Remittance of foreign exchange under FEMA

By | August 14, 2015

PROCEDURES FOR REMITTANCE AND RESTRICTIONS

1 General procedure for remittance of foreign exchange

Most of the powers in respect of routine matters for remittance of foreign exchange have been delegated by RBI to Authorised Dealers. Thus, if the remittance is as per guidelines/regulations, it is permitted by Authorised Dealer himself.

As a general rule, all current account transactions are freely permitted while all capital account transactions are subject to regulations. Even in case of capital account transactions, the transactions which are freely permitted can be allowed by Authorised Dealer himself without any permission from RBI.

1.1-1 Applications to authorised persons for remittance

Applications are required to be submitted to authorised persons for various purposes.

Instructions are consolidated in RBI Master Circular No. 6/2014-15 dated 1-7-2014 on ‘Miscellaneous Remittances from India – Facilities for Residents’ [earlier Master Circular No. 6/2013-14 dated 1-7-2013].

Application in form A-1/A-2 – Application should be submitted in form A-1/A-2 (as applicable) to authorised dealers.

Supporting documents – Application should be accompanied by copies of supporting documents to establish that the payment is being made as per provisions of FEMA/RBI regulation. Copies of relevant documents should be submitted to authorised dealer. For example, in case of payment of royalty, copy of automatic/specific approval, copy of agreement etc. may be submitted.

Certificate of TDS– A certificate from Chartered Accountant certifying that tax has been properly deducted at source should be submitted. [As explained in following paragraph]

Application on simple letter for small value remittances– For small remittances upto US $ 25,000, a simple letter giving basic information viz. name and address of applicant, name and address of the beneficiary, amounted to be remitted and purpose of remittance is sufficient. No document is required as long as exchange is purchased for a permissible transaction. Payment should be made to authorised dealer by cheque/demand draft. – RBI circular No. 82 dated 21-2-2012 as amended by RBI circular No. 118 dated 7-5-2012 [till 7-5-2012, the limit was USD 5,000].

Consolidated A1/A2 on fortnightly basis – Software exporters and other entities required to make recurring remittances may be permitted to submit A-1/A-2 forms on fortnightly basis. These can be submitted in a file format transmitted electronically online or in a floppy – RBI circular No. 23 dated 24-9-2003.

Certificate of income Tax TDS– A certificate from Chartered Accountant certifying that tax has been properly deducted at source should be submitted. [As explained in a later paragraph]

Application for remittance for import of goods – Application for remittance in any foreign currency for remittance for import of goods into India should be made in form A1. The A1 form is one of three types – (i) A1-FC – Printed on white paper for remittance in foreign currency (ii) A1-NRB – Printed on light blue paper for transfer of Indian rupees to account of a non-resident Bank or (iii) A1-ACU – Printed on yellow paper for payment through Asian Clearing Union.

If the goods are already cleared, customs-stamped exchange control copy of Bill of Entry should be submitted. Where EDI system has been implemented in customs, only one copy of ex-bond Bill of Entry is given. In such case, its photocopy duly verified by authorised dealer can be accepted as final evidence of imports (RBI circular No. 72 dated 20-2-04). If goods are yet to be cleared from customs, an undertaking is required to be given that the customs-stamped copy shall be submitted within three months. If the goods are imported through post/courier, post parcel wrapper or courier wrapper should be submitted.

Application for other remittance – Application for remittance in any foreign currency for purpose other than remittance for import of goods is required to be made in form A2. This form should be used for both current account transactions (excluding payment for import of goods) and capital account transactions. Thus, this form can be used for current account transaction like remittance for dividend, interest, royalty, professional services, transport charges, freight, travel abroad, salary, gifts, family maintenance etc. The form is also used for permitted capital account transaction like repatriation of investments, permitted investments abroad, loans abroad etc.

Payment for remittance will be made by applicant in Indian Rupees. Amount upto Rs. 50,000 (in one or more instalments) can be paid by cash. If the amount exceeds Rs. 50,000, payment must be made by cheque, banker’s cheque, pay-order or demand draft.

Documents to be submitted – In respect of current account transactions, RBI has not prescribed under FEMA any documents which are required to be submitted to Authorised Dealer. The documents should be sufficient to establish that the proposed remittance is for the purpose as indicated in the application form and that it is a permissible remittance. [Earlier Exchange Control Manual did prescribe the documents required in various cases. Normally, authorised dealers may insist on those documents]. In respect of capital account transactions, the relevant rules/regulations usually prescribe the documents required to allow remittance of foreign currency abroad.

1.1-2 Payment to authorised dealer

The amount will be payable in Indian Rupees to authorised dealer. Payment will be made to payee by authorised dealer in foreign exchange at current exchange rate.

Remittance of amount– The dividend/interest may be remitted through normal banking channels. In case of payment to NRI, it may be credited to NRE/FCNR account of NRI.

1.1-3 Certificate in respect of TDS

CBDT has issued circular in respect of furnishing information under section 195(6) of the Income Tax Act vide Notification SO 2659( E) dated 2-9-2013. Hence, now, RBI will not be issuing any instructions in respect of compliances of income tax provisions – RBI AP (DIR) circular No. 151 dated 30-6-2014.

The procedure as per income tax rule 37BB (w.e.f. 1-10-2013) is as follows –

The procedure is to be followed if remittance is to non-resident (other than company) or foreign company. The remitter will access income tax website and electronically upload form 15CA. CA certificate is required in form 15CB if the amount exceeds Rs 50,000.The remitter will then take print-out of form 15CA with system generated acknowledgement number and submit the same to authorised dealer.

1.1-4 Certification by practising CA/CS

In many cases, certificate from Chartered Accountant is required to be submitted to authorised dealer as documentary evidence in support of certain applications for exchange control purposes. This certificate can also be issued by Company Secretary in Wholetime Practice. – RBI letter dated 19-4-2001 – Chartered Secretary, May 2001 page 653. [These instructions apply only where certificate is required in support of applications under FEMA. In case of certificate of TDS, the CBDT circular No. 10/2002 dated 9-10-2002 specifically states that certificate should be issued by a Chartered Accountant].

1.2 Certificates to be issued by authorised dealers

Authorised dealers (who are mostly Banks) can issue following certificates.

Bank certificates of inward remittance – If inward remittance or realisation of foreign exchange exceeds Rs. 15,000, authorised dealers should issue certificate in form BCI. The certificate is printed on security paper and bears distinctive serial number. Such certificate will not be issued if amount is credited to NRE/FCNR account, as the amount can be repatriated freely. Certificate in Form 10H prescribed under Income Tax provisions can also be issued.

Bank certificate for submission of documents for negotiations – Authorised dealer can issue certificate (for submission to DGFT) immediately after negotiation of documents, but before realisation of export proceeds. The certificate will only indicate FOB value and will make clear that the amount has not been realised.

Encashment certificate – If authorised dealer/money changer purchases foreign currency from a foreign tourist, they will issue encashment certificate in form ECF, if requested by customer. The ECF can be issued on letterhead of Authorised Dealer Category I on their letterhead with logo printed on it (earlier, certificate was to be issued on security paper if amount exceeds Rs. 15,000). If ECF is not issued, attention of customer should be drawn to the fact that in absence of encashment certificate, unspent local currency cannot be converted into foreign currency by non-resident visitors – RBI circular No. 2 dated 17-7-2006.

Restrictions on dealing in Foreign Exchange/security

As per provisions of section 3, except as provided in Act, rules or regulations or with general or specific permission of RBI, a person shall not –

♦ Deal in or transfer any foreign exchange or foreign security to any person other than ‘authorised person’.

♦ Deal in or transfer any foreign exchange or foreign security to any person other than authorised person.

♦ Receive any payment by or on behalf of any person resident outside India except through authorised person. Any payment by or on behalf of person outside India should be with corresponding inward remittance from a place outside India. If such payment is received (even from authorised person) without corresponding inward remittance, it will be treated as payment not received through authorised person. [This is to curb Hawala trade].

♦ 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. ‘Financial Transaction’ means # making any payment to, or for credit of any person # receiving any payment for, by order or on behalf of any person or # drawing, issuing or negotiating any bill of exchange or promissory note or # transferring any security or # acknowledging any debt.

1.3-1 Restrictions on holding or transfer of foreign exchange/security/immovable property

Section 4 of FEMA provides that no person resident of India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India, except as provided in the Act.

1.3-2 Foreign currency/security/property by resident

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(4)].

1.3-3 Indian currency/security/property by non- resident

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 [section 6(5)].

1.3-4 Restrictions on branches/offices of non-resident

RBI can prohibit, restrict or regulate establishment of a branch, office or other place of business by a person resident outside India; for carrying on any activity relating to such branch, office or other place of business [section 6(6)].

1.4 Banks handling foreign exchange transactions

Besides authorised dealers and money changers, various others Banks also deal with foreign exchange. There are exchange houses. RBI has issued instructions in respect of such intermediaries.

1.4-1 Vostro Accounts of Non-Resident Exchange Houses

Authorised Dealers (Category I) Banks can open and maintain Rupee/foreign currency Vostro accounts in India of non-resident Exchange Houses in India, with prior approval of RBI.

Provisions and procedures are contained in RBI Master Circular No. 3/2014-15 dated 1-7-2014 on ‘Memorandum of Instructions for opening and Maintenance of Rupee/ foreign currency Vostro Accounts of Non-resident Exchange Houses [earlier Master Circular No. 3/2013-14 dated 1-7-2013].

Periodic reporting to RBI is required.

1.4-2 Inter Bank Foreign Exchange dealings

Instructions in respect of Inter-Bank foreign exchange dealings are contained in part C of RBI Master Circular No. 5/2014-15 dated 1-7-2014 on ‘Risk Management and Inter-Bank Dealings [earlier Master Circular No. 5/2013-14 dated 1-7-2013].

The Authorised Dealers (Category I) Banks can undertake buying/selling/swapping foreign currency against rupees or foreign currency. They can place and accept deposits and borrow/lend in foreign currency with banks in India.

The Authorised Dealers (Category I) Banks can undertake buying/selling / swapping foreign currency against another foreign currency and initiate trading positions in the overseas market , with overseas Banks and OBU in SEZ subject to restrictions as contained in part C of RBI Master Circular No. 5/2014-15 dated 1-7-2014 on ‘Risk Management and Inter-Bank Dealings [earlier Master Circular No. 5/2013-14 dated 1-7-2013].

1.4-3 Asian Clearing Union

Asian Clearing Union (ACU) was established to settle payments for current international transactions within ESCAP region [United Nations Economic and Social Commission for Asia and the Pacific] on a multilateral basis.

Agreement to establish ACU was approved by Central Banks and monetary authorities of regional members and was signed on their behalf by Board of Directors of ACU. Asian Clearing Union (Procedure) Rules have also been adopted by Board of Directors of ACU.

ACM – Memorandum of Procedure for channelling transactions through Asian Clearing Union (ACU) issued by RBI contains detailed procedure to be followed by Authorised Dealers for handling transactions which are to be cleared through ACU.

Memorandum of procedure for channelling transactions through ACU has been prescribed vide RBI circular No. 35 dated 17-2-2010.

Transactions will be handled by authorised dealers in same manner as other normal foreign exchange transactions.

So far, Asian Monetary Unit was ACU Dollar. However, w.e.f. 1-1-2009, participants in ACU have option to settle their transactions either in ACU Dollar or ACU Euro. Authorised Dealer category I Banks are allowed to open and maintain ACU Dollar and ACU Euro accounts with their correspondent Banks in other participating countries – RBI circular No. 43 dated 26-12-2008.

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