Category Archives: FEMA

import & export of currency

RBI has vide their notification dated 11th August, 2020 amended the Foreign Exchange Management (Import and Export of Currency) Regulations, 2015 wherein they have added another clause 9 to the regulations. Vide this new clause 9, RBI has given themselves power to allow import or export of currency subject to such conditions as may be stipulated.

Hitherto, resident persons were allowed to take out of India, currency notes upto Rs.5000/- or two commemorative coins. Any person who had gone out of India on temporary basis may bring back to India, currency notes upto Rs.5000/- .

Export of coins covered under the Antique and Art Treasure Act, 1972 is strictly prohibited.

Clause 5 stipulates that no person shall except under general or special permission export or import foreign currency.

Clause 6 permits a person to import foreign exchange into India without any limit except foreign currency notes, bank notes and travellers cheques or unissued notes. The person bringing in foreign exchange has to make a declaration at the time of arrival at the Customs in form CDF (currency declaration form). But the declaration is required only if the person is bringing in foreign currency notes exceeding US$5000 or its equivalent or exceeding US$10,000 or its equivalent, in foreign currency notes, travellers cheques, bank notes all put together.

Clause 7 allows a person to take or send out of India, (1) cheques drawn on foreign currency account maintained by him, or (2) foreign currency obtained by him by drawal from an authorised dealer in accordance with the regulations, (c) currency in the safes of vessels or aircrafts in accordance with the regulations,

Further he may take out of India, foreign exchange already possessed by him in accordance with the regulations and unspent foreign exchange retained by him from his travels abroad in accordance with the regulations.

Clause 8 pertains to export or import of foreign currency to and from Nepal and Bhutan.

Now this new clause 9 which empowers RBI to allow any person to export or import currency on an application being made on such terms & conditions as it may stipulate and if the RBI is satisfied that it is necessary to do so.

The above regulations are available at the below link https://www.rbi.org.in/SCRIPTS/BS_ECMNotificationUserView.aspx?Id=160

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investments by non residents in govt. securities

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11849&Mode=0

RBI Circular on the subject of a new route of investment by non residents in government securities. This new route will be called “Fully Accessible Route” or FAR.

‘Fully Accessible Route’ for Investment by Non-residents in Government Securities

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the following regulations / directions, as amended from time to time, and the relevant directions issued thereunder:

  1. Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019 (hereinafter, Debt Regulations);
  2. The A.P. (DIR Series) Circular No. 31 dated June 15, 2018 read with A.P. (DIR Series) Circular No. 18 dated January 23, 2020; and
  3. The directions FMRD.FMSD.No.25/14.01.006/2019-20 dated March 30, 2020 issued today (hereinafter, FAR Directions).

2. A reference is also invited to the announcement made in the Union Budget 2020-21 that certain specified categories of Central Government securities would be opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well. Accordingly, it has been decided, in consultation with the Government of India, to introduce a separate route viz., Fully Accessible Route (FAR) for investment by non-residents in securities issued by the Government of India. The details of the scheme are attached (see Annex).

3. These directions shall come into effect from April 1, 2020.

4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.


Annex

‘Fully Accessible Route’ (FAR) for investment by non-residents in Government Securities

The Reserve Bank, in consultation with the Government of India, introduces a separate channel, called the ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified Government of India dated securities. Eligible investors can invest in specified Government securities without being subject to any investment ceilings. This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR). The details of the scheme are as under-

2. Definitions

  1. ‘Eligible investors’ shall mean any “person resident outside India” as defined in section 2(w) of the Foreign Exchange Management Act, 1999 (42 of 1999) (FEMA).
  2. ‘Specified securities’ shall mean Government Securities as periodically notified by the Reserve Bank for investment under the FAR route. In this regard, a reference is invited to FAR Directions, issued today by the Reserve Bank.

3. The words and expressions used but not defined in these directions shall have the same meaning respectively assigned to them in the FEMA, 1999 or rules and regulations made thereunder.

4. Features

  1. Investment limits: There shall be no quantitative limit on investment by eligible investors in the specified securities. Investments made under FAR shall also not be subject to the limits specified in paragraphs 4(b), (c) and (e) respectively, of A.P. (DIR Series) Circular No. 31 dated June 15, 2018 (read with A.P. (DIR Series) Circular No. 18 dated January 23, 2020). All investments by eligible investors in the specified securities will be under the FAR from the date on which the FAR comes into effect.
  2. Treatment of existing investments in specified securities: Existing investments by eligible investors in specified securities shall be reckoned under the FAR.
  3. Process for Investment and reporting:
  1. FPIs, Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and other entities permitted to invest in Government Securities under the Debt Regulations can invest under this route as hitherto under existing arrangements.
  2. Eligible investors other than those referred to in 4(c)(i) above, may invest through International Central Securities Depositories. The process for such investments will be notified in due course.

5. Transition for FPIs: FPIs who currently hold investments in the specified securities shall, within one year from the date on which the FAR comes into effect, readjust their investments under the MTF to comply with requirements mandated in A.P. (DIR Series) Circular No. 31 dated June 15, 2018 (read with A.P. (DIR Series) Circular No. 18 dated January 23, 2020).

6. Investments by eligible investors under the route shall be governed by other applicable provisions of FEMA and the rules, regulations and directions issued thereunder by the Reserve Bank from time to time, unless otherwise specified.

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Permanent Residency Status to foreign investors

PIB press release dated 31st August, 2016

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has approved the scheme for grant of Permanent Residency Status (PRS) to foreign investors subject to the relevant conditions as specified in the FDI Policy notified by the Government from time to time.

The scheme is expected to encourage foreign investment in India and facilitate Make in India Programme. Under the Scheme, suitable provisions will be incorporated in the Visa Manual to provide for the grant of PRS to foreign investors.

The PRS will be granted for a period of 10 years with multiple entry. This can be reviewed for another 10 years if the PRS holder has not come to adverse notice. The scheme will be applicable only to foreign investors fulfilling the prescribed eligibility conditions, his/her spouse and dependents. In order to avail this scheme, the foreign investor will have to invest a minimum of Rs. 10 crores to be brought within 18 months or Rs.25 crores to be brought within 36 months. Further, the foreign investment should result in generating employment to at least 20 resident Indians every financial year.

Permanent Residency Status will be granted for a period of 10 years initially with multiple entry facility, which can be renewed for another 10 years. PRS will serve as a multiple entry visa without any stay stipulation and PRS holders will be exempted from the registration requirements. PRS holders will be allowed to purchase one residential property for dwelling purpose. The spouse/ dependents of the PRS holder will be allowed to take up employment in private sector (in relaxation to salary stipulations for Employment Visa) and undertake studies in India.

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FDI – simplification & liberalisation

PIB press release dated 31st August, 2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its ex-post-facto approval for the FDI policy amendments announced by the Government on 20th June, 2016. The FDI policy amendments are meant to liberalise and simplify the FDI policy so as to provide ease of doing business in the country leading to larger FDI inflows contributing to growth of investment, incomes and employment.  The details are as follows:

  1. Radical Changes for promoting Food Products manufactured/produced in India

It has now been provided that 100% FDI under government route for trading, including through e-commerce, is permitted in respect of food products manufactured and/or produced in India.

  1. Foreign Investment in Defence Sector up to 100%

Earlier FDI regime permitted 49% FDI participation in the equity of a company under automatic route. FDI above 49% was permitted through Government approval on case to case basis, wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country. In this regard, the following changes have inter-alia been brought in the FDI policy on this sector:

  1. Foreign investment beyond 49% has now been permitted through government approval route wherever it is likely to result in access to modern technology or for other reasons to be recorded.
  2. FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.
  1. Review of Entry Routes in Broadcasting Carriage Services

FDI policy on Broadcasting carriage services has also been amended. New sectoral caps and entry routes are as under:

 

Sector/Activity New Cap and Route
5.2.7.1.1

(1)Teleports(setting up of up-linking HUBs/Teleports);

(2)Direct to Home (DTH);

(3)Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability);

(4)Mobile TV;

(5)Headend-in-the Sky Broadcasting Service(HITS)

100%

 

Automatic

5.2.7.1.2 Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval
  1. Pharmaceutical

The earlier FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield pharma and FDI up to 100% under government approval in brownfield pharma. With the objective of promoting the development of this sector, 74% FDI under automatic route has been permitted in brownfield pharmaceuticals. FDI beyond 74% would be permitted through Government approval route.

  1. Civil Aviation Sector

(i)     The earlier FDI policy on Airports permitted 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route.

(ii)   With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, 100% FDI under automatic route has now been permitted in Brownfield Airport projects.

(iii) As per the earlier FDI policy, foreign investment up to 49% was allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. This limit has now been raised to 100%, with FDI upto 49% permitted under automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route. Foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and  non-scheduled air-transport services up to the limit of 49% of their paid up capital. 

  1. Private Security Agencies

The earlier policy permitted 49% FDI under government approval route in Private Security Agencies. Since Private Security Agencies are already required to get license under PSAR Act 2005, the requirement of putting them through another line of Government approvals through FIPB has now been done away with for FDI up to 49%.  Accordingly, FDI up to 49% is now permitted under automatic route in this sector. FDI beyond 49% and upto 74% is permitted through Government approval route.

  1. Establishment of branch office, liaison office or project office

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has provided that approval of Reserve Bank of India would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.

  1. Animal Husbandry

As per FDI Policy 2016, FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture is allowed 100% under Automatic Route under controlled conditions. The requirement of ‘controlled conditions’ for FDI in these activities has now been done away with. 

  1. Single Brand Retail Trading

Local sourcing norms have been relaxed up to three years, with prior Government approval, for entities undertaking Single Brand Retail Trading of products having ‘state­ of ­art’ and ‘cutting edge’ technology. For such entities, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible. Thereafter, sourcing norms would be applicable.

 

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Foreign Investment in other financial services sector

PIB press release dated 10th August, 2016

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to amend regulation for foreign investment in the Non- Banking Finance Companies (NBFCs).

The amendment in the existing Foreign Exchange Management (Transfer or Issue of Security by the Person Resident Outside India) regulations on Non- Banking Finance Companies (NBFCs) will enable inflow of foreign investment in “Other Financial Services” on automatic route provided such services are regulated by any financial sector regulators (RBI, SEBI, PFRDA etc.) / Government Agencies. Foreign investment in “Other Financial Services”, which are not regulated by any regulators / Government Agency, can be made on approval route.

Further, minimum capitalisation norms as mandated under FDI policy have been eliminated as most of the regulators have already fixed minimum capitalisation norms. This will induce FDI and spurt economic activities. It will cover whole India and is not limited to any State/Districts.

Background

In the Budget 2016-17 Speech, the Hon’ble Finance Minister had announced that “FDI will be allowed beyond the 18 specified NBFC activities in the automatic route in other activities which are regulated by financial sector regulators”. The present regulations on “Non-Banking Finance Companies” stipulates that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms mentioned therein. In the proposed regulations, FDI is allowed on automatic route for all “Other Financial Services” provided such services are regulated by any regulators (RBI, SEBI, PFRDA etc.) / Government Agencies. Further, minimum capitalisation norms as mandated under FDI policy have been eliminated as most of the regulators have already fixed minimum capitalisation norms.

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On tap banking license guidelines

RBI press release dated 1st August, 2016.

The Reserve Bank of India today released on its website, “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”.

Some of the key aspects of the Guidelines include: (i) resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also eligible to promote universal banks; (ii) large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent; (iii) Non-Operative Financial Holding Company (NOFHC) has been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities; (iv) Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the promoter/promoter group, instead being wholly owned by the promoter group; and (v) Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to it being ensured that similar activities are not conducted through the bank as well.

Key features of the guidelines:

(I) Eligible Promoters

(i) Individuals/professionals who are ‘residents’ and have 10 years of experience in banking and finance at a senior level.

(ii) Entities/groups in the private sector that are ‘owned and controlled by residents’ [as defined in FEMA Regulations, as amended from time to time] and have a successful track record for at least 10 years, provided that if such entity/group has total assets of ₹ 50 billion or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets/in terms of gross income.

(iii) Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years. For the sake of clarity, it is added here that any NBFC, which is a part of the group that has total assets of ₹ 50 billion or more and that the non-financial business of the group accounts for 40 per cent or more in terms of total assets/in terms of gross income, is not eligible.

(II) ‘Fit and Proper’ criteria

Promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

(III) Corporate structure

The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/which do not have other group entities. Individual promoters/promoting entities/converting entities that have other group entities, shall set up the bank only through an NOFHC. Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the Promoter/Promoter Group. Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to being ensured that similar activities are not conducted through the bank. No shareholder, other than the promoters/promoter group, shall have significant influence and control in the NOFHC.

(IV) Minimum capital requirement

The initial minimum paid-up voting equity capital for a bank shall be ₹ five billion. Thereafter, the bank shall have a minimum net worth of ₹ five billion at all times.

The promoter/s and the promoter group / NOFHC, as the case may be, shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15 per cent within a period of 15 years from the date of commencement of business of the bank.

(V) Foreign shareholding in the bank

The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement indicated in paragraph (IV) above. At present, the aggregate foreign investment limit is 74 per cent.

(VI) Corporate governance, prudential and exposure norms

The bank shall comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.

(VII) Business plan for the bank

The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.

(VIII) Other conditions

The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank. The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.

(IX) Procedure for application

  • The licensing window will be open on-tap, and the applications in the prescribed form along with requisite information could be submitted to the Reserve Bank at any point of time.
  • The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the Reserve Bank.
  • The Committee will submit its recommendations to the Reserve Bank for consideration. The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors, will examine all the applications and then submit its recommendations to the Committee of the Central Board of the Reserve Bank for the final decision to issue in-principle approval.
  • The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.
  • Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within one month from the date of receipt of communication from the Reserve Bank relating to the application not being considered.
  • In order to ensure transparency, the names of the applicants for bank licences and the names of applicants that are found suitable for grant of in-principle approval will be placed on the Reserve Bank’s website periodically.

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FEM (Deposits) Regulations

RBI has on 5th May, 2016 issued the revamped FEM (Deposits) Regulations, 2016. Salient features are:

These regulations seek to regulate deposits between a person resident in India and a person resident outside India:

3. Some of the key definitions under the regulations are given below:

(i) ‘Deposit’ includes deposit of money with a bank, company, proprietary concern, partnership firm, corporate body, trust or any other person.

(ii) A ‘Non-resident Indian (NRI)’ is a person resident outside India who is a citizen of India.

(iii) A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

  1. Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
  2. Who belonged to a territory that became part of India after the 15th day of August, 1947; or
  3. 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
  4. 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)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955.

(iv) Permissible currency means a foreign currency which is freely convertible.

4. In terms of Regulation 4 of the Deposit Regulations, no restriction under these regulations shall be applicable for opening of rupee/ foreign currency deposit accounts by certain persons, viz.

(i) Rupee/ foreign currency accounts by foreign diplomatic missions and diplomatic personnel or their family members in India with an Authorised Dealer in India subject to conditions mentioned therein.

(ii) Deposits in rupees maintained by persons resident in Nepal and Bhutan with Authorised Dealer in India.

(iii) Deposits with Authorised Dealer in India maintained by any multilateral organization, of which India is a member nation, and the subsidiary/ affiliate bodies and officials of such organizations in India.

5. In terms of Regulations 5 and 6 of the Deposit Regulations, a person resident outside India may open deposit accounts with Authorized Dealer/ authorized bank/Indian company under various schemes. Details of the schemes have been specified in the respective schedules. The major features are highlighted below:

A) Non-Resident (External) Account (NRE) Scheme

i) NRIs and PIOs are permitted to open these accounts in Indian Rupee with Authorized Dealers and authorized banks in any form e.g saving, current, recurring or fixed deposit subject to the conditions specified in Schedule 1 of the Deposit Regulations.

ii) Inward remittances from outside India to the NRE account and remittances outside India from the NRE account are permitted.

iii) Authorised Dealers/ banks in India may grant loans against the security of the funds held in NRE accounts to the account holder/ third party in India, without any limits, subject to the usual margin requirements. The loan sanctioned to the account holder can be repaid either by adjusting the deposits or through inward remittances from outside India through banking channels or out of balances held in the NRO account of the account holder. The loan shall be used for the purpose laid down in the regulations and cannot be repatriated outside India.

iv) Authorised Dealers may allow their branches/ correspondents outside India to grant loans outside India to the non-resident depositor or to a third party against the security of deposits, subject to the conditions laid down in the regulations.

v) The facility for premature withdrawal of the deposits shall not be available where loans against such deposits are availed of.

vi) The term “loan” shall include all types of fund based/ non-fund based facilities.

vii) Income from interest on the balances in the account is exempt from income tax and balances are exempt from wealth tax.

viii) Current income like rent, dividend, pension, interest, etc. of NRIs and PIOs will be construed as a permissible credit to their NRE account provided the Authorised Dealer is satisfied that the credit represents current income of the NRI/ PIO account holder and income tax thereon has been deducted/ paid/ provided for, as the case may be.

ix) AD Category – I banks and authorized banks may credit proceeds of demand drafts / bankers’ cheques/ account payee cheques issued against encashment of foreign currency to the NRE account where the instruments issued to the NRE account holder are supported by encashment certificate issued by an AD Category I/ Category – II.

x) An NRE account can be opened jointly:

(a) in the names of two or more eligible NRIs and/or PIOs;

(b) with resident relative(s) on “former or survivor” basis.

B) Foreign Currency (Non-Resident) Account (Banks) (FCNR(B)) Scheme

i) NRIs and PIOs are permitted to open these accounts in any permissible foreign currency with Authorized Dealers subject to the conditions specified in Schedule 2 of the Deposit Regulations.

ii) These accounts can only be maintained in the form of term deposit.

iii) Other terms and conditions applicable to NRE accounts (cf. Schedule 1 of the Deposit Regulations) in respect of joint accounts, repatriation of funds, loans/ overdrafts applies mutatis mutandis to FCNR(B) accounts.

iv) Form A2 is not required to be filled while remitting funds at the time of closure of FCNR (B) accounts.

C) Non-Resident (Ordinary) Rupee (NRO) Account

i) Any person resident outside India may open NRO account in Indian Rupee with Authorized Dealers and authorized banks for the purpose of putting through bona fide transactions in rupees subject to the conditions specified in Schedule 3 to the Deposit Regulations.

ii) The account can be maintained in any form e.g savings, current, recurring or fixed deposit.

iii) Balances in the NRO account cannot be repatriated abroad except for current income of the account holder and up to USD 1 million per financial year by NRIs and PIOs, subject to conditions specified in Foreign Exchange Management (Remittance of Assets) Regulations, 2016. Funds can be transferred to the NRE account within the USD 1 million facility.

iv) Loans may be granted in India to the account holder or third party subject to usual norms and margin requirement.

v) Transfers from other NRO accounts is a permissible credit for the account. Similarly, transfers to other NRO accounts is a permissible debit.

vi) An NRO account can be opened jointly with residents on ‘former or survivor’ basis. NRIs and/or PIOs may hold NRO accounts jointly with other NRIs and/or PIOs.

vii) Rupee gift/ loan made by a resident to a NRI/ PIO relative within the limits prescribed under the Liberalized Remittance Scheme may be credited to the latter’s NRO account.

viii) 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.

ix) Authorized Dealer Banks may furnish on a monthly basis, a statement on the number of applicants and total amount remitted, as per proforma at annex.

x) Opening of accounts by individuals of Pakistan nationality and entities of Pakistan/ Bangladesh nationality/ ownership will require prior approval of the Reserve Bank of India.

xi) Individuals of Bangladesh nationality can open an NRO account provided they hold a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned.

D) Special Non-Resident Rupee (SNRR) Account

i) Any person resident outside India, having a business interest in India, may open an SNRR account in Indian Rupee with Authorized Dealers for the purpose of putting through bona fide transactions in rupees, subject to the conditions specified in Schedule 4 of the Deposit Regulations.

ii) The SNRR account shall carry the nomenclature of the specific business for which it is opened and shall not earn any interest.

iii) The debits/ credits and the balances in the account shall be incidental and commensurate with the business operations of the account holder.

iv) The tenure of the account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and shall in no case exceed seven years.

v) The balances in the SNRR account shall be eligible for repatriation.

vi) Opening of account by individual/ entities of Pakistan/ Bangladesh nationality/ ownership will require prior approval of the Reserve Bank of India.

E) Escrow Account

i) Resident/ non-resident acquirers and non-resident corporates may open Escrow account in INR with an Authorized Dealer in India as an escrow agent subject to the terms and conditions specified in Schedule 5 of the Deposit Regulations.

ii) Transactions shall be in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a person resident Outside India) Regulations, 2000 and regulations of the Securities and Exchange Board of India (SEBI), as applicable.

iii) The accounts shall be non-interest bearing.

iv) No fund/ non-fund based facility would be permitted against the balances in the account.

F) Acceptance of deposit by a company in India from NRIs and PIOs on repatriation basis

A company incorporated in India including a Non-Banking Financial Company (NBFC) registered with the Reserve Bank shall not accept deposits from NRIs/PIOs on repatriation basis. It may, however, renew the deposits it had accepted in accordance with Schedule 6 of the Deposit Regulations.

G) Acceptance of deposits by Indian proprietorship concern/ firm or a company from NRIs and PIOs on non-repatriation basis

General permission has been granted to Indian proprietorship concern/firm or a company (including Non-Banking Finance Company registered with Reserve Bank) to accept deposits from NRIs and PIOs on non-repatriation basis subject to the terms and conditions specified in Schedule 7 of these Regulations.

6. Other deposits (subject to Regulations 6 and 7 of the Deposit Regulations)

i) General permission has been granted to Indian companies to accept deposits from NRIs and PIOs by issue of Commercial Papers subject to conditions.

ii) A deposit made by an Authorised Dealer with its branch, head office or correspondent outside India, and a deposit made by a branch or correspondent outside India of an Authorised Dealer, and held in its books in India, will be governed by the directions issued by the Reserve Bank in this regard.

iii) A shipping or airline company incorporated outside India, can open, hold and maintain a foreign currency account with an Authorized Dealer for meeting the local expenses in India of such airline or shipping company, provided the credits to such accounts are only by way of freight or passage fare collections in India or by inward remittances through banking channels from its office outside India.

iv) An Authorised Dealer may allow unincorporated joint ventures (UJV) of foreign companies/ entities, with Indian entities, executing a contract in India, to open and maintain non-interest bearing foreign currency account and an SNRR account as specified in Schedule 4 of the Deposit Regulations for the purpose of undertaking transactions in the ordinary course of its business. The debits and credits in these accounts should be incidental to the business requirement of the UJV. The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV and all operations in the account shall be in accordance with the provisions of the Act or the rules or regulations made or the directions issued thereunder. Opening of such accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior approval of the Reserve Bank.

v) Opening of a foreign currency Escrow account with an Authorised Dealer in India for the purpose of routing counter-trade transactions would require approval of Reserve Bank.

7. To facilitate the foreign nationals to collect their pending dues in India, ADs may permit such foreign nationals to re-designate their resident account maintained in India as NRO account on leaving the country after their employment to enable them to receive their pending bonafide dues, subject to the bank satisfying itself that the credit of amounts are bonafide dues of the account holder when she/ he was a resident in India. The funds credited to the NRO account should be repatriated abroad immediately, subject to payment of the applicable Income tax and other taxes in India. The amount repatriated abroad should not exceed USD one million per financial year. The debit to the account should be only for the purpose of repatriation to the account holder’s account maintained abroad. The account should be closed immediately after all the dues have been received and repatriated as per the declaration made by the account holder when the account was designated as an NRO account.

8. Maturity proceeds of term deposits, if any, under the erstwhile Non-Resident (Special) rupee Account Scheme (NRSR Account) which was discontinued with effect from April 1, 2002, may be credited to the NRO account of the account holder.

9. Balances in the Exchange Earner’s Foreign Currency (EEFC) Account and Resident Foreign Currency (Domestic) [RFC(D)] Account may be credited to NRE/ FCNR(B) Accounts, at the option/ request of the account holders, consequent upon change of their residential status from resident to non-resident.

10. Authorised Dealers may issue International Credit Cards (ICCs) to NRIs and PIOs, the debits of which are subject to the conditions for use of the ICCs by residents. Charges on the use of ICCs should be settled by the NRI/PIO out of inward remittances or balances held in NRE/ FCNR(B)/ NRO accounts. Settlement of charges out of balances held in NRO accounts are subject to the limits for repatriation of balances held in NRO accounts specified in regulation 4(2) of Foreign Exchange Management (Remittance of Assets) Regulations, 2016.

11. Authorised Dealers can allow the following operations on non-resident accounts in terms of Power of Attorney granted in favour of a resident by the non-resident account holder:

(a) The operations in NRE/ FCNR(B) Accounts are restricted to:

(i) Withdrawal for local payments; and

(ii) Remittance of funds through banking channels to the non-resident account holder.

(b) The operations in NRO Accounts are restricted to:

(i) All local payments in rupees including payments for eligible investments subject to compliance with relevant regulations made by the Reserve Bank; and

(ii) Remittance outside India of current income in India of the non-resident individual account holder, net of applicable taxes.

The resident Power of Attorney holder is not permitted to repatriate outside India funds held in the account other than to the non-resident individual account holder nor making payment by way of gift to a resident on behalf of the non-resident account holder or transfer funds from the account to another NRO account.

12. Regional Rural Banks (RRBs) are permitted to open and maintain NRO/ NRE accounts in Rupees and accept FCNR(B) deposits as per the eligibility criteria prescribed by the Reserve Bank vide Circular No. RPCD.CO.RRB.No.BC.106 /03.05.33(C)/2006-07 dated June 28, 2007. RRBs may approach the respective Regional Office of the Foreign Exchange Department, for authorization for opening of accounts/ acceptance of deposits.

13. Any deposit between a person resident in India and a person resident outside India which is not covered by the provisions of the Act or these Regulations would require approval of Reserve Bank.

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Remittance of Assets Regltns

RBI has vide its notification dated 28th April, 2016 revamped the Foreign Exchange Management (Remittance of Assets) Regulations. The salient features of these regulations are:

a) Remittance of capital assets in India held by a person whether resident in or outside India would require the approval of the Reserve Bank except to the extent provided in the Act or Rules or Regulations made under the Act.

b) In terms of regulation 4(1) of the Remittance of Assets regulations, ADs may allow remittance of assets, up to USD one million per financial year, by a foreign national (not being a PIO or a citizen of Nepal or Bhutan), on submission of documentary evidence, in case:

  1. the person has retired from employment in India;
  2. the person has inherited the assets from a person referred to in section 6(5) of the Act;
  3. the person is a non-resident widow/ widower and has inherited assets from the person’s deceased spouse who was an Indian citizen resident in India.

In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD.

c) In terms of regulation 4(1), ibid, ADs may allow remittance of balance amount, held by a foreign student in a bank account in India, after completion of his/her studies/training in India.

d) In terms of regulation 4(2), ibid, ADs may allow NRIs and PIOs, on submission of documentary evidence, to remit up to USD one million, per financial year:

  1. out of balances held in their Non-Resident (Ordinary) Accounts (NRO accounts)/ sale proceeds of assets/ assets acquired in India by way of inheritance/ legacy;
  2. out of assets acquired under a deed of settlement made by either of his parents or a relative as defined in Companies Act, 2013. The settlement should take effect on the death of the settler.

In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD. Further, where the remittance is to be made from the balances held in the NRO account, the Authorised Dealer should obtain an undertaking from the account holder stating that “the said remittance is sought to be made out of the remitter’s balances held in the account arising from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer from any other NRO account and if such is found to be the case, the account holder will render himself/ herself liable for penal action under FEMA.”

e) In terms of regulation 4(3), ibid, ADs may allow remittances by Indian companies under liquidation on directions issued by a Court in India.

f) In terms of regulation 5, ibid, ADs may also allow Indian entities to remit their contribution towards the provident fund/ superannuation/ pension fund in respect of their expatriate staff resident in India but “not permanently resident” in India.

g) In terms of regulation 6, ibid, ADs may permit remittance of assets on closure or remittance of winding up proceeds of branch office/ liaison office (other than project office) as per Reserve Bank’s directions from time to time.

h) In terms of regulation 7, ibid, remittance of assets on hardship ground and remittances by NRIs and PIOs in excess of USD one million/financial year would require the prior approval of the Reserve Bank.

i) Any transaction involving remittance of assets under these regulations are subject to the applicable tax laws in India.

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10371&Mode=0

 

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ODI – rationalization & reporting

RBI notification dated 13th April, 2016 follows

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10351&Mode=0

2. At present, application for ODI is required to be made in Form ODI – Part I (comprising six sections) for direct investments in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) under automatic route / approval route. Further, remittances and other forms of financial commitment undertaken by the Indian Party (IP) are reported in Form ODI Part II. Annual Performance Report (APR) on the functioning of overseas JV / WOS in Form ODI Part III and details of disinvestment in Form ODI Part IV are currently required to be submitted through the designated Authorised Dealer Bank (AD bank). While Form ODI Part I and Part III are required to be submitted by the applicant undertaking ODI, the Form ODI Part II and Part IV are to be submitted by the AD bank on behalf of the applicant. In order to capture all data pertaining to the IP undertaking ODI as well as the related transaction, it has been decided to subsume Form ODI Part II within Form ODI Part I. Thus the Form ODI will have five sections instead of six.

3. The rationalised and revised Form ODI (Annex I) will now comprise the following parts:

Part I – Application for allotment of Unique Identification Number (UIN) and reporting of Remittances / Transactions:

Section A – Details of the IP / RI.

Section B – Capital Structure and other details of JV/ WOS/ SDS.

Section C – Details of Transaction/ Remittance/ Financial Commitment of IP/ RI.

Section D – Declaration by the IP/ RI.

Section E – Certificate by the statutory auditors of the IP/ self-certification by RI.

Part II – Annual Performance Report (APR)

Part III – Report on Disinvestment by way of

  1. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of overseas JV / WOS;
  2. Sale/ Transfer of the shares of the overseas JV/ WOS to another eligible resident or non-resident;
  3. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of IP; and
  4. Buy back of shares by the overseas JV/ WOS of the IP / RI.

4. Further, a new reporting format has also been introduced for Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), Portfolio Investment and overseas investment by Mutual Funds as per the format in Annex II and Annex III. In case of reporting purchase and repurchase of ESOPs, the AD banks may continue to report the same in the existing format (Annex IV).

5. It is further advised that any post investment changes subsequent to the allotment of the UIN are required to be reported as indicated in the operational instructions on submission of Form ODI Part I (Annex I).

6. AD banks before executing any ODI transaction must obtain the Form ODI Part I from the applicant in terms of Regulation 6 (2) (vi) of the Notification, ibid. Further, the AD bank should report the relevant Form ODI in the online OID application and obtain UIN while executing the remittance.

7. In case of RI undertaking ODI, certification of Form ODI Part I by statutory auditor or chartered accountant need not be insisted upon. Self-certification by the RI concerned may be accepted.

8. The revised ODI forms and instructions for filling up the forms will come into effect immediately.

9. Reserve Bank reserves the right to place the information received through the forms in the public domain.

10. As hitherto, the AD banks would continue to receive the ODI forms as also documents related to the post investment changes in the physical form. These should be preserved UIN wise for submission to the Reserve Bank, if and when specifically required.

11. AD banks should put in place proper processes and systems and issue necessary instructions to all the dealing officials at the bank / branch level to ensure compliance with these guidelines.

Online Reporting of Form ODI

12. Online OID application has been revamped to further reduce the traditional paper based filing system, to provide the AD banks fast and easy accessibility to data for reference purpose, to improve the coverage and ensure proper monitoring of the flows in a dynamic environment. Accordingly, modules in online OID application have been added, wherein all the ODI forms as mentioned in this circular may be reported.

13. A concept of AD Maker, AD Checker and AD Authorizer has now been introduced in the online application process. The AD Maker shall initiate the transaction and submit to the AD Checker for verification of the transaction before submission to Reserve Bank. The AD Authorizer shall have the authority to ratify these ODI transaction which are pending due to various reasons, such as, delay arising on account of seeking further clarification from the IP / RI, technical difficulty in reporting the transaction in the online OID application and on account of delay in completing the due diligence process.

14. The AD bank may identify an official in the middle management level who may be assigned the responsibility of the AD Authorizer. The Authorizer shall be entrusted with the following responsibilities:

  1. Examining the genuineness of the reason/s behind late submission of the ODI Forms.
  2. Ratifying those online transaction which are reported with a delay owing to operational difficulties after recording the facts in the online OID application under the Remarks column.

15. The Centralized Unit / Nodal Office of the AD bank should ensure online reporting of Overseas Investments in the application hosted on the websitehttps://oid.rbi.org.in

16. The AD Maker, AD Checker and AD Authoriser identified by the AD Bank may obtain a user-id for accessing the online OID application by submitting a request in the prescribed format (Annex V).

17. Any non-compliance with respect to the instruction for submission of Form ODI Part I, Part II and Part III shall be treated as contravention of Regulation 6 (2) (vi), Regulation 15 and Regulation 16 respectively, of the FEMA Notification No 120/RB-2004 dated July 07, 2004 as amended. The Reserve Bank will take a serious view on non-compliance with the guidelines / instructions and initiate penal action as considered necessary.

18. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

19. Master Direction No. 15/2015-16 dated January 1, 2016 and Master Direction No. 18/ 2015-16 dated January 1, 2016 are being updated to reflect the changes.

20. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

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ODI – Submission of APR

RBI notification dated April 13, 2016

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10349&Mode=0

Attention of the Authorised Dealer (AD – Category I) banks is invited to the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time. Attention of AD Category – I banks is also invited to A. P. (DIR Series) Circular No. 68 dated June 01, 2007 on Rationalisation of Forms, A. P. (DIR Series) Circular No. 29 dated September 12, 2012 on rationalisation of guidelines relating to submission of the Annual Performance Report (APR), A. P. (DIR Series) Circular No. 24 dated August 14, 2013 on Liberalised Remittance Scheme (LRS) by Resident Individuals under which they were allowed to set up JV / WOS outside India and para B.14 of FED Master Direction No. 15 /2015-16 dated January 1, 2016.

2. At present, an Indian Party (IP) / Resident Individual (RI) which has made an Overseas Direct Investment (ODI) has to comply with certain obligations prescribed under the Notification No. FEMA 120/RB-2004 dated July 07, 2004 as amended from time to time. One of these includes obligation for submission of an Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank by 30th of June every year in respect of each Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India set up or acquired by the IP / RI (as prescribed under Regulation 15 of FEMA Notification, ibid).

3. It has been observed that:

  1. IP / RI are either not regular in submitting the APR or are submitting it with delay. This is not in line with Regulation 15 of the Notification, ibid.
  2. Remittance/s and other forms of financial commitment are often facilitated by the designated Authorised Dealer bank (AD bank) under automatic route even though APR in respect of all overseas JV / WOS of the IP / RI effecting such remittance/s have not been submitted. This is in contravention of Regulation 6(2)(iv) of the Notification, ibid.

4. In order to provide AD banks greater capability to track submission of APRs and also improve compliance level in the matter of submission of APRs by the IPs / RIs, it is now advised as under:

  1. The online OID application has been suitably modified to enable the nodal office of the AD bank to view the outstanding position of all the APRs pertaining to an applicant including for those JV / WOS for which it is not the designated AD bank. Accordingly, the AD bank, before undertaking / facilitating any ODI related transaction on behalf of the eligible applicant, should necessarily check with its nodal office to confirm that all APRs in respect of all the JV / WOS of the applicant have been submitted;
  2. Certification of APRs by the Statutory Auditor or Chartered Accountant need not be insisted upon in the case of Resident Individuals. Self-certification may be accepted;
  3. In case multiple IPs / RIs have invested in the same overseas JV / WOS, the obligation to submit APR shall lie with the IP / RI having maximum stake in the JV / WOS. Alternatively, the IPs / RIs holding stake in the overseas JV / WOS may mutually agree to assign the responsibility for APR submission to a designated entity which may acknowledge its obligation to submit the APR in terms of Regulation 15 (iii) of Notification, ibid, by furnishing an appropriate undertaking to the AD bank;
  4. An IP / RI, which has set up / acquired a JV / WOS overseas in terms of the Regulations of the Notification, ibid, shall submit, to the AD bank every year, an APR in Form ODI Part II in respect of each JV / WOS outside India and other reports or documents by 31st of December each year or as may be specified by the Reserve Bank from time to time. The APR, so required to be submitted, shall be based on the latest audited annual accounts of the JV / WOS unless specifically exempted by the Reserve Bank.

5. AD banks may issue necessary instructions to all the dealing officials at the bank / branch level and put in place proper processes and systems to ensure compliance with the extant FEMA guidelines. Any non-compliance with the instruction relating to submission of APR shall be treated as contravention of Regulation 15 of the Notification No. FEMA 120/RB-2004 dated July 07, 2004 as amended and viewed seriously.

6. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. Master Direction No. 15/2015-16 dated January 1, 2016 and Master Direction No. 18/ 2015-16 dated January 1, 2016 are being updated to reflect the changes.

8.The directions contained in this circular have been issued under section 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

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