Clarifications about various rules under Foreign Exchange Management Act,
1999
Authorised
dealers are aware that the Reserve Bank has, by notifications, made certain
Regulations to carry out the provisions of Foreign Exchange Management Act, 1999
(42 of 1999). The regulations
notified i.e. Notifications FEMA Nos. 1 to 25, were circulated vide A.D. (M.A.
Series) Circular No. 11 dated 16th May 2000. The Reserve Bank has
since issued further notifications bearing serial No. 26 to 39. The synopsis of
these Regulations is furnished in the following paragraphs.
1.
Notification No. FEMA 26/2000-RB dated 14th August 2000 in
partial modification of Notification No. FEMA 3/2000-RB dated 3rd May
2000
In
terms of Foreign Exchange Management Borrowing or Lending in Foreign Exchange)
Regulations, 2000, authorised dealers were permitted to grant credit facilities
against the balances held in
EEFC accounts. It has been decided that credit facilities, both fund based and
non-fund based, against the balances, held in EEFC accounts should not be
granted. In this regard attention of
authorised dealers is invited to A.P. (DIR
Series) Circular No. 6 dated August 14, 2000.
2.
Notification No. FEMA 27/2000-RB dated 14th August 2000 in
partial modification of Notification No. FEMA 10/2000-RB dated 3rd
May 2000
The
procedure for opening/ holding and maintenance of Exchange Earners� Foreign
Currency (EEFC) account is given in the Foreign Exchange Management (Foreign
Currency Accounts by a Person
Resident in India) Regulations, 2000. Regulation (9) of the Regulations indicate
the forms of deposits viz. current, saving or term deposits permissible under
the EEFC Accounts Scheme and paragraph 1(1) of Schedule to the Regulations
indicate the limits up to which inwards
remittances could be credited to the EEFC accounts. The captioned Notification
was issued amending the said Regulation (9) and prohibiting opening
of EEFC accounts in the form of terms deposits. The limits of eligible credits
to the EEFC accounts were
revised to 35% for Export Oriented Units or units in (a) Export Processing Zone
(b) Software Technology Park or (c) Electronic Hardware Technology Park and to
25% for other persons resident in India with effect from 14th August
2000. In this regard attention of authorised dealers
is invited to A.P. (DIR Series) Circular No. 6 dated August 14, 2000.
3.
Notification No FEMA 28/2000-RB dated 5th September 2000 in
partial modification of Notification No. 25/2000-RB dated 3rd May
2000
The
foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations,
2000 have been amended by the captioned notification to enable importers/
exporters of crude oil and petroleum products to hedge their exposure to price
risk. In this regard attention of authorised dealers is invited to A.P. (DIR
Series) Circular No. 11 dated September 5, 2000.
4.
Notification No. FEMA 29/2000-RB dated 26th September 2000 in
partial modification of Notification No. 16/RB-2000 dated 3rd May
2000
Authorised
dealer are aware that borrowing and lending of Indian rupees between two residents does not attract any provisions of the
Foreign Exchange Management Act, 1999. In cases where a rupee loan is granted
against the guarantee provided by a non-resident, there is no transaction
involving foreign exchange until the guarantee is invoked and the non-resident
guarantor is required to meet the liability under the guarantee. The
non-resident guarantor may discharge the liability by i) payment out of rupee
balances held in India or ii) by remitting the funds to India or iii) by debit
to his FCNR/ NRE account maintained with an authorised dealer in India. In such
cases the non-resident guarantor may enforce his claim against the resident
borrower to recover the amount and on recovery he may seek repatriation of the
amount if the liability is discharged either by inward remittance or by debit to
FCNR/ NRE account. However, in case the liability is discharged by payment
out of rupee balances the amount recovered can be credited to the NRO or NRSR
account of the non-resident guarantor.
The
Reserve Bank vide its Notification No. FEMA 29/2000-RB dated 26th
September 2000 has granted
general permission to a resident, being a principal debtor to make payment to a
person resident outside India, who has met the liability under a guarantee.
Accordingly, in cases where the liability is met by the non-resident out of
funds remitted to India or by debit to his FCNR/ NRE account, the repayment may
be made by credit to the FCNR/ NRE/ NRO/ NRSR account of the guarantor provided,
the amount remitted/ credited shall not exceed the rupee equivalent of the
amount paid by the non-resident guarantor against the invoked guarantee.
5.
Notification No. FEMA 30/2000-RB dated 17th November 2000 in
partial modification of Notification No. FEMA 10/2000-RB dated 3rd
May 2000
The
procedure for opening and maintenance of Exchange Earners� Foreign Currency (EEFC)
accounts is given in the Foreign
Exchange Management (Foreign Currency Accounts by a Person Resident of India)
Regulations, 2000. The Captioned Notification seeks to amend the procedure for
opening, holding and maintenance of the Exchange Earner� Foreign Currency (EEFC)
Accounts. The amendments are:
i)
EEFC accounts can be opened, held, or maintained only in the form of
non-interest bearing current account, and
ii)
Limits of eligible credits to the EEFC accounts are revised to 70% for
Export Oriented Units or units in (a) Export Processing Zone or (b) Software
Technology Park or (c) Electronic Hardware Technology Park and to 50% for other
persons resident in India. Attention of authorised dealers is invited to A.P.
(DIR Series) Circular No. 16 dated 10th October 2000.
6.
Notification No. FEMA 31/2000-RB dated 27th November 2000 in
partial modification of Notification NO. FEMA 4/2000-RB dated 3rd May
2000
Regulation
(7) of the Foreign Exchange Management (Borrowing and Lending in Rupees)
Regulations, 2000 enables an authorised dealer to grant loans in India to a non-resident Indian for the borrower�s
personal or business requirements. Since the loan is
to be utilized in India, the amendment is made to proviso (d) of Regulation (7)
enabling credit of the loan amount to the Non-Resident Ordinary account of the
borrower. It is clarified that the loan amount cannot be credited to the NRE/
FCNR/ NRNR account of the non-resident borrower or remitted out of India.
7.
Notification No. FEMA 32/2000-RB dated 26th December 2000 in
partial modification of Notification No. 20/2000-RB dated 3rd May
2000
The
Captioned Notification seeks to amend the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident outside India) Regulations, 2000 enabling registered Foreign Venture
Capital Investors (FVCIs) to invest in Indian venture capital Undertakings/ Venture Capital Funds. In this regard
attention of authorised dealer is invited to A.P. (DIR Series) Circular No. 24
dated January 6, 2001.
8.
Notification No. 33 not issued
9.
Notification No. FEMA 34/ 2001-RB dated 22nd January 2001 in
partial modification of Notification No. FEMA 10/2000-RB dated 3rd
May 2000
The
captioned amendment is made to facilitate foreign nationals resident in India to
open and maintain foreign currency accounts with a bank outside India. The
facility is available to such foreign nationals who are employees of a foreign
company and are on deputation to the office/ branch/ subsidiary/ joint venture
in India of the foreign company. The salary payable to the employee for services
rendered in India can be credit to the account provided that: -
i)
the amount to be credited to such account shall not exceed 75% of the
salary accrued to such person from the foreign company;
ii)
the remaining salary shall be paid in India in the Indian rupees; and
iii)
the Income Tax under the Income Tax Act, 1961 shall be paid on the entire
salary as accrued in India.
10.
Notification No. FEMA 35/2001-RB dated 16th February 2001 in
partial modification of Notification No. FEMA 20/2000-RB dated 3rd
May 2000
The
Notification seeks to amend the Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident outside India) Regulations, 2000. It has now
been decided to prohibit foreign investment in an Indian Company engaged in
print media by Foreign Institutional Investors (FIIs) NRIs/ OCBs and Foreign Venture Capital Investors. The restriction will apply
to investment by NRIs/ OCBs on
non-repatriation basis also.
11.
Notification No. FEMA 36/2001-RB dated February 27, 2001 in partial
modification of Notification No. FEMA 23/2000-RB dated 3rd May 2000
The
amendments made to the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 are as under:
a)
In regulation 4 �
(i)
Exemptions are granted to certain exports from the requirement of
declaration on a prescribed Form. Similar concessions are granted to units in
�Electronic Hardware Technology Parks, Electronic Software Technology Parks�
and �Special Economic Zones�.
(ii)
Reserve Bank has been authorised to waive the requirement of declaration
on GR Forms and to permit export of defective goods fore repairs subject to
re-import.
(b)
In regulation 6 � Sub-regulation 3(i) is substituted to provide for
declaration to be made by units in Special Economic Zones for exports of
computer software and audio/ video/ television software in Form Softex.
c)
In regulation 9 � The existing Regulation is numbered as (1).
Sub-Regulation (2) permits the units situated in Special Economic Zones to
realise and repatriate to India the full export value of goods or software
within a period of twelve months from the date of export. Reserve Bank has also
been empowered to extend the said period beyond twelve months. The Bank has also
been empowered to direct, if necessary, that a unit shall cease to be governed
by provisions of sub-regulation (2) and in such a
case the unit shall be governed by sub-regulation (1).
d)
The format of the Form SOFTEX has been revised.
12.
Notification No. FEMA 37/2001-RB dated February 27, 2001 in partial
modification of Notification No. FEMA 10/2000-RB dated 3rd May 2000
The
Notification seeks to amend the Foreign Exchange Management (Foreign Currency
Accounts by a Person Resident in India) Regulations, 2000. The units in Special
Economic Zone (SEZ) are now permitted to credit 100% of its foreign exchange
receipts to its EEFC account except foreign exchange acquired, by way of
purchase against rupees from any person resident in India other than another
units in a Special Economic Zone.
13.
Notification No. FEMA 38/2001-RB dated February 27, 2001 in partial
modification of Notification No. FEMA 6/RB-2000 dated 3rd May 2000
The
Notification seeks to amend the Foreign Exchange Management (Export and Import
of Currency) Regulations, 2000. In terms of Regulation (3) of the said
Regulations any person resident in India can take outside India, except to Nepal
or Bhutan, currency notes of Government of India or Reserve Bank of India
upto an amount not exceeding Rs.5000/-.
The amendment empowers Reserve Bank to permit a person, on an application made
to it and on being satisfied, to take or send out of India or bring into India
currency notes of Government of India/ Reserve Bank of value exceeding Rs.5000/-
subject to such terms and conditions as the Bank may be stipulate.
14.
Notification No. FEMA 39/2001-RB dated February 27, 2001 in partial
modification of Notification No. FEMA 16/RB-2000 dated 3rd May 2000
The
amendment authorizes a company in India to make payment in rupees to its
non-whole time director, who is a person, resident outside India and who is on a
visit to India for the company�s work. The payments can be towards sitting
fees, commission or remuneration, travel expenses in accordance with the
provisions of the concerned company�s Memorandum of Association or Articles of
Association or in terms of any other agreement entered into by it or in any
resolution passed by its general meeting/ Board of Directors. Such payments
shall however, be subject to compliance of any other law, rules, regulations or
directions applicable in this behalf.
15.
Authorised dealers may bring the contents of this circular to the notice
of their constituents concerned.
16.
The directions contained in this circular have been issued under Section
10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of
1999). Any contravention or non-observance of these directions is subject to the
penalties prescribed under the Act.
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