Foreign Exchange Management - an overview of Current account Transactions

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

2. 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

3. 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

4. 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.

5. 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

6. FOREIGN EXCHANGE TRANSACTIONS Capital Account Current Account FDI Portfolio Loan Invisibles Trade (Govt/ Pvt(ECB) Tour Travel Remittance Gift Profit/Div/int Foreign Indian Source Source Imports Exports Fcy A/C RI & NRI (FII) (GDR/ADR)

7. 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

8. 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.

9. 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

10. 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.

11. 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.

12. 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.

13. Limits upto which ADs can release foreign Exchange

14. Limits upto which ADs can release foreign Exchange

15. 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 RBIusing the scheme.

16. 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).

17. 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’scheque or banker’s draft.

18. 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.

19. 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.

20. 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.

21. Residents coming to India from abroad- • regarding Indian Currency - can bring in with him • up to Rs. 5,000 from any country other than Nepal or Bhutan, and • any amount in denomination not exceeding Rs.100 from Nepal or Bhutan. • Foreign Exchange- can bring without any limit. • 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 • the value of foreign currency exceeds USD 5,000/- or its equivalent, • To be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

22. FACILITIES FOR NON-RESIDENT INDIANS(NRI)/ PERSON OF INDIAN ORIGIN(PIO)

23. 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.

24. 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

25. 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.

26. 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.

27. 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.

28. Remittance Facilities for NRI/PIORemittance 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.

29. 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.

30. 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

31. 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

32. Exports

33. 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

34. 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

35. 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

36. GR approval for Export of Goodsfor 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

37. Direct dispatch of documents by theexporter • 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.

38. 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

39. Reduction in Value ADs can allow reduction in value subject to the following conditions: • 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 • The exporter is advised to surrender proportionate export incentives availed of, if any. • 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.

40. Extension of time and Self write offby 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

41. 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

42. 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

43. 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)

44. 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.

45. 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.

46. 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

47. 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 uptoUSD 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.

48. 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.

49. 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.

50. Thank you Santha Paul RBI, Chennai