Forex And TradeForex And TradeForex And TradeForex And Trade

Disclaimers

The material is for general training purpose only and does not constitute

professional advice.

Important Statutes And Rules

Foreign Exchange Management Act,1999

Notifications, Master circulars, A.P.(Dir) Series of circulars issued by RBI.

Circulars issued by DGFT

FEDAI guidelines

ICC rules including for

Uniform rules for collection 522

Uniform Custom and Practice (UCP) 600

Uniform rules of Demand Guarantees (URDG), 758

The International Standby Practices 1998 (ISP98)

Uniform Rules for Bank-to-Bank Reimbursements under Documentary

Credit (URR), 725

Some concepts

• Cash date/ Trade date- Date of Transaction

• Spot Date - Second Working day from cash date

• Tom Date - Next working day from cash date

• Spot Rate - Rate quoted and transacted today for settlement on spot date.

Foreign Exchange Rates

A currency exchange rate is the value of a certain world currency with respect to

another currency.

Direct Quote

It is the amount of local currency needed to buy one unit of the foreign currency

and the amount of home currency respectively due to be received when one unit

of foreign currency is being sold.

i.e. 1 foreign currency unit = x home currency units

Indirect Quote

It is the amount of foreign currency needed to buy one unit of the home currency

i.e. 1 home currency unit = x foreign currency units.

Cross Currency Quote

When a currency quote is given without the Indian Rupee as one of its

components, this is called a cross currency, i.e. when home currency is not

involved in the currency pair.

Foreign Exchange Forward Contracts

Foreign Exchange Swap

In a swap, two parties exchange currencies for a certain length of time and agree

to reverse the transaction at a later date.

Currency Future

Futures are standardized forward contracts and are usually traded on an exchange

created for this purpose.

Foreign Exchange Option (Fx Option)

A foreign exchange option is a derivative where the owner has the right but not

the obligation to exchange money denominated in one currency into another

currency at a pre-agreed exchange rate on a specified date.

Forex

• Sale of foreign currency and Travellers Cheques

• Sale of Travel Card and reload of balance on card.

• Private Visits

Maximum of USD 10,000 or equivalent currency in a financial year (April1- March

31) for one or more private visit under Basic Travel Quota (BTQ) to any country

(Except Nepal and Bhutan), wherein a maximum of USD 3,000 in currency notes.

USD 5000 in currency notes for Iraq or Libya

Full amount in currency notes for Islamic Republic of Iran, Russian Federation and

other Republics of Commonwealth of Independent States

• Business travel, attending a conference or specialized training or attendant

for medical treatment of a patient.

Maximum of USD 25,000 to a person per visit may be issued, irrespective of

period of stay and the conditions of release of forex in cash remains the same as

stated in clause (a) relating to Private Visits

• Medical Treatment Abroad

USD 100,000 or its equivalent, on the basis of self declaration that the applicant is

buying exchange for medical treatment outside India, without insisting on any

estimate from a hospital/doctor. However if the amount exceeds the above limit,

estimate from the doctor in India or hospital/ doctor abroad.

• Overseas education, employment, emigration and maintenance of close

relatives

USD 100,000 each for education, employment, emigration and maintenance of

close relatives abroad without insisting on any supporting documents but on the

basis of self declaration incorporating certain basic details of the transactions

• Foreign Currency against surrender of forex done earlier for non residents

and foreign nationals

Reconversion of unspent Indian currency held by non-residents and foreign

nationals, at the time of their departure from India, into forex on the basis of Valid

Encashment Certificate. In case of ATM slips reconversion of Indian rupees to the

extent of Rs.50000/- may be allowed to foreign tourists only and not non-

residents against original ATM receipts duly verified with original debit/credit card

and Valid Passport and Visa and confirmed Ticket for departure within 7 days.

• AML requirement

Sale may be made upto a maximum amount of Rs.50,000/- against cash receipt.

Further for cash received exceeding Rs.25000/- till Rs.50,000/- copy of PAN/Form

60 is mandatory under Rule 114B of the Income Tax Act. It should be kept in mind

that all sales to one person within 30 days of the last transaction is to be treated

as a single transaction for computation of above limit of Rs.50000/-. Also in case

of travel outside India where the rupee equivalent of foreign exchange drawn

exceeds Rs 50,000 either for any single drawal or more than one drawal reckoned

together for a single journey/visit, it should be paid by cheque or draft.

Forex

• Purchase of Foreign Currency

• Purchase of Travelers Cheques

• Refund of balance in Travel card

Purchase of foreign currency and Travellers Cheques

- Forex purchased for a specific purpose and not utilized for that purpose can

be utilized for any other eligible purpose for which drawal of foreign

exchange is permitted. However resident individual needs to surrender

received / realised / unspent / unused foreign exchange to an Authorised

Person within a period of 180 days from the date of receipt / realisation /

purchase /acquisition / date of return of the traveller, as the case may be

other than for export of goods and services.

- Returning traveller is permitted to retain with him, foreign currency

travellers cheques and currency notes up to an aggregate amount of USD

2000 and foreign coins without any ceiling beyond 180 days.

AML Requirement.

- Payment in cash against purchase of forex from a resident individual upto a

limit of USD 1000 or its equivalent currency

- Limit USD 3000 or its equivalent currency in case of a Non resident or

Foreign National.

- All purchase within a period of 30 days from the date of first transaction

would be aggregated for the purpose of considering the above limits.

- Currency Declaration Form (CDF) is required to be obtained in case of

purchase of currency exceeding USD 5000 or its equivalent currency and

USD 10000 or its equivalent currency for purchase of currency and Travellers

Cheque put together.

Special accounts under FEMA

Eligible credits to NRE

Transfer from other NRE/FCNR accounts.

- Interest accruing on the funds held in the account.

- Repayment by resident individual of loan obtained from close relatives

outside India upto USD 250,000/- or its equivalent, if the loan was extended

by way of inward remittance in foreign exchange through normal banking

channels or from NRE/FCNR accounts. (RBI/2011-12/465 dated March 21,

2012)

- Dividend income paid by Indian companies after the 1st April, 2003,

irrespective of source of investment.

- Interest on NRO account at the time of credit.

- Refund of application/earnest money made by the house building agencies

on account of non-allotment of flat/plot, together with interest (net of

income tax payable thereon) provided the original payment was made out

of NRE/FCNR account or from remittance from outside India through

normal banking channels.

- Interest and Maturity proceeds of Govt Securities and dividend on units of

mutual funds, provided purchase from NRE/FCNR account or inward

remittance.

- Refund of share/debenture subscriptions to new issues of Indian

companies, if subscription was paid from NRE/FCNR account of remittance

from outside India.

- Proceeds of remittances to India in any permitted currency.

- Current Income such as rent, pension, interest, with CA certificate and

undertaking for payment of tax.

- Proceeds of personal cheques drawn by account holder on his foreign

currency account and of travellers cheques (issued outside India), bank

drafts payable in any permitted currency, deposited by the account holder

in person to AD during his temporary visit to India.

- Proceeds of foreign currency/bank notes tendered by account holder during

his temporary visit to India, provided

1) CDF is attached, where applicable.

2) notes are tendered to the AD(not money changer) in person by the

account holder himself and AD is satisfied that account holder is a person

resident outside India.

- Transfer from NRO account of NRI within the overall ceiling of USD one

million per financial year subject to payment of tax, as applicable.(i.e. as

applicable if funds were remitted abroad) (RBI/2011-12/536 dated May 07,

2012)

Special accounts under FEMA

Scheme of FCNR Account

o Only in form of term deposits of minimum period of 1 year and maximum

period of 5 years from NRIs

o Interest paid on basis of 360 days to a year and calculated and paid at intervals

of 180 days each.

o No interest paid if premature done for less than 1 year and penalty to cover

swap cost may be charged.

Eligible credits to EEFC Account

o Only in form of non-interest bearing current account. No credit facilities are

allowed against the same.100% export proceeds can be credited to EEFC

account.

o Sum total of the accruals in the account during a calendar month should be

converted into Rupees on or before the last day of the succeeding calendar

month after adjusting for utilisation and forward commitments.

o WEF 22.01.2013 , EEFC holders are permitted to access the forex market for

purchasing forex without utilizing fully the available balances in the EEFC

accounts.(RBI/2012-13/390 A.P.(DIR series) Circular No.79).

Resident Foreign Currency (Domestic) Account (RFC)

A person resident in India can open, hold and maintain with an AD in India, a RFC

Account, out of foreign exchange acquired in the form of currency notes, bank

notes and travellers cheques from any of the sources like, payment for services

rendered abroad, as honorarium, gift, services rendered or in settlement of any

lawful obligation from any person not resident in India. Further the account may

be opened / credited with foreign exchange earned abroad, including proceeds of

export of goods and/or services, royalty, honorarium, etc., and/or gifts received

from close relatives and repatriated to India through normal banking channels.

Further credits are unspent foreign exchange for travel, forex acquired while

on visit to outside India by way of honorarium or gift or forex received from non-

resident, who is on a visit to India as honorarium, gift , for services rendered or in

settlement of any lawful obligation.

Diamond Dollar Account

Firms and companies dealing in purchase/sale of rough or cut diamonds/precious

metal jewellery with track record of atleast 2 years and average annual turnover

of Rs.3 crores or above during three preceding years.

FCRA Act, 2010

o Person defined as (i) an individual; (ii) a HUF; (iii) an association; and (iv) a

company registered u/s 25 of the Companies Act, 1956.

‘Foreign contribution’ means the donation, delivery or transfer made by any

foreign source,

a) any currency, whether Indian or foreign

b) any security including any foreign security

c)any article not being an article given to a person as a gift for personal use, of

market value in India is in excess of Rs.25000/-.

d) Interest on foreign contribution deposited in any bank

e) A subsequent donation, delivery or transfer from person receiving from any

foreign source is also covered.

“Foreign source” also includes ‘a citizen of a foreign country’ and Indian Company

with more than 50% shares with foreign Govt, foreign citizens etc.

• A ‘person’, having a definite cultural, economic, educational, religious or social

programme can receive foreign contribution after it obtains the prior permission

of the Central Government, or gets itself registered with the Central

Government.

• Foreign contribution needs to be deposited in exclusive single account of a bank,

as per order for registration or prior permission granted by MHA. No local funds

can be credited to such account.

• Foreign contribution received cannot be transferred to any other person unless

such other person is also registered under FCRA Act.

• Registration is valid for 5 years only and for existing registered associations the

same would expire automatically on 30th

April, 2016.

• Registration once granted can be cancelled by the Central Government.

• Any person whose certificate has been cancelled shall not be eligible for

registration for a period of 3 years from date of cancellation.

• Registration may also be suspended which would not only mean that no foreign

contribution can be received but also that funds already received cannot be

utilised.

Every bank shall send a report to the Central Government within 30 days of any

transaction in respect of receipt of foreign contribution by any person who is

required to obtain a certificate of registration or prior permission under the Act,

but who was not granted such certificate or prior permission as on the date of

receipt of such remittance.

The bank shall send a report to the Central Government within 30 days from the

date of such last transaction in respect of receipt of any foreign contribution in

excess of one crore rupees or equivalent thereto in a single transaction or in

transactions within a duration of thirty days, by any person , whether registered or

not under the Act

who cannot accept foreign contribution

a) Candidate for election

b) Correspondent, columnist, cartoonist, editor, owner, printer, publisher of a

registered newspaper.

c) Judge, Govt servant or employee of body controlled by Govt.

d) Member of any legislature

e) Political party or office bearer thereof

f) Organisation of political nature, as specified

g) Association or Company in production or broadcast of audio news or audio

visuals or current affairs programmes and their correspondent or columnist

etc.

h) Individuals or associations prohibited specifically.

Imports into India

� Nostro account

A Nostro account is a banking term to describe an account one bank holds with

another bank in a foreign country, usually in the currency of that foreign country.

� Vostro Account

A Vostro account is a local currency account maintained by a local bank for a

foreign (correspondent) bank. This allows for easy cash management because

currency is not required to be converted.

� Direct Import transactions

a) Receive the customer request with documents such as

Commercial invoice, AWB/BL, Form A1, FEMA Declaration, NNL, BOE if

payment more than USD 1 lakh.

b) 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.

c) AD Category – I banks may permit settlement of import dues delayed due to

disputes, financial difficulties, etc. Interest in respect of delayed payments,

usance bills or overdue interest for a period of less than three years from the

date of shipment may be permitted as per limit applicable to trade credits.

d) For proprietorship or a partnership the payment can be made only upto USD

3,00,000. If import is in excess or equivalent of usd 300,000 the importer has

to be necessarily a company, a status holder, or a unit in SEZ.

e) A certificate issued by a CA required for Imports in non Physical form.

f) If import do not exceed USD 5000 no documents, except a simple letter, as

long as it is for a current account transaction (and is not in the Schedules I and

II of the FEMA) and the payment is made by a cheque drawn on the applicant's

bank account or by a Demand Draft.

� Advance remittance transactions

a) Customer request letter and other documents including Form A1, PO/ PI,

Import license, if applicable etc.

b) If advance remittance exceeds USD 200,000 or its equivalent (USD 500,000

or its equivalent for Services), an unconditional, irrevocable standby Letter

of Credit or a guarantee from an international bank of repute situated

outside India or a guarantee of an AD Category – I bank in India, if such a

guarantee is issued against the counter-guarantee of an international bank

of repute situated outside India, is required.

c) In cases where the importer (other than a Public Sector Company or a

Department/Undertaking of the Government of India/State Government/s)

is unable to obtain bank guarantee from overseas suppliers and the AD

bank 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 up to USD 5,000,000. Banks may

frame their own internal guidelines to deal with such cases as the bank's

Board of Directors.

d) Some exemption is available for diamond importers, aircraft/helicopter

purchase for schedule Air transport Companies with specified conditions.

e) A Public Sector Company or a Department/Undertaking of the Government

of India / State Government/s which is not in a position to obtain a

guarantee is required to obtain a specific waiver for the bank guarantee

from the Ministry of Finance, GOI before advance remittance exceeding

USD 100, 000.

Imports into India

� Import under bills for collection/ Imports under LC

a) Documents are received from the Foreign Bank and check the availability of

documents as per the covering schedule of the foreign bank.

b) Print the Presentation Memo and send to the customer for acceptance.

c) Receive the request to make the payment / acceptance from the customer.

d) Documents to be released only on realization of the bill. For usance bill the same is

done after acceptance.

e) If a non discrepant bill not accepted and is devolved and paid, documents are not

to be released to the customer till the time the bill amount is recovered from the

customer account.

f) In case of direct receipt of documents from overseas seller by bank, report on

each individual overseas supplier from the overseas banker or a reputed credit

agency if invoice value exceed USD 300,000 provided the bank is satisfied about

the bonafides of the transaction and track record of the importer constituent.

g) In respect of imports on D/A basis, AD Category – I bank should insist on

production of evidence of import at the time of effecting remittance of import

bill and may allow further three months, in case of certain conditions and

satisfaction about genuineness of request.

� Incoterms (Incoterms 2000)

INCOTERMS are most frequently listed by category. Terms beginning with

F refer to shipments where the primary cost of shipping is not paid for by the

seller.

C deal with shipments where the seller pays for shipping.

E terms occur when a seller's responsibilities are fulfilled when goods are ready to

depart from their facilities.

D terms cover shipments where the shipper/seller's responsibility ends when the

goods arrive at some specific point. In addition, D terms also deal with the pier or

docking charges found at ports.

EXW (EX-Works), FOB (Free On Board), FCA (Free Carrier), FAS (Free

Alongside Ship), CFR (Cost and Freight), CIF (Cost, Insurance and Freight),

DDU (Delivered Duty Unpaid), DDP (Delivered Duty Paid)

� Obtention and completion of Form A1, A2 & A3.

Issuance of certificate from concurrent auditor for due diligence and verification

of form A1, A2 and A3

� Obtention, updation and acknowledgement for Bill of Entry.

In case of all imports, where value of foreign exchange remitted/ paid for import

into India exceeds USD 100,000 or its equivalent, it is obligatory on the part of the

AD bank through whom the remittance was made, to ensure that the importer

submits :-

The Exchange Control copy of the Bill of Entry for home consumption, or

The Exchange Control copy of the Bill of Entry for warehousing, in case of 100%

Export Oriented Units, or

Customs Assessment Certificate or Postal Appraisal Form, as declared by the

importer to the Customs Authorities, where import has been made by post

Evidence of import in lieu of Bill of Entry

(i) AD bank may accept, in lieu of Bill of Entry, a certificate from the Chief

Executive Officer (CEO) or auditor of the company that the goods for which

remittance was made have actually been imported into India provided :-

(a) the amount of foreign exchange remitted is less than USD 1,000,000 or its

equivalent,

(b) the importer is a company listed on a stock exchange in India and whose net

worth is not less than Rs.100 crore as on the date of its last audited balance sheet,

or, the importer is a public sector company or an undertaking of the Government

of India or its departments.

(ii) The above facility may also be extended to autonomous bodies whose

accounts are audited by the C&AG.

� Non physical imports

Where imports are made in non-physical form a certificate from a

Chartered Accountant that the software / data / drawing/ design has been

received by the importer is required.

� Other issues

Stamp and/or signature of Customs authority is available on BoE and for EDI

system generated BoE, original signature and stamp of custom’s authority on BoE

is not mandatory. However, genuineness of EDI generated bill of entry may be

verified from Indian customs and excise gateway.

After all the details are confirmed and updated in the register and Software, the

acknowledgement of submission of BoE to be given to client.

Non submission of import evidence

In case an importer does not furnish any documentary evidence of import within

3 months from the date of remittance involving foreign exchange exceeding USD

100,000, the AD bank should rigorously follow-up for the next 3 months, including

issuing registered letters to the importer.

AD bank should forward a statement on half-yearly basis as at the end of June &

December of every year, in form BEF furnishing details of import transactions,

exceeding USD 100,000 in respect of which importers have defaulted in

submission of appropriate document evidencing import within 6 months from the

date of remittance, to the Regional Office of Reserve Bank under whose

jurisdiction the AD bank is functioning, within 15 days from the close of the half-

year to which the statement relates.

AD bank need not follow up submission of evidence of import involving amount of

USD 100,000 or less provided they are satisfied about the genuineness of the

transaction and the bonafides of the remitter. A suitable policy may be framed by

the bank's Board of Directors to deal with such cases.

� Buyers credit / Suppliers Credit

� Trade credit refers to credit extended for imports directly by the overseas

supplier, bank and financial institutions for maturity of less than 3 years.

Suppliers' credit relates to credit for imports into India extended by the

overseas suppliers.

Buyers' credit refers to loans for payment of imports into India arranged by

the importer from a bank or financial institution outside India.

a) Not allowed for import of services, advance import, merchanting trade.

b) Period maximum 1 year for non capital goods and 5 years for capital goods

from date of shipment.

c) Maximum period of credit, including the usance period of Letters of Credit

opened for import of Gold, Platinum, Palladium, Rhodium and Silver should

not exceed 90 days from the date of shipment, subject to conditions.

d) Maximum amount is 20 million per import transaction.

e) All in cost should be 350 basis points over 6 months Libor and includes

arranger fee, upfront fee, management fee, handling/ processing charges,

out of pocket and legal expenses, if any

f) For buyer's credit transactions, Letter of credit/guarantees/letter of

undertaking(LOU)/Letter of Comfort(LOC) is sent to the funding bank for

each transaction.

Other outward remittances

� Clean outward remittances Foreign Exchange Management (Current Account Transactions) Rules, 2000.

� Prohibited transactions (Schedule I)

� Transactions requiring prior approval (Schedule II)

� Permitted remittances subject to ceilings (Schedule III)

�In respect of remittance applications for miscellaneous non trade

current account transactions of amount not exceeding USD 25,000,

Authorised Dealers may obtain simplified Application-cum-Declaration form

(Form A2)

� Other remittances including under Liberalised Remittance Scheme.

Prohibited transactions

a) Remittance out of lottery winnings.

b) Remittance of income from racing/riding etc. or any other hobby.

c) Remittance for purchase of lottery tickets, banned /proscribed magazines,

football pools, sweepstakes, etc.

d) Payment of commission on exports made towards equity investment in

Joint Ventures / Wholly Owned Subsidiaries abroad of Indian companies.

e) Remittance of dividend by any company to which the requirement of

dividend balancing is applicable.

f) Payment of commission on exports under Rupee State Credit Route, except

commission up to 10% of invoice value of exports of tea and tobacco.

g) Payment related to "Call Back Services" of telephones.

h) Remittance of interest income on funds held in Non-Resident Special Rupee

(Account) Scheme.

Purpose of Remittance Ministry /Department of GOI whose approval is required

Culture Tours Ministry of Human Resources Development, (Department of Education and Culture)

Advertisement in foreign print media other than for tourism, foreign investments and international bidding (exceeding USD 10,000) by a State Govt. and its PSU

Ministry of Finance, (Department of Economic Affairs)

Remittance of freight of vessel chartered by a PSU

Ministry of Surface Transport,(Chartering Wing)

Payment of import through ocean transport by a Govt. Department or a PSU on c.i.f. basis

Ministry of Surface Transport, (Chartering Wing)

Multi-modal transport operators making remittance to their agent abroad

Registration Certificate from the Director General of shipping

Remittance of hiring Charges of transponders by

(a) TV Channels (b) Internet Service provider

Ministry of Information and Broadcasting Ministry of Communication and information Technology

Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping

Ministry of Surface Transport ( Director General of Shipping)

Remittance of prize/sponsorship of sports abroad by a person other than International /National/State Level sports bodies, if amount exceeds USD 100,000.

Ministry of Human Resources Development (Development of Youth Affairs and Sports)

Remittance for membership of P&I Club Ministry of Finance (Insurance Division )

Transactions with ceilings

a) Gift and donation upto USD 5000 per financial year per remitter or donor

other than resident individual

b) Donations by Corporate, upto 1% of their forex earnings during the previous

3 FY or USD 50,00,000 whichever is less for specified purposes.

c) Exceeding net salary for a person resident but not permanently

resident(less than 3 years) in India for remittance for maintenance of close

relatives abroad.

d) Commission, per transaction, to agents abroad for sale of residential flats or

commercial plots in India exceeding USD 25,000 or 5% of the inward

remittance whichever is more.

e) Remittances exceeding US$ 10,000,000 per project for any consultancy

services in respect of infrastructure projects and US$ 1,000,000 per project,

for other consultancy services procured from outside India.

f) Remittances exceeding 5% of investment brought into India or USD

1,00,000 whichever is higher, by an entity in India by way of reimbursement

of pre-incorporation expenses.

Liberalised Remittance Scheme

AD may freely allow remittances by resident individuals up to USD 75,000 per

financial year (April-March) for any permitted current or capital account

transactions or a combination of both.

The facility is available to all resident individuals including minors for transactions

other than which are otherwise not permissible under FEMA and those in the

nature of remittance for margins or margin calls to overseas exchanges / overseas

counterparty.

Resident individuals are not allowed to acquire immovable property but can

acquire shares (of listed companies or otherwise) or debt instruments or any

other asset outside India without prior approval of the Reserve Bank.

Individuals can also open, maintain and hold foreign currency accounts with a

bank outside India for making remittances under the Scheme without prior

approval of the Reserve Bank.

Banks should not extend any kind of credit facilities to resident individuals to

facilitate remittances under the Scheme.

The facility is not available for making remittances directly or indirectly to Bhutan,

Nepal, Mauritius and Pakistan or any country identified by FATF as non co-

operative country.

Application-cum-declaration form and PAN number with bank account with a

bank for a minimum period of one year prior to the remittance are mandatory

conditions. AD should be satisfied about source of funds.

Export outside India

� Export bill under LC from foreign bank.

� Export bills for collection.

The exporter must submit a request letter stating clearly the documents to

be delivered to the foreign buyer and covering all instructions for the Indian Bank.

The documents must be accompanied by Commercial Invoice, Packing List,

Bills of Exchange, /signed and endorsed full set of original Bill of Lading/Airway

Bill/ other transport document and insurance policy, in case of CIF contracts.

� Export bill under LC from foreign bank/ Export bills for collection.

Further exchange control copy of shipping bill with relevant EDF/SDF /Softex

form should be attached nominating the concerned bank.

Original LC duly endorsed and stamped should also be attached therewith,

which should be endorsed with the bill amount and returned back to

customer. The documents must be submitted within 21 days of the bill of

lading.

Export outside India

AD Category – I banks may regularize cases of dispatch of shipping documents by

the exporter direct to the consignee or his agent resident in the country of the

final destination of goods, up to USD 1 million or its equivalent, per export

shipment, subject to the following conditions:

a) The export proceeds have been realised in full.

b) The exporter is a regular customer of AD Category – I bank for a period of at

least six months.

c) The exporter’s account with the AD Category – I bank is fully compliant with

the Reserve Bank’s extant KYC / AML guidelines.

d) The AD Category – I bank is satisfied about the bonafides of the transaction.

Advance Against Export

Where an exporter receives advance payment from a buyer outside India, the

exporter shall be under an obligation to ensure that -

i) The shipment of goods is made within one year from the date of receipt

of advance payment;

ii) The rate of interest, if any, payable on the advance payment does not

exceed LIBOR + 100 basis points, and

iii) The documents covering the shipment are routed through the

Authorised Dealer through whom the advance payment is received;

Provided that in the event of the exporter’s inability to make the shipment,

partly or fully, within one year from the date of receipt of advance payment, no

remittance towards refund of unutilised portion of advance payment or towards

payment of interest, shall be made after the expiry of the period of one year,

without the prior approval of the Reserve Bank.

� Export bills under Advance payment

Banks may allow exporters to received advance payment for exports of

goods which may take more than 1 year to manufacture and ship and export

agreement provides the same subject to prescribed conditions, such as;

a) KYC and due diligence for overseas buyer

b) AML guidelines are ensured

c) Export advance to us to execute export

d) No instance of refund exceeding 10% of the advance payment in last 3 years

e) Rate of interest, if any should not exceed LIBOR+ 100 basis points.

� Manner of Export Realisation

Full export value of goods exported shall be received through an AD Bank in

following manner:

a. Bank draft, pay order, banker's or personal cheques.

b. Foreign currency notes/foreign currency travellers’ cheques from the buyer

during his visit to India.

c. Payment out of funds held in the FCNR/NRE account maintained by the

buyer

d. International Credit Cards of the buyer.

e. All transactions between a person resident in Nepal or Bhutan may be

settled in Indian Rupees or routed through ACU mechanism.

f. In precious metals, equivalent to value of jewellery exported.

g. Through Online Payment Gateway Service Providers (OPGSPs) for export

value not exceeding USD 10000.

h. Settlement system under ACU mechanism

� Realisation of Export Proceeds

Exporter to realise and repatriate the full value of goods or software to India as

under:

(i) By Units in Special Economic Zones (SEZs): 12 months till June 10, 2014.

(ii) By Status Holder Exporters, 100 % Export Oriented Units (EOUs) and units

set up under Electronic Hardware Technology Parks (EHTPs), Software

Technology Parks (STPs) and Biotechnology Parks (BTPs) schemes : 12

months

(iii) Goods exported to a warehouse established outside India : As soon as it is

realised and in any case within fifteen months from the date of shipment of

goods; and

(iv) In all other cases: With effect from June 3, 2008, this period of realization

and repatriation to India has been enhanced to twelve months from the

date of export till March 31, 2013 and now nine months till 30.09.2013.

Follow-up of Overdue Bills

Banks should furnish to the RBI, on half-yearly basis, a consolidated statement in

Form XOS giving details of all export bills outstanding beyond six months from the

date of export as at the end of June and December every year. The statement

should be submitted in triplicate within 15 days from the close of the relative half-

year. Now centralised and online wef December, 2013.

� FIRC

a) Printing of FIRC on security stationery only in cases where the Foreign

Inward Remittance has been received for any one of the following

purposes:

o Advance Payment for Exports

o Receipt of export proceeds by an AD Bank other than the one who

handles/handled the GR Form

o FDI/FII

� Issue of Duplicate FIRC

a) Customer request requesting for issuance of duplicate FIRC.

b) Stamped (as per state Stamp Act) indemnity from the beneficiary.

c) Check that the FIRC has not been utilized.

d) The duplicate FIRC may be issued after a period of 10 days has elapsed from

the date of uploading the details on the FEDAI website.

e) Write/Affix a rubber stamp on the duplicate copy as prescribed.

� Issuance of GR waiver certificate.

1. GR waiver from exporters for export of goods free of cost, for export

promotion up to 2 per cent of the average annual exports of the applicant

during the preceding three financial years subject to a ceiling of Rs.5 lakhs. For

status holder exporters, the limit as per the present Foreign Trade Policy is

Rs.10 lakhs or 2 per cent of the average annual export realization during the

preceding three licensing years (April-March), whichever is higher.

2. Export of goods not involving any foreign exchange transaction directly or

indirectly.

3. 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.

4. Goods being exported for testing are destroyed during testing, banks may

obtain a certificate issued by the testing agency that the goods have been

destroyed during testing.

5. Firms / Companies and other organizations participating in Trade

Fair/Exhibition abroad can take/export goods for exhibition and sale outside

India.

The exporter shall produce relative Bill of Entry within one month of re-import

into India of the unsold items and the sale proceeds of the items sold are

repatriated to India in accordance with the FEMA.

The exporter shall report to the bank the method of disposal of all items exported,

as well as the repatriation of proceeds to India.Such transactions approved by the

AD Category – I banks will be subject to 100 per cent audit by their internal

inspectors/auditors.

� Issuance of Bank Realisation Certificate (BRC)

BRC is issued in Format as prescribed by DGFT and available as Appendix 22 A at

URL http://dgftcom.nic.in/exim/2000/apdx07/indexapp07.htm

BRC to be issued at the request of the customer for fully realized export bills only.

AD obtain a request letter with standard BRC format, copies of invoice, transport

documents and GR/Freight bill/Insurance Receipt/Shipping Bill. The amount to be

stated in BRC is net amount exclusive of freight, insurance & commission, if

included therein and other details are completely filled in the relevant format.

Copy of the BRC handed over to the customer alongwith Certified Invoice.

e-BRC mandatory w.e.f. 17.8.2012. (DGFT circular no.8 dated 6.7.2012)

Extension of Time for realisation of export proceeds and Write off

Extension of time and Self write-off by the exporters

(i) For export proceeds due within the prescribed period during a financial

year all exporters (Including Status Holder exporters) have been allowed to write-

off (including reduction in invoice value) outstanding export dues and extend the

prescribed period of realization beyond 12 months or further period as applicable.

Limits as prescribed wef March 12 , 2103

A)Self “write-off” by an exporter

(Other than Status Holder Exporter) 5%*

b) Self “write-off” by Status Holder Exporters 10%*

c) ‘Write-off” by Authorized Dealer bank 10%*

*of the total export proceeds realized during the previous calendar year.

Other cases including cases under investigation by ED, DRI, CBI to be referred to

RBI in Form ETX through AD Bank.

Conditions of Write off of export proceeds:

• Amount to remain outstanding for more than 1 year

• Documents furnished for all efforts by exporter to realize the dues

• Exporter has surrendered proportionate export incentives.

• CA certificate for self write off, providing requisite details.

• Case under any one of below cases:

• Overseas buyer declared insolvent

Overseas buyer not traceable over long period

• Exported goods auctioned/destroyed by Port/customer etc

• Balance due in case settled through Indian Embassy, Foreign Chamber of

Commerce etc.

• Undrawn balance of export bill turning unrealisable

• Cost of legal action disproportionate to balance outstanding or decree

cannot be executed

• Bill for difference between LC value and export value or difference in freight

charges but bill dishonoured.

Intermediary Trade

Merchant trade transactions

Completion of both legs within 6 months

Foreign exchange outlay within 3 months

No buyers credit or suppliers credit is allowed

Where the payment for export leg of the transaction precedes the payment for

import leg, AD banks should ensure that the terms of payment are such that the

liability for the import leg of the transaction is extinguished by the payment

received for the export leg of the transaction, without any delay.

All other points are applicable as for export/import leg except

BOE for import leg

Shipping bill for export leg

Export Finance

� Pre-Shipment Finance

� Export Packing Credit (EPC)

� Packing Credit in Foreign Currency (PCFC)

� Post-Shipment Finance

� Bills Purchased/ Bills Discounted

� Advances against bills for collection

� Advances against duty drawback receivable from Government.

� Pre-Shipment Finance –EPC/PCFC

‘Packing Credit' means any loan or advance granted or any other credit

provided by a bank to an exporter for financing the purchase, processing,

manufacturing or packing of goods prior to shipment / working capital

expenses towards rendering of services on the basis of letter of credit opened

in his favour or in favour of some other person, by an overseas buyer or a

confirmed and irrevocable order for the export of goods / services from India

or any other evidence of an order for export from India having been placed on

the exporter or some other person, unless lodgement of export orders or

letter of credit with the bank has been waived.

Maximum period of Finance is 360 days from the date of advance and

otherwise the advance will cease to qualify for prescribed rate of interest for

export credit to the exporter ab initio

� Different accounts may be maintained for each disbursement or a running

account facility may be granted(not allowed for sub-suppliers).

� Liquidation of PC may be out of proceeds of bills drawn for the exported

commodities on its purchase, discount etc. thereby converting pre-shipment

credit into post-shipment credit. Also balance of EEFC account may be used

for the same.

Export Finance

� Post-Shipment Finance - Bills Purchased/ Bills Discounted

Period

In the case of demand bills, the period of advance shall be the Normal Transit

Period (NTP) as specified by FEDAI.

In case of usance bills, credit can be granted for a maximum duration of 365 days

from date of shipment inclusive of Normal Transit Period (NTP) and grace period,

if any.

'Normal transit period' means the average period normally involved from the date

of negotiation / purchase / discount till the receipt of bill proceeds in the Nostro

account of the bank concerned, as prescribed by FEDAI from time to time. It is not

to be confused with the time taken for the arrival of goods at overseas

destination.

Export Finance

Concessional rate offered to exporters by the bank subject to floor rate of 7% and

claim of interest subvention @2% on RBI by the banks on quarterly basis after

obtaining certificates from CA.

Banks are required to completely pass on the benefit of interest subvention, as

applicable, to the eligible exporters upfront and submit the claims to RBI for

reimbursement duly certified by the external auditor. The subvention would be

reimbursed by RBI on the basis of quarterly claims submitted by the banks.

Bank Guarantees

� Domestic Guarantees

� Foreign Inward Guarantee

� Foreign Outward Guarantee

� BG Issuance, Amendment, Invocation, Closure / cancellation, Duplicate BG.

� Domestic Guarantees

� Issuance and amendment

a) Branch to issue guarantees on a stamp paper of adequate value subject to the

local Stamp Act of that particular state.

b) Entry in software under appropriate head i.e. Financial BG or performance BG.

� Special care to be taken for BGs with

i) Auto renewal clause

II) favoring Courts/ Tribunal/ Regulatory Authorities/Arbitral Panel;

III) Variation in notwithstanding clause(NWC)

IV) Fax indemnity

Letter of Credits

Undertaking to pay a third party at a given date according to agreed stipulations

and against presentation of documents, the counter value of the goods or services

dispatched/ supplied, rendered or otherwise.

� Inland LC

� Import LC

� Standby Letter of Credit

Letter of Credits

� LC Advising

Letter of credit is forwarded to the beneficiary by the advising bank. The

advising bank acts as a conduit between the issuing bank and the beneficiary.

But it does not undertake any liability on its own account. The advising bank

ensures that the LC is apparently authentic, the international banks use test

key arrangements with correspondent banks to ensure that messages used

are secure. By an authenticated message the advising bank holds out to the

beneficiary that the message is an authenticated/authorized message from

the sender.

� LC Confirmation

Confirmation of LC constitutes an undertaking on part of the confirming

bank to pay to the negotiating bank or the beneficiary without recourse if the

documents are presented in accordance with the terms and conditions of the LC.

This undertaking is in addition to the undertaking provided by the issuing bank.

Confirmation would not be added on transferrable LC.

� LC Transfer

The first beneficiary of a letter of credit may request for the transfer of the

credit to the second beneficiary. This is allowed as per UCPDC. The credit should

clearly nominate a bank to transfer the LC and also provide for transfer of the

credit before a LC can be transferred. A transfer can be in parts or in whole as per

the request of the first beneficiary.

Letter of Credits

Foreign Direct Investment into India

Investment in Company

• Intimation within 30 days of inward remittance

• KYC from foreign bank, FIRC and form from customer

• FC-GPR form within 180 days of inward remittance

Investment in Liaison Office (LO)/ Branch Office(BO) in India

Two Routes:

Reserve Bank Route Government Route

Business falls under Other business, NGO

100% FDI sector Non profit/Govt bodies

Form FNC through AD Banks

Annual Activity Certificates(AAC) from CAs by September 30 or within 6 months of

from due date of Balance Sheet with copy to DG Income Tax (International

Taxation), New Delhi.

Branch Offices permitted to remit outside India profit of the branch net of Indian

Taxes. Documents to be filed with AD are certified copy of Audited accounts and

CA certificate certifying manner of arriving at remittable profit, permitted

activities and no profit on revaluation of assets.

Liaison Office (LO)/ Branch Office(BO) in India

Permissible activity of liaison office

i. Representing in India the parent company / group companies.

ii. Promoting export / import from / to India.

iii. Promoting technical/financial collaborations between parent/group

companies and companies in India.

iv. Acting as a communication channel between the parent company and

Indian companies.

Permissible activity of branch office

I. Export / Import of goods.

II. Rendering professional or consultancy services.

III. Carrying out research work, in areas in which the parent company is

engaged.

IV. Promoting technical or financial collaborations between Indian companies

and parent or overseas group company.

V. Representing the parent company in India and acting as buying / selling

agent in India.

VI. Rendering services in information technology and development of software

in India.

VII. Rendering technical support to the products supplied by parent/group

companies.

VIII. Foreign airline / shipping company.

Not allowed retail trade, manufacturing or processing activities.

Investment by residents abroad in JVs/ Wholly Owned Subsidiaries (WOS)

Prohibition

Investment in a foreign entity engaged in real estate (meaning buying and

selling of real estate or trading in Transferable Development Rights (TDRs) but

does not include development of townships, construction of

residential/commercial premises, roads or bridges) or banking business, without

the prior approval of the Reserve Bank.

Automatic Route

• an Indian party has been permitted to make investment in overseas JVs/

WOS, not exceeding 100 per cent of the net worth as on the date of last

audited balance sheet of the Indian party, i.e. a company incorporated in

India or a body created under an Act of Parliament or a partnership firm

registered under the Indian Partnership Act, 1932 . The limit of 400% is not

applicable for investment:

• A) made from EEFC Account

• B)Funds raised through ADR/GDR

Investment by residents abroad

Investments by residents in JVs/ Wholly Owned Subsidiaries (WOS)

Automatic Route –Conditions

a)The Indian party should not be on the Reserve Bank’s Exporters' caution list / list

of defaulters to the banking system circulated by the Reserve Bank / Credit

Information Bureau (India) Ltd. (CIBIL) / or any other credit information company

as approved by the Reserve Bank or under investigation by any investigation /

enforcement agency or regulatory body.

b) All transactions relating to a JV / WOS should be routed through one branch of

an Authorised Dealer bank to be designated by the Indian party.

c)If investment exceed USD 5 million or swap, valuation by Cat 1 merchant banker

and in other cases by CA/CPA.

File Form ODI with AD within 30 days from date of transaction.

Investments by residents in JVs/WOS

Approval Route

Prior approval of the Reserve Bank would be required in all other cases of

direct investment including investment by proprietorship concerns and

unregistered partnership firms, trusts and Society, subject to satisfying

certain eligibility criteria. For this purpose, application together with

necessary documents should be submitted in Form ODI through their

Authorised Dealer Category – I banks. Post investment changes / additional

investment in existing JV / WOS will require filing of Form ODI

Obligations

File Share certificates with AD

Repatriate due receivable from foreign entity

� ODI part I, II, III and IV –Online Filing

Part II - Reporting of Remittances

Part III - Annual Performance Report (APR)

Part IV – Report on Closure/Disinvestment/Voluntary Liquidation/ Winding

up of JV / WOS

Investment for offices abroad

� At the time of setting up of office, initial expenses up to 15% of average

annual sales/income or turnover during the last 2 FY or upto 25% of net

worth, whichever is higher.

� For recurring expenses, remittance upto 10% of average annual sales/income

or turnover during the last 2 FY.

� Remittance permissible within above limits to acquire immovable property

outside India for business and for residential purpose of staff.

� Any surplus of office abroad should be repatriated to India

� Bank account opened in the overseas country should be reported to the AD

bank.

� An audited yearly statement showing receipts under “off-site” and “on-site”

contracts undertaken by the overseas office, expenses and repatriation

thereon should be submitted to banks.

External Commercial Borrowings

Automatic Route Approval Route

ECB is for minimum average maturity of 3 years and may be in form of:

� Commercial loans like bank loans

� Foreign Currency Convertible Bonds (FCCBs)

� Preference Shares

� Foreign Currency Exchangeable Bonds

� Buyers credit and suppliers credit

Automatic Route

A)Corporate in a)Hotel, b)Hospital, c)Software sectors, d)Infrastructure

Finance Companies except Banks,FIs,HFCs and NBFCs

B) Units in SEZ for own requirement

C) NGOs and companies regd u/s 25 of Companies Act engaged in micro finance

activities.

D) Micro Finance Institutions(MFIs), (NBFC-MFIs)

� Borrowing should be from recognised lenders and should comply with

amount and maturity norms and should be utilised for permitted End-use.

� Maximum all-in-cost ceiling is as follows:

Average Maturity Period All-in-cost Ceilings over 6 month

LIBOR*

Three years and up to five years 350 basis points

More than five years 500 basis points

Borrowers may enter into loan agreement complying with the ECB guidelines with

recognised lender for raising ECB under Automatic Route without the prior

approval of the Reserve Bank. The borrower must obtain a Loan Registration

Number (LRN) from the Reserve Bank of India before drawing down the ECB.

Reporting Arrangements

For allotment of Loan Registration Number (LRN), borrowers are required to

submit Form 83, in duplicate, certified by a CS or CA to the designated AD bank.

One copy is to be forwarded by the designated AD bank to RBI.

The borrower can draw-down the loan only after obtaining the LRN from RBI.

Borrowers are required to submit ECB-2 Return certified by the AD bank on

monthly basis so as to reach RBI within seven working days from the close of

month to which it relates.

External Commercial Borrowings

� Form 83 –Reporting of loan agreement details

� ECB form- Application for raising ECB under Approval Route

� ECB 2 –Monthly return of actual transactions of ECB

� Change in terms and conditions of ECB after LRN requires prior RBI approval

except in following cases:, where power delegated to AD Bank :

A) Change/modification in drawdown/repayment schedule, if average

maturity period is maintained or change is in drawdown schedule only with no

change in repayment schedule and reduction in original average maturity period.

B) Change in currency of borrowing

C) Change in AD Bank

D) Change in name of borrower Company

E)Change in lender

F) Cancellation of LRN

G) Change in end-use of ECB proceeds in automatic route

H) Reduction in amount of ECB

I) Reduction in the all-in-cost of ECB

In all such cases revised Form 83 is required to be filed with RBI.

Returns by Authorized Dealer

R Return

XOS

BEF Part I and II

EBW

ORA

Quarterly reports on opening/closing of Diamond Dollar Account within 10 days of

end of quarter.

Fortnightly report on Diamond Dollar account balances within 7 days of close of

fortnight.

Form 83 and Form ECB

Reporting of remittance under Liberalised Remittance Scheme.

ODI Part I,II, III and IV

FCGPR Part A

FC-TRS

Non residents deposits consolidated return in Stat 5 and Stat 8 in Microsoft Excel

format.(RBI/2012-13/128 dated July 12, 2012)

Form 15CA and form 15CB return

Other approvals from RBI

Service Tax Guidelines

• Pay service tax in reference to RBI’s reference rate,

or

• 0.12% for transaction upto Rs.1 lakh (minimum Rs.30)

• Rs.120+0.06% for transaction >Rs.1 lakh<Rs.10 Lakh

• Rs.660+0.012% for transaction >Rs.10 Lakh (maximum Rs.6000)

Transaction between all banks including bank located outside India or

money changer is exempt (Not no.27/2011)