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RBI / FEMA Compliances

RBI / FEMA Compliances

Foreign Exchange Management Act, 1999 (FEMA) was introduced as a replacement for the earlier Foreign Exchange Regulation Act (‘FERA’). The main objective behind introducing FEMA Compliance was to consolidate and amend the law relating to foreign exchange to facilitate external trade and payments and for promoting the well-ordered growth and management of the foreign exchange market in India. An outstanding chance that FEMA Compliance lead to in India was that it made all the crimes regarding foreign exchange civil mal-practices as opposed to criminal as dictated by FEMA/RBI Compliance.

FEMA Compliance is significant & pertinent all over India & also applicable to all the abroad branches, offices & agencies owned & maintained by an Indian resident. Generally, FEMA Compliance applies to the following transactions:

  1. Transfer or publish of any foreign security by an Indian Resident
  2. Transfer or publish of any security by a person living abroad
  3. Transfer or publish any security or foreign security by any branch or any agency in India of an abroad resident. 
  4. Any borrowing or loan in foreign exchange
  5. Any borrowing or lending in rupees between a person resident in India and a person resident outside India.
  6. Deposits between an Indian resident and a person living abroad
  7. Holding of currency or currency notes or its export or import.
  8. Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India.
  9. Purchase or transfer of immovable property in India, apart from a lease not more than five years by a person not living in India.

The foreign transactions under FEMA Compliance are categorized into two categories –

  1. Capital account transactions: The capital Account consists of all capital transactions.
  2. Current account transactions. The current account comprises the trade of goods or services. Current Account transactions are those transactions that involve inflow and outflow of money to and from the country/countries during a year, due to the trading/rendering of commodity, service, and income. In addition to the above, some transactions are specifically prohibited by FEMA Compliance. 

How ASC Helps in FEMA & RBI Compliance

FEMA prescribes certain compliances in the form of reporting by any person who undertakes transactions prescribed under FEMA Compliance. Such compliances include foreign liabilities and assets return (FLA Return), annual performance report, Form FC_GPR, etc. 

Our team of professionals stays constantly abreast with the regulatory environment in India and assists our clients in making compliances under FEMA promptly. Our key services offerings include the following:

  • Advisory about the establishment of a foreign company’s presence in India in the form of the liaison office, project office or branch office, etc. and preparing an application in the prescribed format to the Reserve Bank of India (‘RBI’) and regular follow-up with the RBI for obtaining the approval.
  • Advisory about the documents to be maintained and RBI Compliance to be made by foreign companies having a presence in India.
  • Assistance concerning timely reporting to RBI of the transactions in the nature of sale/purchase of securities, issuance of shares to non-residents, making remittances outside India, etc.
  • Advisory in relation to Indian companies establishing their presence outside India and compliances to be made.
  • Representation before the RBI Compliance for compounding of offenses committed under FEMA Compliance.

Frequently Asked Questions

Q
Who is the regulatory authority for FEMA compliances?
A

The RBI is the primary authority for FEMA compliances. However, depending upon the transactions, the person undertaking transactions should also ensure compliance with income tax law, indirect tax laws, companies act as well as SEBI laws.

Q
What are the reporting requirements under FEMA?
A

Following are the major reporting requirements under FEMA:

  • Form FC-GPR: Applicable when a company is in receipt of foreign investment against allotment of shares.
  • Form FC-TRS: Applicable in case of share transfer undertaken by shareholders resident outside India.
  • ECB: Applicable for external commercial borrowings
  • Form APR:  Form APR shall be filed w.r.t. wholly-owned subsidiaries and joint ventures outside India
  • Form SDS: Applicable in case of further investments made by joint ventures or wholly owned subsidiaries.
  • FLA Return: Foreign Liabilities and Asset (FLA) return shall be mandatory for the companies that have received foreign investments.
  • Form ODI: Applicable in case of investments in joint ventures or wholly owned subsidiaries outside India.
Q
What is the penalty for non-compliance under FEMA?
A

Section 13 of the FEMA, 1999 shall become applicable in case of contravention or non-compliance with any of the provisions of this act, rules, regulations, direction, notification or order issued. If the non-compliance or non-adherence is quantifiable, then the penalty shall be thrice the sum involved. In case the sum is not quantifiable, then a penalty up to Rs. 2 lakhs is leviable.

Q
Whether compounding can be done in case of non-compliance with the FEMA provisions?
A

Section 15 of the FEMA, 1999 deals with the power to compound contravention under section 13 (as discussed above). The offence can be compounded within 180 days from the date of receipt of the compounding application by the Director of Enforcement or any other officer thereof.

Q
What is the transaction limit under FEMA within which approval from concerned authorities shall not be required?
A

The Liberalised Remittance Scheme (LRS) was introduced by the government to facilitate individuals to conduct certain international transactions involving foreign exchange. The limit for remittance under LRS is $2,50,000 for each financial year. It is advisable to consult your FEMA expert before undertaking any international transactions.

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