1 / 36

OVERVIEW OF FEMA

OVERVIEW OF FEMA. CVO CA ASSN on 11 th June 2010. P REAMBLE TO FEMA. Post liberalization (i.e. New Industrial policy of 1991) there was need to remove shackles of regulatory and legal provisions There was need to take various steps to make ‘New Industrial Policy’- workable and meaningful.

kristine-eris
Download Presentation

OVERVIEW OF FEMA

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. OVERVIEW OF FEMA CVO CA ASSN on 11th June 2010

  2. PREAMBLE TO FEMA • Post liberalization (i.e. New Industrial policy of 1991) there was need to remove shackles of regulatory and legal provisions • There was need to take various steps to make ‘New Industrial Policy’- workable and meaningful. • Industrial licensing was made pragmatic and objective-oriented and • It was decided to review provisions of FERA • Intention was to bring provisions of FERA so as make it fall in line with emerging trends of liberalization so as to remove obstacles in the inward flow of foreign exchange and foreign investment

  3. STRUCTURE OF FEMA • FEMA has 49 sections of which 9 (section 1 to 12) are substantive and the rest are procedural/ administrative • Section 46 of the Act grants power to Central Government to makes rules • Section 47 of the Act grants power to RBI to make regulations to implements its provisions and the rules made there under • Thus RBI is entrusted with the administration and implementation of FEMA

  4. SUBSTANTIVE PROVISION • Section 1 – application and commencement of the Act • Section 2 – important definitions e.g. Authorized person, person, person resident in India etc • Section 3 – Power to RBI for giving general or special permission in respect of transactions involving foreign exchange or any receipt or payments between resident and non- resident • Section 4 – Prohibits a person resident in India to acquire, hold, own, possess or transfer any foreign exchange, foreign security or immovable property situated outsideIndia except as provided in the Act

  5. SUBSTANTIVE PROVISION • Section 5 - Permits any person to sell or buy foreign exchange to or from an authorized person on account of any current account transaction • Section 6 – Selling or drawing foreign exchange to or from an authorized dealer for capital account transactions • Section 7 – Exporter of goods and services shall furnish declaration to RBI or to any other authority • Section 8 – Realization and repatriation of foreign exchange • Section 9 – Exemption from realization and repatriation of foreign exchange in certain cases • Sec 10(5)- A.P. to require person to make such declaration and to give such information to check that transaction will not involve any contravention of FEMA including directions under FEMA

  6. SOME OF THE IMPORTANT DEFINITIONS UNDER FEMA • Authorised Person • Capital Account Transactions • Current Account Transactions • Export • Person • Person Resident in India • Person resident outside India • Security • Transfer

  7. ANALYSIS OF SEC 3 OF FEMA • Sec 3- Dealings in Foreign Exchange: • Save as otherwise provided in the Act- No person shall • Deal in or transfer any foreign exchange or foreign security to any person not being an authorised person • Analysis of Sec 3(a): • Deal in is a wide term and should include- purchase, acquire, borrow, sell or otherwise transfer or lend or to exchange with (FERA’s corresponding Sec 8(1) had expansive meaning which specifically all these types of transactions)

  8. ANALYSIS OF SEC 3 OF FEMA • 3(b)-no person shall- • Make any payment to, or for the credit of • Any person resident outside India (NR) in any manner • Intention is to prohibit direct and indirect payment to NR

  9. ANALYSIS OF SEC 3 OF FEMA • 3(c) • Receive otherwise through an A.D. any payment by order or on behalf of any NR in any manner • Expln to above- where a resident receives any payment without corresponding inward remittance than such payment would be regarded as having been received otherwise than through authorised person • 3(d) • enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person

  10. DIFFERENCE IN IMPLEMENTATION OF ITACT & FEMA • Under Income Tax, issue is of taxability of income which is determined for the full year, therefore generally amendments are annual • Whereas FEMA regulations are for undertaking transaction (generally between Resident & Non Resident) itself & therefore clarity at the time of undertaking transaction is a must • Therefore amendments keep pace with changes taking place in economy

  11. CURRENT & CAPITAL ACCOUNT TRANSACTION • Capital A/c transactions means a transaction which alters assets or liabilities including contingent liabilities outside India of person resident in India and vice-versa. It’s a economic definition rather than accounting or legal definition • Current A/c transaction - transaction other than a capital a/c transaction • Current A/c transactions are freely permitted unless prohibited, they are regulated by Central Government • Capital A/c transactions are prohibited unless generally permitted, they are regulated by RBI

  12. CURRENT & CAPITAL ACCOUNT TRANSACTION • FEMA looks transaction from Balance of payment position of Country • For Example • Import of machinery on payment of cash, from FEMA perspective it is current a/c transaction • Machinery is purchased on hire, from FEMA perspective it is capital a/c transaction, there is an obligated to make future payment to the non-resident • Consideration for goods & Services – Current A/c • Transaction represents a creation or acquisition of wealth shares, loans or immovable properties – Capital A/c

  13. CAPITAL ACCOUNTTRANSACTION • Section 6(3) of FEMA, prescribes the class of capital a/c transactions which are regulated • Every transaction in this section has a corresponding notification which regulates that particular transaction • Transactions not included in section 6(3) can be regulated by the RBI in consultation with the Central Government, as per section 6(2)

  14. CERTAIN OTHER VERY IMPORTANT SECTIONS • Section 6(4) – a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India • Section 6(5) – a person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India

  15. NOTIFICATION UNDER FEMA • RBI had initially issued 25 notifications, covering capital account transaction prescribed in Sec 6(3) & certain miscellaneous provisions • 15 related to capital account transactions, 1 on Export of goods and services and 9 for other regulations • The number as on date stands at 200 notifications • The same term may be defined differently in different notifications E.g. Person of Indian Origin (PIO) is defined differently in 3 notifications namely: • FEMA 13/2000-RB pertaining to remittance of assets • FEMA 21/2000-RB pertaining to the acquisition and transfer of immovable property in India • FEMA 24/2000-RB pertaining to investment in a firm or proprietary concern in India

  16. DEFINITION OF PIO Definition under FEMA 13/2000 (Remittance of Assets):- ‘Person of Indian Origin (PIO)’ means a citizen of any country other than Bangladesh or Pakistan if • He at anytime held Indian passport; or • 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 (57 of 1955); or • The person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b);

  17. DEFINITION OF PIO Definition under FEMA 21/2000 (Acquisition and transfer of immovable property in India):- ‘Person of Indian Origin (PIO)’ means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who • At any time, held India passport; or • who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955)." (Recently included vide Notification No.200 dated October 5, 2009)

  18. DEFINITION OF PIO Definition under FEMA 24/2000 (Investment in Firm or proprietary concern in India):- ‘Person of Indian Origin (PIO)’ means a citizen of any country other than Bangladesh or Pakistan or Sri Lanka, if • He at any time held India passport; or • He or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or • The person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b);

  19. NOTIFICATIONS UNDER FEMA.. (CONTD..) Notification FEMA 1/2000-RB dated 3-5-2000: • This notification relates to permissible capital account transaction • Capital account transactions of a person may be classified under the following heads, namely- • Transaction, specified in Schedule I, of a person resident in India • Transactions, specified in Schedule II, of a person resident outside India Subject to the provisions of the Act or the rules or the regulations or directions or orders made or issued there under, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction specified in the Schedules

  20. CONTINUED.. Schedule I: Classes of capital account transactions of persons resident in India • Investment by a person resident in India in foreign securities • Foreign currency loans raised in India and abroad by a person resident in India • Transfer of immovable property outside India by a person resident in India • Guarantees issued by a person resident in India in favour of a person resident outside India • Export, import and holding of currency/currency notes • Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India

  21. CONTINUED.. • Maintenance of foreign currency accounts in India and outside India by a person resident in India • Taking out of insurance policy by a person resident in India from an insurance company outside India. • Loans and overdrafts by a person resident in India to a person resident outside India. • Remittance outside India of capital assets of a person resident in India. • Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad by a person resident in India. With effect from September 26, 2007, a resident individual may draw foreign exchange up to USD 2,00,000 per financial year, for a capital account transaction specified in this Schedule I (Proviso to Reg. 4 (a)).

  22. CONTINUED.. If the drawal of foreign exchange by the resident individual exceeds USD 2,00,000 per financial year, then the limits specified in the particular regulations which are relevant to that particular transaction, shall apply to such drawal. (Proviso to Reg. 4(a)) Note: No part of the foreign exchange drawn as per this proviso shall be remitted to countries notified as non-cooperative countries and territories by Financial Action Task Force (FATF). Schedule II: Classes of capital account transactions of persons resident outside India. a) Investment in India by a person resident outside India, that is to say, • Issue of security by a body corporate or an entity in India and investment therein by a person resident outside India; &

  23. CONTINUED.. • Investment by way of contribution by a person resident outside India to the capital of a firm or a proprietorship concern or an association of persons in India. • Acquisition and transfer of immovable property in India by a person resident outside India. • Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India. • Import and export of currency/currency notes into/from India by a person resident outside India. • Deposits between a person resident in India and a person resident outside India. • Foreign currency accounts in India of a person resident outside India. • Remittance outside India of capital assets in India of a person resident outside India.

  24. PROHIBITED CAPITAL ACCOUNT TRANSACTIONS No person resident outside India shall make investment in India, in any form, in any Company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage- • In the business of chit fund, or • As Nidhi Company, or • In agricultural or plantation activities, or • In real estate business*, or construction of farm houses, or • In trading in Transferable Development Rights (TDRs) * For the purpose of this regulation ‘real estate business’ shall not include development of townships, construction of residential/commercial premises, roads or bridges

  25. CURRENT ACCOUNT TRANSACTIONS • Current A/c transaction is a transaction other than a capital a/c transaction • As per Foreign Exchange Management (Current Account Transactions) Rules, 2000, current account transactions are divided into 3 schedules:- Schedule I – Transactions contained in this schedule are prohibited Schedule II – Transactions contained in this schedule require prior approval of Government of India Schedule III – Transactions contained in this schedule require prior approval of the Reserve Bank

  26. CONTINUED.. Some examples are: Schedule I : • Remittance out of lottery winnings • Remittance of income from racing/riding etc., or any other hobby • Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc Schedule II: • Cultural tours • Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping

  27. CONTINUED.. Schedule III: • Gift remittance exceeding US$ 5,000 per remitter/donor per annum • Donation exceeding US$ 10,000 per remitter/ donor per annum • Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital or hospital/doctor abroad. Note: Drawal of foreign exchange by resident individuals towards remittance of gift or donations as per this Schedule III shall be within the limit specified under the proviso of Reg. 4 (i.e. USD 2,00,000)

  28. RESIDENTIAL STATUS UNDER FEMA • Under FEMA residential status is of two types: • Person resident in India and • Person resident outside India • FEMA’s predecessor Foreign Exchange Regulation Act (FERA) considered citizenship as the deciding factor • FEMA lays emphasis on ‘residing’ which denotes permanency

  29. DEFINITION • Section 2(v) of FEMA defines ‘person resident in India’ as follows Person resident in India means: (i) A person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include -- (A) a person who has gone out of India or who stays outside India in either case – (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

  30. DEFINITION (B) a person who has come to or stays in India, in either case, otherwise than – (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India • Section 2(w) defines ‘person resident outside India’ means a person who is not resident in India

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

  32. EXPLANATIONS OF DEFINITION • RBI may ignore the arithmetic condition (i.e. of 182 days) and treat the person who comes to or stays in India for any of the three purposes set out in section 2(v)(i)(B) as ‘person resident in India’ even though he may not have resided in India for a period of 182 days or more during the preceding financial year. However legal tenability of such a view cannot be said to be free from doubt. • RBI has a very narrow approach towards non resident acquiring immovable property in India. It gives a weighted significance to the arithmetic condition of staying in India for more than 182 days during the preceding financial year. (FAQs on Immovable Property Acquisition)

  33. FAQ ON IMMOVABLE PROPERTY • Q.37. What is meant by a person resident in India? • Under FEMA, a person resident in India is defined as a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period. In other words, to be treated as `a person resident in India' under FEMA, a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose / intention of stay • Q.39. who can determine whether a person is resident in India or not? • Reserve Bank does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his / her residential status, if questioned by any authority

  34. THANK YOU FIRST DESERVE AND THEN DESIRE

More Related