  Repayment to be made through normal banking channels or by debit to NRO/NRE/FCNR account or out of sale of proceeds of shares or securities against which the loan was taken.  Inward remittance through normal banking channel or through NRE/ Borrowing shall be on repatriation or non-repatriation basis 85

CHARTERED ACCOUNTANTS Shah & Modi Loans in Rupees to non-residents  For any purpose as per loan policy of AD bank but not to be utilised for prohibited activities.  For acquiring shares of the companies under ESOP scheme subject to following conditions:  Loan amount not to exceed 90% of purchase price of shares or INR 20 lakhs per NRI employee, whichever is lower.  Rate of interest and margin may be decided by banks.  Amount to be paid directly to company.  Repayment to be made by inward remittance through normal banking channels or by debit to NRO/NRE/FCNR(B) account. Regulation 7A – Loan granted to non-residents in terms of Regulation 7 may be repaid by any relative of borrower in India 86

CHARTERED ACCOUNTANTS Shah & Modi Rupee Loans to NRI/PIO employees by Indian Body Corporate Regulation 8A: Loan by body corporate registered or incorporated in India to its NRI/PIO employees shall be subject to following conditions i.Loan to be granted only for personal purposes including purchase of housing property in India; ii.It should be granted in accordance with the lender's Staff Welfare Scheme/Staff Housing Loan Scheme and other terms and conditions applicable to its staff resident in India iii.The lender shall ensure that the loan amount is not used for the purposes “ Restricted on use of borrowed funds ” as per Regulation 6; iv.The lender shall credit the loan amount to the borrower's NRO account or shall ensure credit to such account by specific indication on the payment instrument; v.The repayment of loan shall be made only by way of remittance from outside India or from NRE/NRO/FCNR(B) account of the borrower and by no other source. This condition shall be inbuilt in the loan agreement. 87

CHARTERED ACCOUNTANTS Shah & Modi Rupee Loans to NRI by Resident Regulation 8B: A resident individual may grant INR loan to a NRI relative by way of crossed cheque/electronic transfer subject to the following terms and conditions: i.The loan is free of interest. ii.Minimum maturity of the loan is one year; iii.The loan amount to be within LRS Limit of USD 2,50,000 per financial year; iv.Loan shall be utilised for borrowers personal reuqirements or for his own business in India. v.Loan not to be used for restriscted end uses (Reg 6) vi.Loan to be credited to NRO account. vii.Loan amount not to be remitted outside India. viii.Repayment by way of inward remittance through normal banking channel or by debit to NRO/NRE/FCNR or out of sales proceeds of shares or securities or Immovable property against which such loan was granted. 88

CHARTERED ACCOUNTANTS Shah & Modi Change in residential status of borrower/lender Continuance of rupee loan/overdraft to resident who becomes a person resident outside India:  AD bank may allow continuance of loan/overdraft subject to satisfaction of bank and according to his / its commercial judgment for continuance.  Period of loan not to exceed its original maturity period.  So long as the borrower continues to remain a person resident outside India, the repayment shall be out of inward remittance from outside India or from NRE/FCNR(B)/NRO account of the borrower. Continuance of rupee loan in the event of change in residential status of lender:  In case a rupee loan was granted by a person resident in India to another person resident in India and the lender subsequently becomes non-resident, the repayment of the loan by the resident borrower should be made by credit to the NRO account of the lender. 89

CHARTERED ACCOUNTANTS Shah & Modi Overdraft in Rupee Account in India Regulation11:  Temporary overdraft not exceeding five hundred lakhs may be by AD in rupee account maintained with him by his overseas branch or correspondent or head office outside India.  Ceiling of five hundred lakhs shall be calculated by aggregate amount of overdrafts permitted by AD to all his branch, correspondents and head office outside India outstanding in the books of all his branches in India. 90

BORROWING AND LENDING IN FOREIGN CURRENCY FEMA NOTIFICATION NO. 3 & MASTER DIRECTION NO. 5

CHARTERED ACCOUNTANTS Shah & Modi Lending in foreign currency by an Authorised Dealer Regulation 4: An AD in India or his branch outside India may lend in foreign currency in following circumstances and conditions: i.Branch outside India of AD (incorporated in India) lend in its normal course of business outside India. ii.AD may lend to his constituents in India for meeting their forex requirements or for working capital needs or for capital expenditure. iii.AD may also extend credit facility to WOS or JV abroad of an entity in India. (Indian entities holding shall not be less than 51% in WOS/JV abroad). iv.AD may extend loan to his constituent maintaining RFC account against the security of funds held in the account. v.Branch outside India of an AD may extend loans against security of funds held in NRE/FCNR deposit. vi.AD in India may extend loan to another AD in India. vii.AD may extend loan against security of funds held in FCNR(B) account to the account holder. 92

CHARTERED ACCOUNTANTS Shah & Modi Borrowing and Lending in foreign currency by persons other than AD Regulation 5: Following persons other than AD can borrow and lend i.Indian entity can lend to its WOS or JV abroad (FEMA 120 provisions to be complied) ii.Person resident in India can borrow (loan or overdraft or any other credit facility) from bank outside India for turnkey project or civil construction contract or in connection with export on deferred terms. (Provisions of FEMA 23R to be complied) iii.Importer in India may avail credit not exceeding six months extended by overseas supplier. iv.Resident can lend out of funds held in his EEFC account for trade related purposes to his overseas import customer. (If loan amount exceeds USD 1,00,000 guarantee of bank of international repute situated outside India to be provided by borrower in favour of lender). 93

CHARTERED ACCOUNTANTS Shah & Modi Borrowing and Lending in foreign currency by persons other than AD v.Loans given by Export Import Bank of India, Industrial Development Bank of India, Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India, Small Industries Development Bank of India or any other institutions out of foreign currency borrowings raised by them with approval of government for purpose of on lending. vi.Indian companies may grant loans in foreign currency to its employees of foreign branch outside India for personal purposes. 94

CHARTERED ACCOUNTANTS Shah & Modi Interest-free loan to 'close relatives‘ Regulation 5(6) of FEMA Notification No. 3 – Borrowing or lending in Foreign Exchange An individual resident in India may borrow a sum not exceeding USD 250,000 from his close relatives outside India, subject to the conditions that:  minimum maturity period of the loan is 1 year  the loan is free of interest  loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account ‘Close relative’ means relative as defined in Sec. 6 of Companies Act, 1956 Applicable only to Indian resident as per FEMA Limit of USD 250,000 is applicable for borrowings from all relatives put together. No restriction on end use. 95

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs are commercial loans in foreign currency raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. Revised framework announced by RBI on November 30, 2015 vide A.P. (DIR Series) Circular No. 32 (effective from December 2, 2015). Master Directions were issued on January 1, 2016. ECBs under old regime were allowed to be raised upto March 31, 2016 provided loan agreement signed before December 2, 2015. Carve outs in following cases provided loan agreement is signed and LRN obtained by March 31, 2016  ECB for working capital by airline companies  ECB for consistent foreign exchange earners under USD 10 billion scheme  ECB for low cost affordable housing projects. 96

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework Important Terms:  ‘All-in-Cost’ includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or Indian Rupees (INR) but will not include commitment fees, pre-payment fees / charges, withholding tax payable in INR. In the case of fixed rate loans, the swap cost plus spread should be equivalent of the floating rate plus the applicable spread.  ‘Designated Authorized Dealer Category I Bank’ is the bank branch which is designated by the ECB borrower for meeting the reporting requirements including obtention of the Loan Registration Number (LRN) from RBI, exercising the delegated powers under these guidelines and monitoring of ECB transactions. Bank Loans 97

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework  ‘Foreign Currency Convertible Bonds’ (FCCBs) refers to foreign currency denominated instruments which are issued in accordance with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 as amended from time to time.  ‘Foreign Currency Exchangeable Bonds’ (FCEBs) refers to foreign currency denominated instruments which are issued in accordance with the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008.  ‘Foreign Equity Holder’ means a) direct foreign equity holder with minimum 25% direct equity holding by the lender in the borrowing entity, b) indirect equity holder with minimum indirect equity holding of 51%, c) group company with common overseas parent. 98

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework  ‘Infrastructure Sector’ has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended / updated from time to time. Thus infrastructure sector and sub-sectors for the purpose of ECB include: a.Energy b.Communication c.Transport d.Water and Sanitation e.Mining, exploration and refining f.Social and commercial infrastructure (includes Hospitals/Hotels) For full definition refer A.P. DIR Series Circular No. 48 dated September 18, 2013 99

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework Forms of ECB:  Bank Loans  Securitized Instruments (floating rate notes and fixed rate bonds, non convertible, optionally or partially convertible preference shares/debentures)  Buyers Credit  Suppliers Credit  Foreign Currency Convertible Bonds (FCCBs)  Financial Lease (newly added)  Foreign Currency Exchangeable Bonds (FCEBs – Only under approval route) 100

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework TRACKS: Borrowing Limits: Revised limits under Automatic route (If limit exceeds, will fall under approval route) Note: Borrowing limits separate for Masala Bonds (Additional USD 750 million) 101 Limits (All 3 tracks)Entities USD 750 millionInfrastructure and manufacturing sector USD 200 millionSoftware sector companies USD 100 millionEntities engaged in micro-finance USD 500 millionOther Entities TRACKSDenominated ECBMAM Track IMedium Term Foreign Currency3/5 years Track IILong Term Foreign Currency10 years Track IIIIndian Rupee3/5 years

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: All-in-Cost Ceilings (AICs):  Guarantee fees (irrespective of currency) now included within AIC calculations.  AIC also includes rates of interest, other fees, expenses, charges in INR.  Penal interest cannot exceed 2% over and above the ‘contracted rate of interest’ (as opposed to 2% of AIC as under the previous regime. 102 Track ITrack IITrack III Minimum Average Maturity (MAM)of 3 to 5 years – 300 bps p.a. over 6 month LIBOR or applicable benchmark. Maximum spread over the benchmark to be 500bps p.a. It is required to be in line with the market conditions. MAM more than 5 years – 450 bps p.a. Over 6 month LIBOR or applicable benchmark. Remaining conditions as under Track I.

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ELIGIBLE LENDERS: 103 Track ITrack IITrack III o International banks o International capital markets o Multilateral financial institutions o Export credit agencies o Suppliers of equipment o Foreign Equity holders (group companies added) o Overseas long term investors (prudentially regulated financial entities [undefined], pension funds, insurance companies, sovereign wealth funds, and financial institutions located in IFSCs) o Overseas branches/subsidiaries of Indian bank. o All entities listed under Track I except overseas branches/ subsidiaries of Indian banks o In case of NBFCs-MFIs, ECBs can also be availed from overseas organisations and individuals, subject to furnishing to the AD bank of the borrower due-diligence certificate(s) from a country adhering to FATF and CFT guidelines.

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ELIGIBLE BORROWERS: 104 Track ITrack IITrack III o Companies in manufacturing and software development sectors o Shipping and airlines companies o SIDBI o Units in SEZs o EXIM Bank of India (Only under the approval route) (Vide A.P. Dir Series Circular No. 56 dated March 30, 2016 following added in Track I) o Companies in Infrastructure Sector, NBFCs-IFCs, NBFCs- AFCs, Holding Companies, CICs (but subject to 100% hedging) o All entities under Track I o Companies in Infrastructure sector (harmonised Master List) o Sectors added: Slurry pipeline; parks with industrial activity such as food parks, textile parks, agricultural markets o Holding Company o CICs o REITS and INVITS regulated by SEBI o All entities listed under Track II o All NBFCs and NBFC-MIs (Only INR denominated route available) o Not for profit companies registered under the Companies Act, 1956/2013 o Societies, trusts, cooperatives, NGOs in microfinance activities o Companies engaged in miscellaneous services viz. R&D, training (except educational), companies supporting infrastructure and providing logistics and services0 o Developers of SEZs/ NMIZs

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses - Track I: ECB proceeds can be utilised for capital expenditure in the form of: oImport of capital goods oLocal sourcing of capital goods; oNew project; oModernisation /expansion of existing units; oODI in JV/ WOS; oAcquisition of shares of PSU under a disinvestment programme oRefinancing of existing trade credit raised for import of capital goods; oPayment of capital goods already shipped / imported but unpaid; oRefinancing of existing ECB provided the residual maturity is not reduced. SIDBI can raise ECB only for the purpose of on-lending to the MSME sector 105

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses - Track I: Units of SEZs can raise ECB only for their own requirements. Shipping and airlines companies can raise ECB only for import of vessels and aircrafts respectively. (A.P. DIR Series Circular No. 52 dated March 30, 2016) Companies in infrastructure sector shall utilize the ECB proceeds raised under Track I for the end uses permitted for this Track. NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure. Holding Companies and CICs shall use ECB proceeds only for on- lending to infrastructure Special Purpose Vehicles (SPVs) 106

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses: - Track II The ECB proceeds can be used for all purposes excluding the following: oReal estate activities oInvesting in capital market oUsing the proceeds for equity investment domestically; oOn-lending to other entities with any of the above objectives; oPurchase of land Holding companies can also use ECB proceeds for providing loans to their infrastructure SPVs. 107

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses: Track III: NBFCs can use ECB proceeds only for: oOn-lending for any activities, providing hypothecated loans to domestic entities for acquisition of capital goods/equipment; and oproviding capital goods/equipment to domestic entities by way of lease and hire-purchases Developers of SEZs/ NMIZs can raise ECB only for providing infrastructure facilities within SEZ/ NMIZ. NBFCs-MFI, other eligible MFIs, NGOs and not for profit companies registered under the Companies Act, 1956/2013 can raise ECB only for on-lending to self-help groups or for micro-credit or for bonafide micro finance activity 108

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses: Track III: For other eligible entities under this track, the ECB proceeds can be used for all purposes excluding the following: oReal estate activities oInvesting in capital market oUsing the proceeds for equity investment domestically; oOn-lending to other entities with any of the above objectives; oPurchase of land 109

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs: Permitted End Uses – General Corporate Purposes (Including Working Capital) 110 Automatic RouteEarlier RegimeMaster Direction on ECB Recognized LenderDirect foreign equity holdersDirect/Indirect foreign equity holders and group companies MAM7 years5 years Eligible borrowersCompanies in the manufacturing, infrastructure, hotels, hospitals, and software sector. All eligible borrowers under Track I and Track II All eligible borrowers under Track III other than NBFCs, developers of SEZs/NMIZs, other eligible borrowers, MFIs, NGOs, not for profit companies

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework ECBs under Approval Route: o FCEBs o ECB proposals in excess of prescribed individual borrowing limits o ECBs availed by EXIM Bank as borrower o ECBs availed for (a) import of second hand goods as per DGFT guidelines and (b) on-lending by EXIM Bank. o ECBs for low cost affordable housing projects forwarded by NHB to RBI o Trade credit for import of non-capital and capital goods beyond USD 20 million per import transaction 111

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework Clarifications announced vide Circular No. 56 dated March 30, 2016 : AD may allow refinancing of ECBs raised under the previous ECB framework, provided the refinancing is at lower all-in-cost, the borrower is eligible to raise ECB under the extant ECB framework and residual maturity is not reduced (i.e. it is either maintained or elongated). ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs). MAM FCCBs/ FCEBs is 5 years irrespective of the amount of borrowing. Further, the call and put option, if any, for FCCBs shall not be exercisable prior to 5 years. 112

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework Only those NBFCs which are coming under the regulatory purview of the Reserve Bank are permitted to raise ECB. Further, under Track III, the NBFCs may raise ECBs for on-lending for any activities including infrastructure as permitted by the concerned regulatory department of RBI. The provisions regarding delegation of powers to designated AD Category-I banks is not applicable to FCCBs/FCEBs In the forms of ECB, the term “Bank loans” shall be read as “loans” as foreign equity holders / institutions other than banks, also provide ECB as recognized lenders. 113

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework Powers delegated to AD Banks: The designated AD banks can approve the following - Changes/modifications in drawdown schedule Changes in currency of borrowing Changes in AD Cat I Bank Changes in the name of Borrower company Transfer of ECB Changes in recognized lender Change in the name of lender Prepayment of ECB Cancellation of LRN Change in end use of ECB proceeds (only for ECBs under automatic route) Change in all in cost Refinancing of existing ECB 114

CHARTERED ACCOUNTANTS Shah & Modi External Commercial Borrowings – Revised Framework REPORTING REQUIREMENTS: Obtain Loan Registration Number (LRN)  Borrower to submit Form 83.  Any drawdown, payment of fees/any charges should happen after obtaining LRN. Reporting of actual transactions:  Actual transactions to be reported in ECB2 Return through AD CAT I Bank on monthly basis. Changes in terms and conditions:  Any permitted changes to be reported through revised Form 83 not later than 7 days from the changes effected. 115

CHARTERED ACCOUNTANTS Shah & Modi Trade Credits Trade Credit refers to the credit extended by the overseas supplier, bank and financial institution for maturity of up to 5 years for import into India. Types of Trade Credit:  Suppliers Credit – credit for imports into India extended by overseas supplier  Buyers credit – loans for payment of imports into India arranged by the importer from overseas bank or financial institution. Routes and amount of Trade Credit: 116 RouteTransactionAmount Automatic Route Import on non capital and capital goods Upto USD 20 million or equivalent per import transaction Approval Route Import on non capital and capital goods Above USD 20 million or equivalent per import transaction

CHARTERED ACCOUNTANTS Shah & Modi Trade Credits Maturity Period:  It is same for automatic and approval route  No roll over / extension permitted beyond the permissible period. All in Cost Ceiling:  350 basis points over 6 month LIBOR (for respective currency of credit or applicable benchmark).  All in cost includes arranger fee, upfront fee, management fee, handling/processing charges, out of pocket and legal expenses. 117 TransactionMaturity Period Import of non capital goods Upto one year from date of shipment or operating cycle whichever is less Import of capital goodsUp to five years from date of shipment

LIBERALIZED REMITTANCE SCHEME (LRS) MASTER DIRECTION NO. 7 & A.P. DIR CIRCULAR NO. 106 (01.06.2015)

CHARTERED ACCOUNTANTS Shah & Modi LRS for resident individuals Under the Liberalized Remittance Scheme, Authorized Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. During the period from February 4, 2004 till date, the LRS limit has been revised as under: 119 Date Feb 4, 2004 Dec 20, 2006 May 8, 2007 Sep 26, 2007 Aug 14, 2013 Jun 3, 2014 May 26, 2015 LRS limit (USD) 25,00050,0001,00,0002,00,00075,0001,25,0002,50,000

CHARTERED ACCOUNTANTS Shah & Modi LRS for Resident Individuals The Scheme is available to all resident individuals including minors. Remittances can be consolidated in respect of family members subject to compliance of terms and conditions. Clubbing not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank account/ investment/property. A resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS. Banks should not extend any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme. 120

CHARTERED ACCOUNTANTS Shah & Modi LRS for Resident Individuals A.P.(DIR Series) Circular No. 106 dated June 1, 2015 and FED Master Direction No. 18 All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed under the Scheme. Investor who has remitted funds under LRS can retain, reinvest the income earned on investments. Resident individual making overseas direct investment in a JV/WoS outside India within the LRS limit, shall have to comply with the terms and conditions prescribed by the overseas investment guidelines under Notification No. FEMA 263/ RB-2013 dated March 5, 2013. The Scheme is not available for capital account remittances to countries identified by Financial Action Task Force (FATF) as non-co-operative countries and territories as available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank. 121

CHARTERED ACCOUNTANTS Shah & Modi LRS for Resident Individuals Permissible Capital Account Transactions: i.opening of foreign currency account abroad with a bank; ii.purchase of property abroad; iii.making investments abroad; iv.setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India (for bonafide business; v.extending loans including loans in Indian Rupees to Non- resident Indians (NRIs) who are relatives as defined in Companies Act, 2013. 122

CHARTERED ACCOUNTANTS Shah & Modi LRS for Resident Individuals Current Account Transactions:  Remittances available to resident individuals under Para 1 of Schedule III to Current Account Transactions Rules are now subsumed under overall limit of USD 2,50,000.  For remittances of emigration, expenses in connection with medical treatment abroad and studies abroad in Para 1 of Schedule III provided at Annex 1, individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS, if it is so required by a country of emigration, medical institute offering treatment or the university respectively.  Release of foreign exchange exceeding USD 2,50,000 requires prior RBI approval.  Scheme is not available for remittances for any purpose prohibited under Schedule I or item restricted under Schedule II of Capital Account Transaction Rules. 123

COMPOUNDING OF CONTRAVENTIONS MASTER DIRECTION NO. 4 & Foreign Exchange (Compounding Proceedings) Rules, 2000

CHARTERED ACCOUNTANTS Shah & Modi Background Contravention is breach of provisions of FEMA and rules / regulations / notifications / orders / directions / circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. Section 15 of FEMA 1999 covers powers to compound contraventions and empowers compounding authority to compound the contraventions. Section 13 of FEMA 1999 covers penalties in respect of contraventions which are compounded. 125

CHARTERED ACCOUNTANTS Shah & Modi Powers to Compound The government has notified Compounding Rules, 2000 vide Notification No. G.S.R.383(E) dated 3 rd May 2000. Responsibility for administering compounding of contraventions is placed with Reserve Bank except of contraventions under Section 3(a) of FEMA 1999. Directorate of Enforcement can compound contraventions under clause (a) of Section 3 of FEMA, 1999 (dealing essentially with Hawala transactions). 126

CHARTERED ACCOUNTANTS Shah & Modi Delegation of Powers Compounding powers with respect to following contraventions have been delegated to regional offices of Reserve Bank.  Delay in reporting of inward remittance for issue of shares.  Delay in filing Form FC-GPR after issue of shares.  Delay in issue of shares/refund of share application money beyond 180 days  Violation for pricing guidelines for issue of shares.  Issue of in-eligible instruments such as non- convertible debentures etc. 127

CHARTERED ACCOUNTANTS Shah & Modi Delegation of Powers (Contd…)  Issue of shares without approval of RBI or FIPB respectively, wherever required.  Delay in submission of FC-TRS on transfer of shares from Resident to Non-resident and vice- versa.  Taking on record transfer of shares by investee company, in absence of certified FC-TRS. 128

CHARTERED ACCOUNTANTS Shah & Modi Delegation of Powers (Contd…) The work of Foreign Investment Division (FID) viz. Liasion/Branch/Project Office (LO/BO/PO), Non Resident Foreign Account Division (NRFAD) and Immovable Property (IP) division has been transferred to FED, CO Cell, New Delhi. Accordingly following contraventions will be compounded at FED, CO Cell, New Delhi:  Contraventions relating to acquisition and transfer of immovable property outside India.  Contraventions relating to acquisition and transfer of immovable property in India. 129

CHARTERED ACCOUNTANTS Shah & Modi Delegation of Powers (Contd…)  Contraventions relating to establishment in India of Branch office, Liasion office or Project office.  Contraventions falling under Foreign Exchange Management (Deposit) regulations, 2000. 130

CHARTERED ACCOUNTANTS Shah & Modi PROCESS Applications relating to LO/BO/PO, NFRAD and IP shall be submitted to FED, CO cell, New Delhi. For all other contraventions applications may be submitted to Cell for Effective Implementation of FEMA (CEFA), foreign Exchange Department, 5th Floor, Amar Building, Sir P. M. Road, Fort, Mumbai – 400 001. 131

CHARTERED ACCOUNTANTS Shah & Modi PROCESS (Contd…) The application may be submitted on being advised of a contravention through memorandum or suo moto on being made or becoming aware of the contravention. Application shall be submitted with prescribed fee of Rs. 5,000/- by way of demand draft in favour of “Reserve Bank of India” payable at concerned regional office. 132

CHARTERED ACCOUNTANTS Shah & Modi PROCESS (Contd…) Following documents shall also be furnished along with the application:  Details as per the annexes relating to FDI, ECB, ODI, LO/BO as applicable.  Copy of Memorandum and Articles of Association (in case of company)  Copy of latest audited balance sheet.  Undertaking that the applicant is not under any investigation of any agency such as DOE, CBI etc.  Copy of PAN of the applicant.  ECS Mandate. 133

CHARTERED ACCOUNTANTS Shah & Modi PROCESS (Contd…) The proceedings would be concluded and order shall be issued within 180 days of the receipt of the compounding application. The compounding authority may call for additional information, record or any other document relevant to the proceedings. Such documents are to be submitted within period specified by the authority else the application can be rejected. 134

CHARTERED ACCOUNTANTS Shah & Modi Classification of Contravention The nature of contravention is determined by following points:  Whether it is technical and / or minor and needs only administrative cautionary advice  Whether it is of serious in nature and warrants compounding  Whether it involves money-laundering, national security concerns involving serious infringement of regulatory framework. Once a compounding application is filed suo moto admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ and process of compounding shall be initiated.[A.P. (Dir Series) Circular No. 11 dated July 31, 2012] 135

CHARTERED ACCOUNTANTS Shah & Modi Deciding of amount imposed The following factors shall be considered to arrive at the quantum of sum on payment of which contravention shall be compounded:  Amount of gain of unfair advantage, wherever quantifiable made as result of contravention.  Amount of loss caused to any authority / agency / exchequer as a result of the contravention  Economic benefits accruing to the contravener from delayed compliances  Repetitive nature of contravention, track record and / or history of non-compliance of contravener  Conduct of contravener in undertaking the transaction  Disclosure of full facts in application and submissions made during personal hearing  Any other factors. 136

CHARTERED ACCOUNTANTS Shah & Modi Quantum of Penalty Up to thrice the sum involved in such contravention where the amount is quantifiable. Up to Rupees Two Lakh, where the amount is not quantifiable Where the contravention is a continuing one, further penalty may extend to Rupees Five Thousand for every day after the first day during which such contravention continues. 137

CHARTERED ACCOUNTANTS Shah & Modi Compounding Order Compounding authority shall pass an order after giving opportunity of being heard to the contravener. The order has to specify the provisions of the act, rules, directions etc. under which contravention has taken place along with the details of the alleged contravention. The sum for which contravention is contravened is to be paid within 15 days of the order by way of demand draft in favor of “Reserve Bank of India” 138

CHARTERED ACCOUNTANTS Shah & Modi Compounding Order (Contd…) After the realisation of the sum, certificate in this regard shall be issued by the Reserve Bank indicating that the applicant has complied with the order passed by the compounding authority. In case on non payment of amount within 15 days of the order, it will be treated as if applicant has not made any compounding application to Reserve Bank. Once the order is passed, the provisions of rules do not give any right to applicant to seek to withdraw the order or hold it void or request a review of order. 139

CHARTERED ACCOUNTANTS Shah & Modi Certain Pre-requisites If a contravention is committed by any person within a period of 3 years from the date on which a similar contravention committed by him was compounded, such contraventions would not be compounded. The same would be dealt with under relevant FEMA provisions. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. 140

CHARTERED ACCOUNTANTS Shah & Modi Certain Pre-requisites (Contd…) In case of contraventions for transactions which require proper approvals or permission from government or any statutory authority and the same have not been obtained, such contraventions shall not be compounded UNLESS required approvals are obtained from concerned authorities. 141

CHARTERED ACCOUNTANTS Shah & Modi Q &A… Q uestions … 142

CHARTERED ACCOUNTANTS Shah & Modi THANK YOU FIRST DESERVE AND THEN DESIRE!! 143

OVERVIEW OF FEMA BARODA BRANCH OF WIRC OF ICAI 16 th April, 2016 By: CA Manoj Shah

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OVERVIEW OF FEMA BARODA BRANCH OF WIRC OF ICAI 16 th April, 2016 By: CA Manoj Shah

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