Foreign Exchange Management

-
an overview of Current account
Transactions
Santha Paul
Asst. General Manager
Reserve Bank Of India, Chennai

1
 What is new in FEMA regime ?

 Preamble itself is changed

 All current account transactions are free
 Capital account transactions are deregulated
 Definition of NRI changed from purpose to
residence
 From Criminal law to Civil Law
 Less punishment – No Imprisonment
 Compounding powers to RBI
 Less stringent & more business friendly

2
 Forex Management– Shift in focus
 1991-Downward correction of exchange rate
( Devaluation)
 1992- LERMS (Liberalised Exchange Rate
Management System)
 1993- Modified LERMS
 1994 – Current Account Convertibility - declared
 1997 – Capital Account Convertibility – debate started

 2000 – FEMA 1999 replaced FERA 1973 w.e.f.1.6.2000

IMF loans repaid
 2003 - Money Laundering Act, 1999 passed
- IMF designates India as Creditor under its
Financial Transaction Plan (FTP)
 2004 – Reserves exceed external debt
 2006 – Capital Account Convertibility– further steps
3
 Foreign Exchange Market in
India
Tier-I

Regulator: Reserve Bank of India

Regulation: Foreign Exchange Management Act, 1999

Tier - II

Authorised Dealers, Money changers

Tier-III
Buyers and sellers: exporters, importers, individuals,
Corporates, FIIs, Non-Residents, NRIs etc. 4
 Forex Activities in India –
Facilitators
 Ministry of Finance
 Ministry of Commerce , DGFT
 Directorate of Enforcement
 Customs
 Export Promotion Councils – FIEO
 Export Inspection Units
 Authorised Persons
 FEDAI
 EXIM Bank
 ECGC
 RBI
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 FOREIGN EXCHANGE TRANSACTIONS

Current Account Capital Account

FDI Portfolio Loan

Trade Invisibles
Tour (Govt/
Travel Pvt(ECB)
Remittance
Imports Gift Foreign Indian
Exports Profit/Div/int Source Source
Fcy A
(FII) (GDR/ADR) 6 RI &
 Forex – the Concept ( contd. ) –
Current & Capital Account
 Current account transaction – All transactions
undertaken by a resident that do not alter his assets or
liabilities outside India are current account transactions.
 affects cash position of an entity – Trade-related
remittances & miscellaneous remittances fully
convertible - fully delegated to ADs
 Capital account transaction – affects asset &
liability position of an entity - borrowing, lending
& investment – FDI , FII, ECBs , NRI deposits ,
Overseas Investments – expanding convertibility

7
 General
In terms of the Rules -Foreign Exchange
Management (Current Account Transactions)
Rules, 2000 (Annex I)- drawal of exchange for
certain categories of transactions as listed in
 Schedule I - expressly prohibited
 Schedule II - permitted by the ADs if approval
from the Ministry/Dept of GoI is secured
 Schedule III- prior approval of the RBI required
for remittance exceeding limits.

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 Schedule I
 Remittance out of lottery winnings
 Remittance of income from racing/riding or any
other hobby etc
 Remittance for purchase of lottery tickets,
banned/ proscribed magazines, football pools,
sweepstakes etc
 Payment of commission on exports made towards
investment in JV / WOS abroad of Indian
companies.
 Payment related to callback services of
telephones

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 Schedule I (contd…)
 Remittance of dividend by any company where
dividend balancing is applicable
 Remittance of interest income on funds held in
Non – Resident Special Rupee ( Account )
Scheme.
 Payment of commission on exports under Rupee
state credit Route, except commission upto 10%
of invoice value of exports of tea and tobaco.

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 Schedule II
 Remittances which need prior approval from the
dealing ministry / department of GoI and
permitted up to the amounts as mentioned in the
approval letter –
Cultural tours , Advertisement in foreign print
media , Freight of vessel charted by a PSU ,
Payment for import by a Govt, dept. or PSU on
c.i.f. basis, Multi modal transport operators
making remittance to their agents abroad ,
hiring of transponders by TV channels , ISPs ,
Remittances under technical collaboration
agreements etc.

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 Schedule III
 Transactions needing RBI approval for
amounts exceeding delegated powers of
ADs
 – travel , gift , donation , employment ,
emigration , maintenance , medical
expenses exceeding the estimates , higher
studies exceeding the estimates,
commission to agents for sale of flats etc.
in India , consultancy fees , pre-
incorporation expenses.
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 Limits upto which ADs can release
foreign Exchange
Sl no
Transaction Limit in US $

1 Private visit USD 10,000 per financial year

2 Business travel, USD 25,000 per trip

Conference,
Training

3 Medical USD 100,000 or its equivalent on self declaration

treatment basis

4 Higher studies USD1,00,000 per academic year

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 Limits upto which ADs can release
foreign Exchange
Sl. Transaction Limit
no.

5
Employment Upto USD 1,00,000

6
Emigration Upto USD 1,00,000

7
Gift/donation USD 5,000 per remitter/donor per annum.

8 Maintenance of close USD 1,00,000 per recipient

relatives abroad –

9 Cultural as sanctioned by GoI

10 LRS USD 2,00,000 per financial year 14

 Liberalised Remittance Scheme of
USD 200000
 Facility extended to all resident individuals
 freely remit upto USD 200,000 per financial year
for any permissible current or capital account
transaction or a combination of both.
 Not available for purposes specifically prohibited
(Sch I) or GOI (Sch II) of FEMA(Current Account
Transactions) Rules, 2000.
 free to acquire and hold immovable property,
shares or any other asset outside India without
prior approval of RBI using the scheme.

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 Liberalised Remittance Scheme of
USD 200000

 Free to open, hold and maintain foreign currency

accounts with a bank outside India for
remittances under the scheme without the prior
approval of RBI.
 Remittance cannot be made directly or indirectly
to Bhutan, Nepal, Mauritius or Pakistan.
 Not available for making remittances directly or
indirectly to countries identified by the Financial
Action Task Force (FATF) as ‘non-co-operative
Countries or Territories, from time to time
(website site www.fatf-gafi.org).

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 Release of Foreign Currency-restrictions

 No release of foreign exchange for any

kind of travel to Nepal and Bhutan or for
any transaction with persons resident in
Nepal and Bhutan.
 Travellers allowed to purchase/carry
foreign currency notes/coins only up to
USD 2000.
 Balance amount in the form of traveller’s
cheque or banker’s draft.

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 Release of foreign Currency-
Restrictions
 Exceptions to this are

• (a) travellers proceeding to Iraq and

Libya - not exceeding USD 5000 or its
equivalent;

• (b) travellers proceeding to the Islamic

Republic of Iran, Russian Federation and
other Republics of Commonwealth of
Independent States - entire foreign
exchange released in the form of foreign
currency notes or coins.
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 Resident Going Abroad-
Indian Currency
 Residents are free to take outside India (other
than to Nepal and Bhutan) currency notes of GOI
and RBI notes up to not exceeding Rs. 5,000/ -
per person.

 They may take or send outside India (other than

to Nepal and Bhutan) commemorative coins not
exceeding two coins each.

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 Utilisation of forex
 The foreign exchange acquired has to be used
within 180 days of purchase.
 If not possible, to be surrendered to an AD
within 180 days.
 Can retain upto USD 2000 in currency
notes/travellers cheque.
 Foreign Exchange purchased for a specific
purpose is not utilized for that purpose, it could
be utilized for any other eligible purpose
permitted under the relevant regulation.

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 Residents coming to India from
abroad-

regarding Indian Currency - can bring in with him
(a) up to Rs. 5,000 from any country other than Nepal or
Bhutan, and
(b) any amount in denomination not exceeding Rs.100 from
Nepal or Bhutan.
 Foreign Exchange- can bring without any limit.
1. If the aggregate value of the foreign exchange in the
form of currency notes, bank notes or TCs brought in
exceeds USD 10,000/- or its equivalent and/or
2. the value of foreign currency exceeds USD 5,000/- or its
equivalent,
3. To be declared to the Customs Authorities at the Airport
in the Currency Declaration Form (CDF), on arrival in
India.
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 FACILITIES FOR
NON-RESIDENT INDIANS(NRI)/
PERSON OF INDIAN ORIGIN(PIO)
 Definition
Non-Resident Indian (NRI):
is a person  resident outside India who is a citizen of
India or is a person of Indian origin .
(defined in Regulation 2 of FEMA Notification No.5 dated May 3, 2000)
Person of Indian Origin (PIO) :
(defined in Regulation 2 of FEMA)
is a citizen of any country other than Bangladesh or
Pakistan, if
(a) he at any time held Indian passport; or
(b) he or either of his parents or any of his grand-
parents was a citizen of India by virtue of the
Constitution of India or the Citizenship Act, 1955
or
(c) the person is a spouse of an Indian citizen or a
person referred to in sub-clause (a) or (b) above.
 Relevant Circulars

 Master Circular No.4 on Remittance Facilities

for Non-Resident Indians / Persons of Indian
Origin / Foreign Nationals dated July 01,
2009
 Notification FEMA 13/2000-RB dated
03/05/2000
 Notification FEMA 21/2000-RB dated
03/05/2000
 Accounts and Deposits-NRI
 Non-Resident (External) Rupee (NRE)
Accounts

 Foreign Currency (Non-Resident)

Account (Banks) Scheme (FCNR(B)
Account

 NRO Accounts
 NRO/NRE/FCNR accounts can be maintained
with ADs.
 Also certain co-operative banks and RRBs
have been authorised.
 Non Resident Accounts

• NRE /NRO A/c.- Indian Rupee

type: Savings, Current & Recurring, Fixed deposits

 FCNR (B) A/c. – Foreign currency

• In designated currencies-
 USD, Pound Sterling, Euro, JY, AD, CD

Type: Only Term Deposit

 Restriction
• Individuals / entities of Bangladesh /
Pakistan nationality / ownership require
prior approval of RBI.
 Non Resident Accounts

 NRO A/c:-
• Any person resident outside India other than
those resident in Nepal/Bhutan can open an
NRO a/c. with an AD for the purpose of putting
through bonafide transcations in Rupees.

• POA cannot open any a/c. on behalf of the

Non-resident.

• Individuals / entities of Bangladesh / Pakistan

nationality / ownership require prior approval
of RBI.
 Remittance Facilities for NRI/PIO
Remittance of current Income
 Remittance of Rent, Dividend, Pension, Interest etc.
of NRI/PIO (even those who do not maintain an NRO
account) is freely allowed on the basis of

• appropriate certification by a CA that the amount

proposed to be remitted is eligible for remittance
• and that applicable taxes have been paid/provided for.

 NRI/PIO have the option to credit the current income

to their NRE (rupee) account provided

• the AD is satisfied that the credit represents current

income of the Non resident account holder and income
tax thereon has been deducted / provided for.
 Remittance of assets by NRI/PIO

 remit an amount upto USD 1 million per

financial year, out of the balances held in his
NRO account/sale proceeds of assets (inclusive of
assets acquired by way of inheritance or
settlement) for all bona fide purposes, to the
satisfaction of the AD bank,
• on production of an undertaking by the
remitter
• certificate by CA in the formats prescribed by
CBDT vide circular No.10/2002 dated October
09, 2002.
 Remittance of assets by NRI/PIO

 remit sale proceeds immovable

property purchased by him out of
Rupee funds ( as a person in India)
without any lock in period subject to-
 submit documentary evidence in support of
inheritance or legacy of assets
 An undertaking by the remitter
 Certificate by CA in the prescribed format
 Restriction on Remittance Facility

 The remittance facility in respect of sale proceeds

of immovable property is not available to citizens
of -
• Pakistan, Bangladesh, Sri Lanka, China,
Afghanistan, Iran, Nepal and Bhutan
 The facility of remittance of sale proceeds of
other financial assets is not available to citizens
of
• Pakistan, Bangladesh, Nepal and Bhutan
Exports

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 References..

 Foreign Trade Policy 2005 - 2009

 Section 7 of FEMA, 1999
 Notification No. FEMA 23/2000-RB dated
3.5.2000, as amended from time to time.
 Master Circular No.9/2009-10 dated 1.07.2009
read with AP(DIR Series) Circulars issued
thereafter.
 GSR 381(E) dated May 3, 2000

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 Exemptions from Declaration under Regulation 4
of FEMA 23
 13 items exempted under regulation 4 of FEMA 23.
a few are as under;

A few such cases are as under;

 Trade samples of goods and publicity material supplied
free of payment

 Personal effects of travellers , whether accompanied or

unaccompanied;

 Goods or software accompanied by a declaration by the

exporter that they are not more than USD 25000 in value

 By way of gift of goods accompanied by a declaration by

the exporter that they are not more than five lakh rupees
in value etc

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 GR Approval for Trade Fair/Exhibitions abroad
 Firms / Companies and other organisations take/export
goods for exhibition outside India without the prior approval
of the Reserve Bank of India.

 Unsold exhibit items may be sold outside the exhibition/trade

fair in the same country or in a third country.

 Such sales at discounted value are also permissible.

 It would also be permissible to `gift' unsold goods up to the

value of USD 5000 per exporter, per exhibition/trade fair.

 AD Banks may approve GR Form of export items for display

or display-cum-sale in trade fairs/exhibitions outside India
subject to conditions

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 GR approval for Export of Goods
for re-imports
 AD banks may consider request from exporters for granting
GR approval in cases where goods are being exported for
re-import after repairs / maintenance / testing / calibration
etc. subject to the condition that the exporter shall;

• produce relative Bill of Entry within one month of re-

import of the exported item from India.
• Where the goods being exported for testing are
destroyed during testing, AD banks may obtain a
certificate issued by the testing agency that the goods
have been destroyed during testing, in lieu of Bill of
Entry for import.
• Ap dir 21 dated Jan 10, 2006

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 Direct dispatch of documents by the
exporter
 AD Banks should normally dispatch shipping documents to
their overseas branches/correspondents expeditiously.
 However, they may dispatch shipping documents direct to
the consignees where:
 Advance payment or an irrevocable letter of credit

 The exporter is a regular customer and the AD Banks

is satisfied, on the basis of standing and track record

of the exporter
 Status Holder Exporters' and SEZ units may be
permitted to dispatch the export documents to
the consignees outside India subject to the terms
and conditions that:
 The export proceeds are repatriated through the AD Banks
named in the GR Form.
 The duplicate copy of the GR form is
submitted to the AD Banks for monitoring purposes, by the
exporters within 21 days from the date of export.

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 Period of realisation
 the prescribed period of realization and
repatriation of export proceeds has been
increased from six months to twelve months
from the date of export, subject to review after
one year.
 The provisions in respect of Special Economic
Zone (SEZ) and exports made to warehouses
established outside India (with the permission of
Reserve Bank) remain unchanged.

• AP DIR 50 dated June 3, 2008

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 Reduction in Value
ADs can allow reduction in value subject to the following
conditions:

a. The reduction does not exceed 25 per cent of invoice

value:
b. It does not relate to export of commodities subject to
floor price stipulations
c. The exporter is not on the exporters’ caution list of
Reserve Bank, and
d. The exporter is advised to surrender proportionate export
incentives availed of, if any.
e. In the case of exporters who have been in the export
business for more than three years, no such ceiling
subject to the above conditions as also subject to their
track record being satisfactory, i.e., the export outstandings do
not exceed 5 per cent of the average annual export realisation during
the preceding three financial years.

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 Extension of time and Self write off
by the exporters
 all exporters have been allowed to self write off (including
reduction in invoice value) outstanding export dues and
extend the period of realisation, provided;

 The aggregate value of such export bills, written-off and

extended, does not exceed 10 per cent of the export
proceeds due during the financial year and

 such export bills are not a subject of investigation by

Enforcement Directorate / Central Bureau of Investigation
or any other Investigating Agencies.

 Exporters dealing with more than one AD Banks can avail

of this facility through each AD bank

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 Extension of Time by AD Bank

 Reserve Bank of India has permitted the AD

Banks to extend the period of realisation of
export proceeds beyond the prescribed period
from the date of export, up to a period of six
months, at a time, irrespective of the invoice
value of the export subject to conditions.

 While considering extension beyond one year

from the date of export, the total outstanding of
the exporter does not exceed USD one million or
10 per cent of the average export realisations
during the preceding three financial years,
whichever is higher

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 Write off by AD Banks
 AD Banks may accede to requests for write off
subject to the under noted conditions:
• The relevant amount has remained
outstanding for one year or more;
• The aggregate amount of write off allowed by
the AD does not exceed 10 per cent of the
total export proceeds realised by the
concerned exporter during the previous
financial year;
• Satisfactory documentary evidence is
furnished in support of the exporter having
made all efforts to realise the dues; etc

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 Imports
 Section 5 of FEMA 1999
 Master Circular No.8/2009-10 dated
1.07.2009 read with AP(DIR Series)
Circulars issued thereafter.
 GOI Notification No.381 (E) of May 3,
2000
 follow KYC guidelines (issued by DBOD)

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Time Limit for Settlement of Import Payments

 remittances against imports should be

completed not later than six months from
the date of shipment except in cases
where amounts are withheld towards
guarantee of performance etc.

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Time Limit for Settlement of Import Payments…

 Authorised Dealers may permit settlement

of import dues delayed due to disputes,
financial difficulties etc.

 Interest in respect of such delayed

payments may be permitted in terms of
the directions/guidelines on trade credit.

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 Advance Remittance

 If the amount of advance remittance

exceeds USD 100,000 or its equivalent

 an unconditional, irrevocable standby

Letter of Credit or a guarantee from an
international bank of repute situated
outside India

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 Advance Remittance…
 the importer
 unable to obtain bank guarantee from overseas
suppliers and the Authorised Dealer
 is satisfied about the track record
 and bonafides of the importer

 the requirement of the bank guarantee/ standby

Letter of Credit may not be insisted upon for
advance remittances upto USD 5,000,000


 Authorised Dealers may frame their own internal

guidelines to as per a suitable policy framed
by the bank's Board of Directors.
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 Non Physical Imports

 Where imports are made in non-physical

form,
• i.e., software or data through internet /
datacom channels and drawings and designs
through e-mail/fax,
• a certificate from a Chartered Accountant that
the software / data / drawing/ design has been
received by the importer, may be obtained.

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 Receipt of import documents by the importer
directly from overseas suppliers
 Import bills and documents should be received from the banker of
the supplier by the banker of the importer in India. AD bank
should not, therefore, make remittances where import bills have
been received directly by the importers from the overseas
supplier, except in the following cases:
i. Where the value of import bill does not exceed USD 300,000.
 ii. Import bills received by wholly-owned Indian subsidiaries of
foreign companies from their principals.
 iii. Import bills received by Status Holder Exporters as defined in
the Foreign Trade Policy, 100% Export Oriented Units / Units in
Free Trade Zones, Public Sector Undertakings and Limited
Companies.
 iv. Import bills received by all limited companies viz. public
limited, deemed public limited and private limited companies.

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Thank you
Santha Paul
RBI, Chennai