ICAI

PRESENTATION ON FEMA

BY
CA. SUNIL JAIN FCA DISA
kca@kcaconsultancy.com

10.05.2020 CA. Sunil Jain 1

 FEMA: TOPICS
OVERVIEW
⚫ Overseas Direct Investment

⚫ ODI under Liberalized remittance Scheme

(LRS) for Residents
⚫ Branches outside India

10.05.2020 CA. Sunil Jain 2

 INDEX
Factors for ODI Compliances
Statute Related Misc Issues
Definitions Offices outside India
Permissible Limits LRS
Eligible investors Practical issues
Forms of ODI
Valuation

10.05.2020 CA. Sunil Jain 3

WHY ODI
⚫ Eco. & business co-op with other countries
⚫ Sharing of technology skill and R & D
⚫ Access to global market
⚫ Mutual benefit in employment and wealth
generation
⚫ Boost to exports
⚫ Forex earning-dividend, royalty, technical fee
etc.
10.05.2020 CA. Sunil Jain 4
Facts
⚫ Total Financial commitment 86 billion USD
approx. in last 3 years
⚫ Total outflow 36 billion USD
⚫ Inflow of income per year around 1 billion
⚫ Top ODI destinations: Singapore, USA, UK,
Switzerland, Russia
⚫ Sectors: Financial Business services and
insurance 38%, Mfg. 23%, Agri n mining 15%
10.05.2020 CA. Sunil Jain 5
ODI-CONSIDERATIONS
⚫ Business consideration
⚫ Ease of doing business Index
⚫ Global peace index
⚫ Global Finance FDI Index: UK, Singapore,
Netherlands Ireland Australia
⚫ Favorable Tax regime
⚫ Relationship with India

10.05.2020 CA. Sunil Jain 6

DIRECT INVESTMENTS IN JV/WOS ABROAD

Foreign Exchange Management

(Transfer or issue of any foreign security)
Regulations 2004
Read together with
▪ Master directions: 15/2015-16 updated
18.09.19
▪ FAQs of RBI: 19/09/2019

▪ AP(DIR) circulars

10.05.2020 CA. Sunil Jain 7

DIRECT INVESTMENTS IN JV/WOS ABROAD

"Direct investment outside India" means

investment by way of contribution to the
capital or subscription to the Memorandum
of Association of a foreign entity or by way of
purchase of existing shares of a foreign
entity either by market purchase or private
placement or through stock exchange, but
does not include portfolio investment;

10.05.2020 CA. Sunil Jain 8

DIRECT INVESTMENTS IN JV/WOS ABROAD

"Financial Commitment" means the amount of

direct investment by way of contribution to
equity, loan and 100 per cent of the amount
of guarantees and 50 per cent of the
performance guarantees issued by an Indian
Party to or on behalf of its overseas Joint
Venture Company or Wholly Owned
Subsidiary;

10.05.2020 CA. Sunil Jain 9

DIRECT INVESTMENTS IN JV/WOS
ABROAD

⚫ All types of preference shares, other than

CCPS, are to be treated as loan to its JV /
WOS abroad
⚫ Not to be equated with equity

10.05.2020 CA. Sunil Jain 10

DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

Eligible Investor (Indian Party-IP):

⚫ Companies

⚫ Partnerships registered under Indian

Partnership Act 1932
⚫ Limited Liability Partnership

⚫ Body created under act of parliament

Provided that when more than one such company, body or entity make an
investment in the foreign entity, all such companies or bodies or entities shall
together constitute the "Indian Party";

10.05.2020 CA. Sunil Jain 11

DIRECT INVESTMENTS IN JV/WOS ABROAD

"Joint Venture (JV)/WOS" means a foreign

entity formed, registered or incorporated in
accordance with the laws and regulations of
the host country in which the Indian Party
makes a direct investment;

"Net Worth" means paid up capital and free

reserves;

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JV / WOS abroad
⚫ Net worth –Definition in 2(o)
Paid-up capital and free reserves.
Preference share capital??

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Sec 2(57) Co Act 2013
⚫ "net worth" means the aggregate value of the
paid-up share capital and all reserves created
out of the profits 12[, securities premium account
and debit or credit balance of profit and loss
account,] after deducting the aggregate value of
the accumulated losses, deferred expenditure
and miscellaneous expenditure not written off,
as per the audited balance sheet, but does not
include reserves created out of revaluation of
assets, write-back of depreciation and
amalgamation;
10.05.2020 CA. Sunil Jain 14
2(64) of co. act
⚫ (64) "paid-up share capital" or "share capital
paid-up" means such aggregate amount of
money credited as paid-up as is equivalent to
the amount received as paid-up in respect of
shares issued and also includes any amount
credited as paid-up in respect of shares of
the company, but does not include any other
amount received in respect of such shares,
by whatever name called;
10.05.2020 CA. Sunil Jain 15
Net worth
⚫ 2(84) "share" means a share in the share
capital of a company and includes stock;
⚫ Section 43 of Co act says share capital
means Equity and preference.
⚫ Though in FDI/ODI other than CCPS
preference share treated as Loan

10.05.2020 CA. Sunil Jain 16

DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

Financial commitment Limit:

▪ Up to 400% of the net worth as on the date of
the last audited balance sheet.
▪ Investment to be in the shape of capital, loan
&/or guarantees issued to or on behalf of
JV/WOS

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Clubbing of net worth
⚫ For the purpose of reckoning net worth of an
Indian party, the net worth of its holding
company (which holds at least 51% stake in
the Indian Party) or its subsidiary company
(in which the Indian party holds at least 51%
stake) may be taken into account to the
extent not availed of by the holding company
or the subsidiary independently and has
furnished a letter of disclaimer in favour of the
Indian Party;
10.05.2020 CA. Sunil Jain 18
Approval for banking and real
estate from RBI
⚫ real estate (meaning buying and selling
of real estate or trading in Transferable
Development Rights (TDRs) but does not
include development of townships, construction
of residential/commercial premises, roads or
bridges) or
⚫ banking business,

10.05.2020 CA. Sunil Jain 19

Real estate under FDI
⚫ ‘Earning of rent income on lease of the
property, not amounting to transfer, will not
amount to real estate business.
⚫ Real estate broking services is excluded from
the definition of “real estate business”

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ODI without equity
⚫ Prior permission RBI

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FATF COUNTRIES
⚫ Pakistan – approval route
⚫ Investments / financial commitments by an
Indian Party are not permitted in an
overseas entity located in the countries
identified by the Financial Action Task Force
(FATF) as “non co-operative countries and
territories”
⚫ IRAN NORTH KOREA

10.05.2020 CA. Sunil Jain 22

DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

Method of Funding:
• EEFC account – No Limit

• Drawl of Forex from authorised dealers

• Proceeds of ADR/GDR issue-no limit

• Proceeds of ECB/FCCB

• Capitalization of exports

• Swap of shares

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ODI-Nepal & Bhutan
⚫ Nepal- INR only
⚫ Bhutan- INR/FC

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Capitalization of exports etc.
⚫ Capitalize the payments due from the foreign
entity towards exports, fees, royalties or any
other dues for supply of technical know-how,
consultancy, managerial and other services
within the ceilings applicable.
⚫ Capitalization of export proceeds remaining
unrealized beyond the prescribed period prior
approval of the RBI

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Capitalization of exports etc.
⚫ Declare it on GR/SDF/SOFTEX form, as the
case may be, which shall be super scribed as
“Exports against equity participation in the
JV/WOS abroad”,
⚫ submit to the RBI a custom certified copy of
the invoice through the AD branch

10.05.2020 CA. Sunil Jain 26

Guarantees
⚫ Corporate guarantee
⚫ Personal guarantee by promoters/indirect
promoters
⚫ Guarantee by group co./sister concern
⚫ Within the financial commitment
⚫ For specified amount & Period-not open
ended
⚫ Performance Guarantee linked to period of
the contract
10.05.2020 CA. Sunil Jain 27
Guarantee
⚫ AD in India can issue Bank guarantee/SBLC
⚫ If performance guarantee invoked and
remittance beyond 400%-prior permission
⚫ ODI need to be filed on issue of guarantee
within specified time and

10.05.2020 CA. Sunil Jain 28

Guarantee to SPV/SDS
⚫ Directly to step down of SPV or
⚫ Directly to step down of operating WoS/JV
⚫ Guarantee for further step down- RBI
permission and only if direct/indirect holding
51% or above

10.05.2020 CA. Sunil Jain 29

ODI-VALUATION:

• Partial/Full acquisition of an existing foreign

company :Valuation of shares in such cases
up to investment of USD 5m to be certified by
CA/CPA Otherwise by category I merchant
banker
• In case of ODI thru swap- Merchant banker
only

10.05.2020 CA. Sunil Jain 30

ODI – VALUATION-additional
investment
⚫ In case of additional overseas direct
investments by the Indian party in it’s JV /
WOS, whether at premium or discount or
face value, the concept of valuation, as
indicated above, shall be applicable.

10.05.2020 CA. Sunil Jain 31

Practical issues:
⚫ CA or merchant banker if investment less
than 5 Million USD- Option??
⚫ Allotment in quick succession at face value in
WoS.
⚫ Section 56 POEM and section 6 resident
company. Valuation by merchant banker.
⚫ ODI for clearing off the dues of co. no more a
going concern
⚫ ODI in loss making WoS for revival
⚫ ODI to clear overdue export outstandings
10.05.2020 CA. Sunil Jain 32
DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

• Form ODI to be submitted to designated

branch of authorised dealer
• For all transactions one branch of
authorised dealer to be designated
• Indian Investor should not be on RBI’s
caution list or defaulters list or under
investigation

10.05.2020 CA. Sunil Jain 33

 ODI FORM
⚫ The structure of 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)

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ODI FORM

Part III – Report on Disinvestment by way of a) Closure /

Voluntary Liquidation / Winding up/ Merger/ Amalgamation
of overseas JV / WOS;
b) Sale/ Transfer of the shares of the overseas JV/ WOS to
another eligible resident or non-resident;
c) Closure / Voluntary Liquidation / Winding up/ Merger/
Amalgamation of IP; and
d) Buy back of shares by the overseas JV/ WOS of the IP /
RI.

10.05.2020 CA. Sunil Jain 35

List of docs
⚫ 1. Request letter , A2 form , FEMA declaration.
2. Form ODI duly filled and signed, stamped on all pages
3. Statutory Auditors Certificate – format as specified in section E
4. Board resolution mentioning investment details
5. Certificate of Incorporation, MOA & AOA of foreign company or any other
document which will be evidence of share holding pattern of the company,
activity of the company, capital contribution detail and details of initial
subscription of shares.
6. valuation certificate
7. JV agreement
9.Attested Pan Card of Indian Party.
10.Copy of Current Audited Balance Sheet.
11. COI,MOA and AOA of Indian company
12.Net Worth Certificate as per format attached
⚫ LEI Legal identity identifier

10.05.2020 CA. Sunil Jain 36

ODI- APPROVAL ROUTE

• Form ODI
• Factors considered by RBI:
✓ Viability of project
✓ Benefit which will accrue to India
✓ Financial position & track record
✓ Expertise of Indian party

10.05.2020 CA. Sunil Jain 37

 APPROVAL ROUTE

Some of the proposals which require prior approval are:

i) Investment exceeding the prescribed limits
iii) Overseas Investments by proprietorship concerns and unregistered
partnership firms satisfying certain eligibility criteria;
iv) Investments by Registered Trusts / Societies
v) Corporate guarantee by the Indian Party to second and subsequent
level of Step Down Subsidiary (SDS);
vi) All other forms of guarantee which is offered by the Indian Party to its
first and subsequent level of SDS;
vii) Restructuring of the balance sheet of JV/WOS involving write-
off;
viii) Capitalization of export proceeds remaining unrealized beyond
the prescribed period of realization
ix) 10.05.2020
financial commitment withoutCA. equity
Sunil Jain
contribution in JV / WOS 38
Approval route application
⚫ Transaction number generated by the OID application.
• Brief details of the Indian entity.
• Brief details of the overseas entity.
• Background of the proposal, if any.
• Brief details of the transaction.
⚫ Why approval needed: Reason/s for seeking approval mentioning the extant
FEMA provisions.
⚫ Observations of the designated AD bank with respect to the following:
• Prima facie viability of the JV/ WOS outside India;
• Contribution to external trade and other benefits which will accrue to
India through such investment;
• Financial position and business track record of the IP and the foreign
entity;
• Expertise and experience of the IP in the same or related line of
activity of the JV/ WOS outside India.
⚫ Recommendations of the designated AD bank.
10.05.2020 CA. Sunil Jain 39
Approval route application
⚫ b) A letter from the IP addressed to the designated AD bank.
⚫ c) Board resolution for the proposed transaction/s.
⚫ d) Diagrammatic representation of the organizational structure
indicating all the subsidiaries of the IP horizontally and vertically with
their stake (direct & indirect) and status (whether operating company
or SPV).
⚫ e) Incorporation certificate and the valuation certificate for the
overseas entity (if applicable).
⚫ f) Other relevant documents properly numbered, indexed and
flagged.

10.05.2020 CA. Sunil Jain 40

DIRECT INVESTMENTS IN JV/WOS ABROAD
APPROVAL ROUTE

ODI exceeding USD 1 (one) billion (or its

equivalent) in a financial year would require
prior approval of the Reserve Bank even
when the total FC of the Indian Party is within
the eligible limit under the automatic route
(i.e., within 400% of the net worth as per the
last audited balance sheet).

10.05.2020 CA. Sunil Jain 41

 DIRECT INVESTMENTS IN JV/WOS ABROAD
APPROVAL ROUTE

Proprietary concern/unregistered partnership

• Only who are status holder exporters
• Having proven track record
• Unrealised exports <10%
• Limited to 10% of average of last 3 years
realised export turnover or 200% of net
owned Funds which ever is lower

10.05.2020 CA. Sunil Jain 42

 DIRECT INVESTMENTS IN JV/WOS ABROAD
APPROVAL ROUTE

Trusts and societies: subject to eligibility criteria

⚫ Manufacturing education and hospital sector

⚫ In existence for 3 years

⚫ Deed/memorandum permits ODI

⚫ KYC etc.

10.05.2020 CA. Sunil Jain 43

 DIRECT INVESTMENTS IN JV/WOS ABROAD

Reporting:
⚫ APR by 31st Dec.

⚫ Annual return of Foreign Liabilities and

Assets by 15th July
⚫ Post investment Changes like diversification,
step down subsidiary, shareholding pattern
within 30 days
⚫ ODI whether required if only change in
SDS??
10.05.2020 CA. Sunil Jain 44
Joint investment

⚫ In cases where the investment (or financial

commitment) is being made jointly by more
than one IP, Form ODI is required to be
submitted individually by all the investing
entities and submitted to the designated
branch of the AD bank. The AD bank should
file online a consolidated Form ODI indicating
details of each party. The Reserve Bank
would allot only one UIN to the overseas
project.
10.05.2020 CA. Sunil Jain 45
Pledge of shares/assets
⚫ An Indian Party may transfer, by way of
pledge, shares held in a Joint Venture or
Wholly Owned Subsidiary outside India as a
security for availing of fund based or non-
fund based facilities for itself or for the Joint
Venture or Wholly Owned Subsidiary from an
authorised dealer or a public financial
institution in India.
⚫ Circular no AP (Dir.) Circular 54 dated
29/12/2014
10.05.2020 CA. Sunil Jain 46
Creation of charge on domestic
assets for loan by WoS/JV/SDS
⚫ AD bank may permit creation of charge (by
way of pledge, hypothecation, mortgage, or
otherwise) on the domestic assets of an
Indian party (or its group companies / sister
concerns / associate concerns including the
individual promoters / directors) in favour of
an overseas lender for securing the funded
and / or non-funded facility to be availed of by
the JV / WOS / SDS (irrespective of the level)
of the Indian party under the automatic route
10.05.2020 CA. Sunil Jain 47
Creation of charge foreign assets
for domestic borrrowing
⚫ AD bank may permit creation of charge (by
way of hypothecation, mortgage, or
otherwise) on the overseas assets (excluding
the shares) of the JV / WOS / SDS
(irrespective of the level) of an Indian party in
favour of a domestic lender for securing the
funded and / or non-funded facility to be
availed of by the Indian party or by its group
companies / sister concerns / associate
concerns or by any of its overseas JV / WOS
/ SDS (irrespective of the level) under the
10.05.2020 CA. Sunil Jain 48
Joint APR
⚫ Where 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
by furnishing an appropriate undertaking to
the AD bank.
10.05.2020 CA. Sunil Jain 49
Loan into equity
⚫ a loan may be converted into equity / CCPS
under the automatic route and reported to
RBI through the designated AD bank by way
of a letter. Conversion of loan into preference
shares (other than CCPS) need not be
reported to RBI.

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Deferred payment
⚫ Not permitted: acquisition of foreign shares
without payment or on deferred payment
basis.

10.05.2020 CA. Sunil Jain 51

Reverse investment
⚫ Law do not permit an IP to set up Indian
subsidiary(ies) through its foreign WOS or JV
nor do the provisions permit an IP to acquire
a WOS or invest in JV that already has
direct/indirect investment in India under the
automatic route.
⚫ Prior permission of RBI required.

10.05.2020 CA. Sunil Jain 52

 DIRECT INVESTMENTS IN JV/WOS ABROAD

Other Obligations of Indian Party:

⚫ Receive share certificates or instruments:

In case of partnership share can be issued in

name of partner
⚫ Repatriation of all dues from JV/WOS within
60 days
⚫ ESOP reporting by Indian party

10.05.2020 CA. Sunil Jain 53

 DISINVESTMENTS IN JV/WOS ABROAD

An Indian Party, without approval of RBI transfer by way of

sale to another Indian Party or to a person resident
outside India provided:
⚫ the sale does not result in any write off

⚫ If listed through stock exch.

⚫ if unlisted the share price is not less than the value

certified by a CA / CPA
⚫ the Indian Party does not have any outstanding dues
from the JV or WOS;
⚫ the overseas concern has been in operation for at least
one full year and APR filed.
10.05.2020 CA. Sunil Jain 54
 DISINVESTMENTS IN JV/WOS ABROAD

Without approval of RBI at less than the original amount

invested:
⚫ where the JV / WOS is listed in the overseas stock
exchange;
⚫ where the Indian Party is listed on a stock exchange in
India and has a net worth of not less than ₹ 100 crore;
⚫ In other cases where the investment (or financial
commitment) in the overseas venture does not exceed
USD 10 million.

10.05.2020 CA. Sunil Jain 55

ODI- specific industry
⚫ Oil sector
⚫ Submarine cable
⚫ Agriculture
⚫ Energy and natural resources
⚫ Financial services

10.05.2020 CA. Sunil Jain 56

For clarification
⚫ Any further clarifications in respect of cases not specifically or generally
covered by the instructions may be obtained from the concerned Authorized
Dealer(AD) bank. If, however AD bank fails to provide satisfactory reply, a
request may be made, giving full details of the case, to the Central Office of
the Reserve Bank by routing it through AD bank at the following address:
⚫ The Chief General Manager
Reserve Bank of India
Foreign Exchange Department
Overseas Investment Division
Central Office, Amar Building, 5th Floor
Mumbai 400 001.

10.05.2020 CA. Sunil Jain 57

Office/branch abroad
⚫ AD are empowered
⚫ Only for Normal business activities of Indian
entity. Trading or non-trading
⚫ Remittance:
⚫ Initial > of Avg. gross receipts of 2 years or
25% of NW
⚫ Subsequent 10% of Avg. gross receipt of last
2 years
⚫ No limit if made from EEFC /EOU/EPZ
10.05.2020 CA. Sunil Jain 58
BO/Office abroad
⚫ Hold open and maintain in the name of
Office/BO forex bank account
⚫ A/c to be closed if office not set-up within 6
months
⚫ And within one month of closure

10.05.2020 CA. Sunil Jain 59

BO/office abroad
⚫ Purchase of office equipment etc not capital
expenditure
⚫ Lease of premises up to 5 years allowed.
⚫ Indian Company allowed to acquire property
within the limit of remittance
⚫ No financial liability including contingent
liability to be created for HO

10.05.2020 CA. Sunil Jain 60

 BO/Office abroad
⚫ Surplus funds should be repatriated to
India and
⚫ can be invested outside with prior RBI
approval

10.05.2020 CA. Sunil Jain 61

Bank account abroad
⚫ Other cases:
i. Exporter of Services/ Project exports,
exporter of engineering goods on deferred
payment,
ii. Participant in exhibition/trade fair etc. –
funds to be repatriated within one month

10.05.2020 CA. Sunil Jain 62

 ODI-LRS
Regulation 20A of FEM (Transfer or issue of
foreign security)regulation.2004
Notification 263 of 05/03/2013
Read together with
Master Directions:
⚫ 7/2015-16 LRS
⚫ 8/2015-16 Other remittances
⚫ Master directions 15/15-16 dated 01/01/2016 Direct
Investment by Residents in Joint Venture (JV) /
Wholly Owned Subsidiary (WOS) Abroad
(Updated as on September 18, 2019)
10.05.2020 CA. Sunil Jain 63
⚫ “20A. Acquisition or Setting up of a JV or
WOS abroad by resident individual
⚫ A resident individual
⚫ (single or in association with another resident
individual or with an ‘Indian Party’)
⚫ equity shares and compulsorily convertible
preference shares of (JV) or (WOS)

10.05.2020 CA. Sunil Jain 64

 ODI by Individual residents

Limit as fixed under LRS

⚫ Liberalised scheme of remittance up to 2.5 Lac

USD per FY by individuals (only) including
minors( PAN Mandatory )

⚫ can be consolidated among family member

⚫ possible only if asset acquired in joint name.

10.05.2020 CA. Sunil Jain 65

 ODI by Individual residents
consolidation of limit

➢ In form of equity or compulsory

convertible preference shares

➢ Loan by investor permissible –NO

➢ Loan by such co. outside India-Yes

10.05.2020 CA. Sunil Jain 66

ODI by Individual residents
⚫ bona-fide business activity
⚫ operational entity.
⚫ Real estate, banking and Financial services
business are prohibited.
⚫ It cannot have any step down subsidiary

10.05.2020 CA. Sunil Jain 67

ODI UNDER LRS BY
INDIVIDUALS
⚫ "Real estate business" means buying and
selling of real estate or trading in
Transferable Development Rights (TDRs) but
does not include development of townships,
construction of residential/commercial
premises, roads or bridges;

10.05.2020 CA. Sunil Jain 68

disqualification
⚫ The resident individual shall not be on the
Reserve Bank's Exporters Caution List or List
of defaulters to the banking system or under
investigation by any
investigation/enforcement agency or
regulatory body.

10.05.2020 CA. Sunil Jain 69

Financial commitment Not
allowed
⚫ The financial commitment by a resident
individual to/on behalf of the JV or WOS,
other than the overseas direct investments as
defined under Regulation 2(e) read with
Regulation 20A of this Notification, is
prohibited.
⚫ Refer 2(f) Financial commitments

10.05.2020 CA. Sunil Jain 70

 Valuation

⚫ For the purposes of investment under this Regulation by

way of remittance from India in an existing company
outside India, the valuation of shares of the company
outside India shall be made -(i) where the investment is
more than USD 5 (five) million, by a Category I Merchant
Banker Registered with (SEBI), or an Investment
Banker/Merchant Banker outside India registered with the
appropriate regulatory authority in the hostcountry; and(ii)
in all other cases, by a Chartered Accountant or a
Certified Public Accountant.

10.05.2020 CA. Sunil Jain 71

Valuation
⚫ If it is new company- Not required
⚫ If only minor investment with no JV or WoS
status –valuation required IN MY OPINION
NO

10.05.2020 CA. Sunil Jain 72

Alterations post investment
⚫ Any alteration in shareholding pattern of the
JV or WOS may be reported to the
designated AD within 30days including
reporting in the Annual Performance Report
as required to be submitted in terms of
Regulation 15 of this Notification.

10.05.2020 CA. Sunil Jain 73

Disinvestment
⚫ Disinvest (partially or fully) by way of
transfer/sale or by way of liquidation/merger
of the JV or WOS.
⚫ Switch is not allowed : Should be
considered by RBI

10.05.2020 CA. Sunil Jain 74

disinvestment
⚫ Disinvestment allowed after one year from
the date of making first remittance for
setting up or acquiring the JV or WOS
abroad.

10.05.2020 CA. Sunil Jain 75

Disinvestment proceeds and
w/o
⚫ The disinvestment proceeds shall be
repatriated to India immediately and in any
case not later than 60 days from the date of
disinvestment and the same may be reported
to the designated AD.
⚫ Cannot be parked outside
⚫ No write off shall be allowed in case of
disinvestments by the resident individuals.
⚫ If write off Than??? RBI permission
10.05.2020 CA. Sunil Jain 76
Obligations
⚫ ODI needs to be submitted for such
investment
⚫ Any change in the shareholding pattern
should be intimated within 30 days.
⚫ APR is required to be filed by 31/12 self
attested and no need of CA attestation
⚫ Disinvestment to be reported within 30 days

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 Case study 1:

Case Study:
Resident individual acquiring shares under
LRS of a foreign company having
immovable property which is let out and
earning rental income
The property is under mortgage and loan is
served out of rental income.

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Case study 2
⚫ Indian individual investor intends to extend
guarantee/ mortgage property for loan to be
availed by Foreign company: No

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DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

General Permission for Resident Individuals:

• As gift from any person resident outside India
• Cashless ESOP scheme
• By inheritance from resident or NR
• ESOP offered by foreign company to employees
of its branch/subsidiary
• Qualification shares up to LRS limit
• In lieu of professional services

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DIRECT INVESTMENTS IN JV/WOS ABROAD
AUTOMATIC ROUTE

General Permission for Resident Individuals:

• Right shares against eligible holding
• Bonus shares against existing shareholding
• Out of Funds held in RFC account.

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 Liberalized Remittance Scheme(LRS)

⚫ The limit is subsumed with other permitted

current account transactions listed in
schedule III of rules
⚫ Transactions otherwise prohibited
under FEMA not available under the
scheme.
⚫ Banks not to extend credit facility for
remittance under this scheme.

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 Liberalized Remittance Scheme(LRS)

⚫ Liberalised scheme of remittance up to 2.5 Lac

USD per FY by individuals (only) including
minors( PAN Mandatory )
⚫ Eligible for current account/capital account
transactions
⚫ Immovable property, shares, donations, gifts and
other permissible transactions
⚫ Opening of bank account outside India
⚫ To Pak, Bhutan, Nepal not permitted

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Current account :
⚫ Private visits to any country (except Nepal and Bhutan).
⚫ Gift or donation.
⚫ Going abroad for employment.

⚫ Emigration. (excess only towards meeting incidental exp and not for
gaining eligibility points)
⚫ Maintenance of close relatives abroad.

⚫ 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 going abroad for medical
treatment/ check-up.
⚫ Studies abroad.

⚫ VISA fee, subscriptions admission fee, examination fee, assessment fee,

consultancy for migration etc
⚫ Provided that for the purposes mentioned at item numbers (iv), (vii) and
(viii), the individual may avail of exchange
10.05.2020 CA. Sunil Jain
facility for an amount in excess of84
the limit prescribed if it is so required by a country of emigration, medical
 Liberalized Remittance Scheme

➢ Permitted capital account transactions:

• -Bank A/c
• -Purchase of property
• -Investment in listed/unlisted shares
• -Debt Instruments, MF etc
• -WOS/JV
• -Loan to NRI relatives

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 Liberalized Remittance Scheme

➢ *Remittance can be consolidated among

family members for all current account
transactions

✓ *Consolidation for capital account

transaction possible only if asset acquired
in joint name.

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 Liberalized Remittance Scheme

Remittance procedure:
▪ > Identify designated AD
➢ > Application cum Declaration in
prescribed format cum Form A2 cum
LRS
➢ > PAN Card for remittance >25000 USD
➢ > KYC norms to be complied
➢ > AD to ensure compliance

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repatriation of income sale
proceeds etc
⚫ Income and sale proceeds of assets held
abroad through remittances under the
scheme need not be repatriated except in
case of ODI
⚫ Rent, dividend, interest, capital gain,
Exception to the general rule that all funds be
Repatriated

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Unspent forex / ICC IDC
⚫ Unspent foreign exchange can be used for
other permitted transactions
⚫ Up to USD 2000 can be retained
⚫ ICC can be used for expenses when on tour
abroad and the limit will not apply.
⚫ IDC and forex cards are subject to limit

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Liberalized Remittances Scheme
Loan to NRI relative
⚫ Interest free with minimum maturity of 1 year
⚫ Within the overall limit under LRS
⚫ Borrowers personal / business requirements
in India
⚫ Not to be utilized for prohibited purposes
⚫ Loan to be credited to NRO account
⚫ Cannot be remitted outside India
⚫ Repayment out of NRO / NRE / FCNR
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IMMOVABLE PROP. ABROAD BY RES.

FEM( Acquisition and Transfer of Imm. Prop.

outside India) regulation 2000
⚫ Residents can hold property acquired as
non-resident
⚫ Can acquire property out of RFC account

⚫ Out of liberalized 2.5 Lac USD scheme

⚫ Can inherit/receive as gift

⚫ Can resident borrow outside?

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 IMMOVABLE PROP. Cont..

⚫ Such property can be transferred by way of

gift to relative resident.
⚫ Resident but national of a foreign state
permitted to acquire/hold/transfer
⚫ Corporate having branches can acquire
within the monetary limits set for branch
expenses
⚫ Other acquisitions by RBI approval

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 IMMOVABLE PROP. Cont..

Case Study:
Resident individual acquiring shares under
LRS of a foreign company having
immovable property which is let out and
earning rental income
The property is under mortgage and loan is
served out of rental income.

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GENERAL
⚫ Rely on electronic books and journals
⚫ RBI website
⚫ ODI- Also look into the docs and compliances
required by foreign authorities/bank
⚫ Always generate UDIN

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 THANK YOU

10.05.2020 CA. Sunil Jain 95