Seminar on FEMA
Framework of FEMA
Harshal Bhuta
Overview of FEMA
Statement of Objects of FEMA:
An Act to consolidate and amend the law relating to foreign exchange with the
objective of facilitating external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in India.
Jurisdiction of FEMA:
Whole of India (including J&K)
Extra-territorial jurisdiction (since it applies even to branches, offices and
agencies o/s India owned & controlled by a PRI)
Policy Instruments under FEMA
Notifications by RBI + CG for making / revising Regulations and Rules resp.
A.P.(DIR Series) Circular by RBI
Press Notes by DPIIT
Master Directions by RBI
FDI Policy by DPIIT
Overall Scheme of FEMA:
All current account transactions are freely permitted. However, CG can impose
reasonable instructions.
Capital account transactions are permitted to the extent allowed by RBI/CG
RBI authorizes ‘Authorized Persons’ to deal in foreign exchange.
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Chapter Chapter title Subject Sections
I Preliminary Jurisdiction, Definitions 1-2
IIRegulation & Management
of Forex
• Restriction on dealing with PROI
• Holding of forex
• Current a/c transactions
• Capital a/c transactions
• Export of goods & services
• Realisation and repatriation of forex with exemptions
3-9
III Authorised Persons Provisions relating to Authorised Persons 10-12
IV Contravention and PenaltiesProvisions relating to Contravention, its consequences
and Compounding13-15
V Adjudication and Appeal
• Provisions relating to terms of service, composition,
appointment of Adjudicating Authority, Members to
Appellate Tribunal
• Provisions relating to Appeal to Special Director
(Appeals), Appellate Trubunal and High Court
16-35
VI ED Provisions relating to Appointment & Powers (*37A*) 36-38
VII Miscellaneous Power to make Rules and Regulations, etc 39-49
Structure of FEMA
Overview of FEMA
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Overview of FEMA
Government of India
FIPB DPIIT RBICCEA
Ministry of Home Affairs
Ministry of Civil Aviation
Ministry of Information
& Broadcasting
Department of Telecom
Department of Financial
Services
Ministry of Defence
Ministry of Mines
Department of Space
Department of Economic
Affairs
Department of
Pharmaceuticals
Administration of FEMA
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Important Definitions under FEMA
Harshal Bhuta
Definition – ResidenceSec 2(v) – Person Resident in India:
Individuals
oBasic Rule: > 182 days in preceding FY
oException 1 to Basic Rule: Goes out of India for:
For employment o/s India
For carrying on business / vocation o/s India
For any other purpose indicating intention to stay o/s India for uncertain period
oException 2 to Basic Rule: Comes to India for:
For employment in India
For carrying on business / vocation in India
For any other purpose indicating intention to stay in India for uncertain period
PRI but not permanently resident: Employment for specified duration; specific job /
assignment ≤ 3 years. Used at following places:
No limit for possession of foreign currency in India – FEMA 11(R)
Contribution to foreign PF / superannuation / pension fund for expatriate staff –
FEMA 13(R)
FEMA 120 not to apply when foreign security is purchased out of forex resources
o/s India
LRS not to apply for net salary remittance – Sch III to CAT Rules, 2000
Basic rule mandatory satisfaction + Intention to be established with supporting
documentation including visa: MOF press release dated 1st Feb 2009 (Government’s advice on
acquiring land by persons residing outside India) | Intention test is supreme: Designation of
resident account as NRO upon change of residential status of account holder [FEMA 5(R)]7Seminar on FEMA - Goa Branch of WIRC04th March 2020
Harshal Bhuta
Definition – Non Resident Indian (NRI)
NRI definition under different Regulations
8
Definition Regulation
Means a person resident outside India
who is a citizen of India
FEM (Borrowing & Lending) Regulations, 2018
FEM (Deposits) Regulations, 2016
FEM (Remittance of Assets) Regulations, 2016
Means an individual resident outside
India who is a citizen of India
FEM (Non-Debt Instruments) Rules, 2019
FEM (Debt Instruments) Regulations, 2019
• As per Sec. 2(f) of the Citizenship Act, 1955, “person” does not include any
company or association or body of individuals, whether incorporated or not.
• Further, as per Sec. 2(u) of FEMA, 1999, “person” includes an individual.
• Effectually, there is no difference between both definitions.
Seminar on FEMA - Goa Branch of WIRC04th March 2020
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Definition – Overseas Citizen of India (OCI)
9
OCI definition under different Regulations
Definition Regulation
Means an individual resident outside India
who is registered as an Overseas Citizen
of India Cardholder under Section 7(A) of
the Citizenship Act, 1955 (57 of 1955)
FEM (Non-Debt Instruments) Rules, 2019
FEM (Debt Instruments) Regulations, 2019
Same meaning assigned to it under
Section 7(A) of the Citizenship Act, 1955
FEM (Borrowing & Lending) Regulations,
2018
Section 7(A) of the Citizenship Act, 1955 – Registration of OCI Cardholder
(a) any person of full age and capacity, ―
(i) who is a citizen of another country, but was a citizen of India at the time of, or at any time
after the commencement of the Constitution; or
(ii) who is a citizen of another country, but was eligible to become a citizen of India at the time
of the commencement of the Constitution; or
(iii) who is a citizen of another country, but belonged to a territory that became part
of India after the 15th day of August, 1947; or
Seminar on FEMA - Goa Branch of WIRC04th March 2020
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Definition – Overseas Citizen of India (OCI)
10
Section 7(A) of the Citizenship Act, 1955 – Registration of OCI Cardholder
(a) any person of full age and capacity,―
(iv) who is a child or a grandchild or a great grandchild of such a citizen; or
(b) a person, who is a minor child of a person mentioned in clause (a); or
(c) a person, who is a minor child, and whose both parents are citizens of India or one of the
parents is a citizen of India; or
(d) spouse of foreign origin of a citizen of India or spouse of foreign origin of an
Overseas Citizen of India Cardholder registered under section 7A and whose marriage has been
registered and subsisted for a continuous period of not less than two years immediately
preceding the presentation of the application under this section:
Provided that for the eligibility for registration as an Overseas Citizen of India Cardholder,
such spouse shall be subjected to prior security clearance by a competent authority in India:
Provided further that no person, who or either of whose parents or grandparents or
great grandparents is or had been a citizen of Pakistan, Bangladesh or such other
country as the Central Government may, by notification in the Official Gazette, specify, shall
be eligible for registration as an Overseas Citizen of India Cardholder under this sub-section.
Seminar on FEMA - Goa Branch of WIRC04th March 2020
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Definition – Persons of Indian Origin (PIO)
11
Comparison of PIO definition between different Regulations
Definition Regulation
Means a person resident outside India who is a citizen of any country
other than Bangladesh or Pakistan, or such other country as may be
specified by the Central Government, satisfying the following
conditions :
(a)Who was a citizen of India by virtue of the Constitution of India
or the Citizenship Act, 1955 (57 of 1955); or
(b)Who belonged to a territory that became part of India after the
15th day of August, 1947; or
(c)Who is a child or grandchild or a great grandchild of a citizen of
India or of a person referred to in clause (a) or (b)
(d)Who is a spouse of foreign origin of a citizen of India or spouse
of foreign origin of a person referred to in clause (a) or (b) or (c)
Explanation: for the purpose of this sub-regulation, the expression
‘Person of Indian Origin’ includes an ‘Overseas Citizen of India’
cardholder within the meaning of Section 7(A) of the Citizenship
Act, 1955.
FEM (Deposits)
Regulations, 2016
FEM (Remittance of
Assets) Regulations, 2016
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Importance of NRI / PIO / OCI definition
12
Difference in definition becomes critical under certain situations.
For e.g. Indian Citizen is staying in Singapore on work visa. He marries a Singaporean
woman. His wife wants to invest in NRE FDs in India and also invest in house property at
Pondicherry.
Upon Marriage, she qualifies as PIO and can open NRE FD on an immediate basis
However, unless she obtains OCI cardholder (minimum 2 years), she does not qualify as
OCI and cannot invest in house property at Pondicherry either jointly or singly.
Maternal lineage is also to considered under definition of OCI and PIO.
For e.g. Portuguese citizen can open NRE deposit even if his great grandfather was a
Portuguese Citizen but whose great grandmother was born in Goa and acquired
Portuguese Citizenship before integration of Goa with India.
Seminar on FEMA - Goa Branch of WIRC04th March 2020
Inbound Investment
Harshal Bhuta
Key Highlights of FEM (Non-Debt Instruments) Rules, 2019
While Immovable property regulations has been added in these rules, no substantial
amendments has been made to the same.
The term ‘capital instrument’ has been deleted and replaced with the word ‘equity
instrument’ throughout the rule.
Clear distinction has been made between debt and non-debt instruments by these
amendments.
A definition of Hybrid Instruments has been introduced, However, the expression
has not been used across rule.
Requirement of consultation of CG has been added in certain provisions.
The Central Government, vide notification dated 17.10.2019, notified FEM (Non-
Debt Instruments) Rules, 2019 in suppression of FEM (TISPRO)Regulation, 2017
and FEM ( Acquisition & Transfer of Immovable Property)Regulation, 2018. The
RBI has, vide FEM (Mode of Payment and Reporting of Non-Debt Instruments)
Regulations, 2019 laid down the mode of payment and attendant conditions.
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Inbound InvestmentsFEM (Non-Debt Instrument) Rules, 2019 dated 17.10.2019
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Foreign InvestmentsImportant Definitions
Foreign Investment
‘Foreign Investment’ means any investment made by a person resident
outside India on a repatriable basis in equity instruments of an Indian
company or to the capital of an LLP;
o Note: A PROI may hold foreign investment either as Foreign Direct Investment
or as Foreign Portfolio Investment in any particular Indian company.
o Explanation: If a declaration is made by a person as per the provisions of the
Companies Act, 2013 about a beneficial interest being held by a person resident
outside India, then even though the investment may be made by a resident
Indian citizen, the same shall be counted as foreign investment
Foreign Direct Investment (FDI)
FDI means investment through equity instruments by a person resident
outside India in an unlisted Indian company;
Or
in 10 percent or more of the post issue paid-up equity capital on a fully
diluted basis of a listed Indian company;Seminar on FEMA - Goa Branch of WIRC04th March 2020 16
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Foreign InvestmentsImportant Definitions
Foreign Direct Investment (FDI)
o Note: In case, an existing investment by a PROI in equity instruments of a listed
Indian company falls to a level below 10% of the post issue paid-up equity capital
on a fully diluted basis, the investment shall continue to be treated as FDI.
Equity Instruments
Equity Instruments means:
Equity shares: Equity shares issued in accordance with the provisions of the
Companies Act, 2013 shall include equity shares that have been partly paid.
Partly paid shares that have been issued to a person resident outside India shall
be fully called-up within twelve months of such issue. Twenty five percent of
the total consideration amount (including share premium, if any), shall be
received upfront.
Convertible Debentures: ‘Convertible Debentures’ means fully, compulsorily
and mandatorily convertible debentures.
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Foreign InvestmentsImportant Definitions
Equity Instruments
Equity Instruments means:
Preference shares: ‘Preference shares’ means fully, compulsorily and
mandatorily convertible preference shares.
Share warrants: Share Warrants are those issued by an Indian Company in
accordance with the Regulations issued by the SEBI. In case of share warrants at
least twenty five percent of the consideration shall be received upfront and the
balance amount within eighteen months of issuance of share warrants.
Equity instruments can contain an optionality clause subject to a minimum lock-
in period of one year or as prescribed for the specific sector, whichever is higher,
but without any option or right to exit at an assured price.
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Foreign InvestmentsImportant Definitions
Foreign Portfolio Investment
‘Foreign Portfolio Investment’ means any investment made by a person resident
outside India through equity instruments where such investment is less than 10
percent of the post issue paid-up share capital on a fully diluted basis of a listed
Indian company or less than 10 percent of the paid up value of each series of
equity instruments of a listed Indian company.
Foreign Portfolio Investor (FPI)
FPI means a person registered in accordance with the provisions of Securities
Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
Sectoral Cap
Sectoral cap’ means the maximum investment including both foreign
investment on a repatriation basis by persons resident outside India in equity
instruments of a company or the capital of an LLP, as the case may be, and
indirect foreign investment, unless provided otherwise. This shall be the
composite limit for the Indian investee entity;
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Sch.
No.
Rule Particulars
I 6(a) Purchase/ Sale of Equity Instruments of an Indian company by a person
resident outside India
II 10(1) Purchase/ Sale of Equity Instruments of a listed or to be listed Indian
company on a recognized stock exchange in India by FPI
III 12(1) Purchase/ Sale of Equity Instruments of a listed Indian company on a
recognised stock exchange in India by NRI or OCI on repatriation
basis
IV 12(2) Investment on non-repatriation basis by NRI or OCI
V 14 Investment by other non-resident investors
VI 6(b) Investment in a LLP
VII 16 Investment by FVCI
VIII 6(c) Investment by a person resident outside India in an Investment Vehicle
IX 6(d) Investment in Depository Receipts by PROI
X 10(2) &
12(3)
Issue of Indian Depository Receipts
Entry Routes for Inbound Investments(FEM (Non-Debt Instrument) Rules, 2019 dated 17.10.2019)
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Rule Seller Buyer Mode of Transfer
9(1) PROI (Other than NRI/ OCI/
OCB)
PROI Sale/ Gift
9(2) PROI (incl. NRI/OCI) PRI Sale/ Gift
9(3) PRI PROI Sale
9(4) PRI PROI Gift with limits (RBI
Approval)
9(6) PRI/ PROI PROI/ PRI Sale (deferred consideration)
13(1) NRI/ OCI (on Repat basis) PROI Sale/ Gift
13(2) NRI/ OCI (on Non-Repat
basis)
PROI Sale
13(3) NRI/ OCI (on Non-Repat
basis)
PROI Gift with limits (RBI
Approval)
13(4) NRI/ OCI (on Non-Repat
basis)
NRI/ OCI (on Non-Repat
basis)
Gift
13(5) OCB NRI
PRI
Sale/ Gift
Sale
Exit Routes for Inbound Investments(FEM (Non-Debt Instrument) Rules, 2019 dated 17.10.2019)
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Acquisition through Rights Issue or Bonus Issue
PROI having investment in Indian company may acquire equity instruments (other than
share warrants) issued by such company as a rights issue or a bonus issue provided that:
The offer is in compliance with the provisions of the Companies Act, 2013:
Such issue shall not result in a breach of the sectoral cap applicable to Indian
company;
Original shareholding must have been acquired & held as per provisions of these rules;
For listed Indian company: Rights issue to persons resident outside India shall be at a
price determined by the company;
For unlisted Indian company: Rights issue to persons resident outside India shall not
be at a price less than the price offered to persons resident in India.
Amount of consideration to be paid as inward remittance from abroad through banking
channels or out of funds held in NRE/ FCNR(B) a/c.
If the original investment has been made on a non-repatriation basis, the amount of
consideration may also be paid by debit to the NRO a/c.
An individual who is a person resident outside India exercising a right which was issued
when he/ she was a person resident in India can hold the equity instruments so acquired
on exercising the right on a non-repatriation basis. (Change over from PRI to PROI)
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Renunciation of entitlement PRI & PROI can subscribe for additional shares over and above the shares offered on
rights basis by the company and also renounce the shares offered either in full or part
thereof in favour of a person named by them.
Pricing guidelines to be followed
Rights shares shall be subject to the same conditions including restrictions in regard to
repatriability as applicable to the original shareholding.
Issue of ESOP and Sweat Equity SharesAn Indian company is permitted to issue “employees’ stock option” and/ or “sweat
equity shares” to its employees/ directors or employees/ directors of its holding
company or joint venture or wholly owned overseas subsidiary/ subsidiaries who are
resident outside India, subject to the following conditions:
Compliance with SEBI Regulations or the Companies (Share Capital and Debentures)
Rules, 2014;
Compliance with the sectoral cap applicable to the said company;
Issue of “employee’s stock option”/ “sweat equity shares” in a company where
investment by a person resident outside India is under the approval route requires prior
Government approval.
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Issue of equity Instruments upon Merger / Amalgamation / Demerger:
Upon approval by National Company Law Tribunal (NCLT)/ Competent Authority,
the transferee company or the new company, as the case may be, can issue equity
instruments to the existing holders of the transferor company who are resident outside
India, subject to the following conditions:
• The transfer or issue should comply with entry routes, sectoral caps or investment
limits, as the case may be, and the attendant conditionalities of foreign investment;
• In case the foreign investment is likely to breach the Sectoral caps or the attendant
conditionalities, the transferor company or the transferee or the new company
should obtain necessary Government approval;
• The transferor company or the transferee company or the new company should not
be in a sector prohibited for foreign investment;
• Listed Companies: Scheme of arrangement shall be in compliance with SEBI
(Listing Obligation & Disclosure Requirement) Regulation, 2015.
Merger / Demerger / Amalgamation of Indian companies
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Company Law:
Position under Companies Act, 1956 [Section 394(4)(b)]: “a “transferee
company” does not include any company other than a company within the
meaning of this Act, but “transferor company” includes any body corporate,
whether a company within the meaning of this Act or not.” Accordingly,
“transferee company” could only be an Indian company while a “transferor
company” could include foreign companies as well. Therefore, only inbound
cross-border mergers were possible and not outbound mergers.
Companies Act, 2013: MCA notified Sec. 234 w.e.f. 13.04.2017 enabling
inbound as well as outbound mergers.
Cross Border Merger – Inbound Merger
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Foreign Exchange Management (Cross Border Merger) Regulations, 2018
[Notification No. FEMA.389/2018-RB Dated: March 20, 2018]
‘Inbound merger’ means a cross border merger where the resultant company is
an Indian company;
The resultant company may issue or transfer any security and/or a foreign
security, as the case may be, to a person resident outside India in accordance
with the pricing guidelines, entry routes, sectoral caps, attendant conditions and
reporting requirements for foreign investment as laid down in Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2017.
Any transaction on account of a cross border merger undertaken in accordance
with these Regulations shall be deemed to have prior approval of the Reserve
Bank as required under Rule 25A of the Companies (Compromises,
Arrangement and Amalgamations) Rules, 2016.
Cross Border Merger – Inbound Merger
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Downstream Investment:
Total Foreign investment in a company = Direct + Indirect Foreign Investment
‘Downstream investment’ means indirect foreign investment, by an eligible Indian
entity, into another Indian company /LLP, by way of subscription or acquisition.
‘Ownership’ shall mean:
•A Company shall be considered as owned by resident Indian citizens if more than
50% of the equity in it is beneficially owned by resident Indian citizens and/or
Indian companies, which are ultimately owned and controlled by resident Indian
citizens.
•A Limited Liability Partnership will be considered as owned by resident Indian
citizens if more than 50% of the investment in such an LLP is contributed by
resident Indian citizens and/ or entities which are ultimately ‘owned and controlled
by resident Indian citizens’ and such resident Indian citizens and entities have
majority of the profit share.
‘Control’ shall include:
Company – Right to appoint a majority of the directors or to control the
management or policy decisions including by virtue of their shareholding or
management rights or shareholders agreements or voting agreements.
Downstream Investment
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Downstream Investment:
‘Control’ shall include:
Limited Liability Partnership – Right to appoint majority of the designated
partners, where such designated partners, with specific exclusions to others,
have control over all the policies of Limited Liability Partnership.
If the investing company/ LLP is owned or controlled by ‘non-resident entities’, the
entire investment by the investing company/LLP into the subject Indian Company/
LLP would be considered as indirect foreign investment. Otherwise, indirect foreign
investment would be taken as the percentage of downstream investment.
Downstream investments which is treated as Indirect Foreign Investment for the
investee Indian entity can be made through by bringing in requisite funds from
abroad or through internal accruals. For this purpose, internal accruals will mean
profits transferred to reserve account after payment of taxes.
Foreign investment in investing companies registered as Non-Banking Financial
Companies (NBFCs) with the Reserve Bank, will be under 100% automatic route.
When Indian investing company does not have any operations at the time of
downstream, investment and subsequently commences business(s), it will have to
comply with the relevant sectoral conditions on entry route, conditionalities and
caps.
Downstream Investment (Cont.)
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Downstream Investment (Cont.)
Downstream Investment:
Examples:
Indian Company Y has received foreign investment from non-resident investors. Company Y
makes further investment into Indian Company X.
Foreign Investors Foreign Investors Foreign Investors
Company Y Company Y Company Y
Company X Company XCompany X
≤ 50%
80%
> 50%
80%
> 50%
100%
Verdict for Total Indirect Investment in Company X:
0% since Co. Y owned by
Resident Indian citizens
80% since Co. Y is not owned
by Resident Indian citizens
100% of FDI in Co. Y
since mirror image
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Transfer of Downstream Investment:
Compliance Obligation:
First level Indian company making downstream investment to be responsible for
ensuring compliance with provisions of these regulations for the downstream investment
made by it at second level and so on and so forth.
Such first level company to obtain a certificate to this effect from its statutory auditor on
an annual basis.
Such compliance of these regulations to be mentioned in the Director's report in the
Annual Report of the Indian company.
In case statutory auditor has given a qualified report, the same needs to be immediately
brought to the notice of the Regional Office of the Reserve Bank in whose jurisdiction
the Registered Office of the company is located and shall also obtain acknowledgement
from the RO.
Transferor Transferee
First level IndCo/ LLP PROI
First level IndCo/ LLP PRI
First level IndCo/ LLP Comparable first level IndCo/ LLP
Downstream Investment (Cont.)
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Valuation of equity Instruments
FDI
Listed Co.Unlisted
Co.
Price as per
SEBI
preferential
allotment
Internationa
lly accepted
Pricing
Methodolog
y for
valuation of
shares on
Arm’s
length basis
Valuation &
Certificatio
n by CA/
SEBI
Merchant
Banker
Transfer - R
to NRTransfer -
NR to R
Price of
shares shall
not be less
than the Fair
Value
worked out
as per any
international
ly accepted
Pricing
Methodolog
y for
valuation of
shares on
Arm’s length
Price of
shares shall
not be more
than the Fair
Value
worked out
as per any
international
ly accepted
Pricing
Methodolog
y for
valuation of
shares on
Arm’s
length
Share
warrants
Price/
conversio
n formula
shall be
determin
ed
upfront
Swap of
equity
Instruments
Valuation
by SEBI
Merchant
Banker (in
India)
or
Investment
Banker
(o/s. India)
(Registere
d with app.
Authority)
Subs. to
MOA
At Face
Value,
subj. to
entry
routes
and
sectoral
caps
Pricing Guidelines
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Comprehensive Reporting requirements
With the objective of integrating the extant reporting structures of various types of
foreign investment in India, a Single Master Form (SMF) for reporting of foreign
investments by companies/LLPs/Start-ups in India has been prescribed. It is a single
stop form for all reporting relating to foreign investment subsuming all previously
notified forms. The SMF is to be filed online.
Single Master Form
Included Excluded
FLA Return
Form LEC (FII)
Form LEC (NRI)
ARFForm FC-GPR
Form FC-TRS
Form LLP-I
Form LLP-II
Form ESOP
Form CN
Form DRR
Form DI
Form InVi
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Comprehensive Reporting requirements
Salient features of SMF:
Unlike Entity Master credentials which is entity specific, business user credentials can
be obtained by any individual/ entity which is required to make filing in SMF
essentially making it transaction type specific.
Pre-transaction values in Shareholding Pattern are fetched from details entered
previously in Entity Master.
ARF is no longer required to be filed.
Substantial stakeholder responsibility placed on AD bank for processing all forms in
SMF.
Issues in filing SMF:
Before completion of processing of previous form filing in SMF, additional forms
cannot be filed.
If for any reason form is rejected after filing, entire form needs to be filed again since
there is no resubmission option.
Forms submitted on e-biz and not processed now need to be filed physically as per
informal guidance.
Late fees need to be paid even if forms have been approved with delay.
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Comprehensive Reporting requirements
Sample Form FC-GPR:
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Prohibited activities
Lottery Business including Government/ private lottery, online lotteries
Gambling and betting including casinos
Chit funds
Nidhi company
Trading in Transferable Development Rights (TDRs)
Real Estate Business or Construction of Farm Houses
Explanation: For the purpose of this regulation, “real estate business” shall not
include development of townships, construction of residential /commercial
premises, roads or bridges and Real Estate Investment Trusts (REITs) registered
and regulated under the SEBI (REITs) Regulations 2014.
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of
tobacco substitutes
Activities/ sectors not open to private sector investment e.g. (I) Atomic energy
and (II) Railway operations
Foreign technology collaboration in any form including licensing for franchise,
trademark, brand name, management contract is also prohibited for Lottery
Business and Gambling and Betting activities
[Rule 2 of Schedule I]
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Schedule I to FEM Non-Debt Regulation 2019Schedule I – Purchase/ Sale of equity instruments of an Indian company by a person
resident outside India
An Indian company may issue equity instruments to PROI subject:
Entry Routes Automatic or Government Approval
Sectoral Caps and Attendant Conditionality(s) Sector wise- caps on foreign
investment permitted under automatic/approval route; In sectors/ activities not listed in
Rule 2 or 3 of Schedule I, foreign investment is permitted up to 100% on the automatic
route
PROI may purchase equity instruments of a listed Indian company on a stock
exchange in India provided that:
PROI making the investment has already acquired control of such company in
accordance with SEBI (SAST) Regulations, 2011 and continues to hold such control;
Amount of consideration may be paid as per the mode of payment prescribed in this
Schedule or out of the dividend payable by Indian investee company
WOS can issue equity instruments against pre-incorporation / preoperative expenses
incurred by NR entity for lower of (a) limit of 5% of authorized capital & (b) USD
500,000, within 12 months of incorporation max:
WOS operates in sector with 100% FDI under Automatic Route and no FDI linked
performance conditions;
Compliance of reporting requirement;
Statutory Auditor utilization certification for pre-incorporation / preoperative expenses.Seminar on FEMA - Goa Branch of WIRC04th March 2020 44
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Schedule I – Purchase/ Sale of equity instruments of an Indian company by a person
resident outside India (cont…)
An Indian company may issue equity instruments to a PROI under automatic route, if
the Indian investee company is engaged in sector under automatic route against:
Swap of equity instruments,
Import of capital goods/ machinery/ equipment (excluding second-hand machinery),
Pre-operative/ pre-incorporation expenses (including payments of rent etc.)
An Indian company may issue equity shares against any funds payable by it to PROI,
the remittance of which is permitted under FEMA
Mode of Payment Inward remittance from abroad through banking channels or out of
funds held in NRE/ FCNR(B)/ Escrow account
Remittance of sale proceeds Sale proceeds (net of taxes) of the equity instruments may
be remitted outside India or may be credited to the NRE/ FCNR(B) [i.e. Repatriable]
Schedule I to FEM Non-Debt Regulation 2019 (Cont.)
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Schedule II to FEM Non-Debt Regulation 2019
Schedule II – Investment by Foreign Portfolio Investors
FPI may purchase/ sell equity instrument of listed/ to be listed Indian Co. subject:
Total holding by each FPI should be < 10% of paid-up capital (individual limit)
Total holding of all FPI put together should be < 24% of paid-up capital (aggregate
limit). However it can be increased to sectoral cap limit by passing special resolution
W.e.f. 01.04.2020, the aggregate limit shall be the sectoral cap limit. This limit can be
decreased to a lower threshold by passing special resolution. Once decreased, can
increase the limit also. However, once it is increased then cannot reduce to lower
threshold.
Aggregate limit in sector where FDI is prohibited shall be 24%.
In case of breach of prescribed limit:
Option to divest their holding within 5 trading days
If choses not to divest entire investment will be considered as FDI
To report within 7 days to the depositories as well as concerned company for effecting
necessary changes
Investment by foreign Government agencies shall be clubbed with investment by foreign
Government or related entity (if they are part of investor group)for the purpose of
calculation of 10% limit for FPI investment
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Schedule II to FEM Non-Debt Regulation 2019 (Cont.)
Schedule II – Investment by Foreign Portfolio Investors (cont…)
FPI may purchase equity instrument of Indian Co. through public offer or private
placement subject to satisfaction of individual and aggregate limit:
Pricing in case of public offer: not less than price at which shares issued to resident
Pricing in case of private placement: not less than (a) price arrived as per SEBI
guidelines; or (b) fair price as per any Int’l pricing certified by merchant banker/ CA/
Cost Accountant
FPI may undertake short selling/ lending or borrowing of securities subject to conditions
FPI may purchase units of domestic mutual fund or Cat III AIF or Offshore fund for which
no objection is issued in accordance with SEBI (MF) regulations, 1996 which invests > 50%
in equity instrument on repatriation basis
FPI may purchase units of REITs and InVITs (Repatriation) subject to SEBI guidelines.
Mode of Payment Inward remittance from abroad through banking channels or out of
funds held in Foreign Currency/SNRR account.
Remittance of sale proceeds Sale proceeds (net of taxes) of the equity instruments and
units of domestic MF may be remitted outside India or may be credited to the Foreign
Currency/ SNRR account.
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Schedule III to FEM Non-Debt Regulation 2019
Schedule III – Investment by NRI/ OCI on repatriation basis
NRI/ OCI may Purchase/ sell of equity instrument of listed Indian Co. subject:
Purchase/ sell through branch designated by an Ad
Total holding by any individual NRI/ OCI should be < 5% of paid-up capital
(individual limit)
Total holding of all NRI/ OCI put together should be < 10% of paid-up capital
(aggregate limit).
Ceiling of 10% and 24% can be increased by passing special resolution
NRI/ OCI may purchase/ sell without any limit units of domestic mutual fund which
invests more than 50% in equity.
NRI/ OCI may purchase/ sell without any limit shares in public sector enterprise being
disinvested by CG subject to terms and conditions stipulated in notice inviting bids
NRI/ OCI may subscribe to the National Pension System (NPS) governed by Pension
Fund Regulatory and Development Authority (PFRDA) provided:
Such person is eligible to invest as per the provision of PFRDA Act
Annuity/ accumulated saving will be repatriable
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Schedule III to FEM Non-Debt Regulation 2019 (Cont.)
Schedule III – Investment by NRI/ OCI on repatriation basis (cont…)
Mode of Payment:
Inward remittance from abroad through banking channels or out of funds held in
NRE account
NRE account will be designated as NRE (PIS) account and the same shall be
exclusively used for putting through transaction permitted under this schedule
For investment in units of domestic mutual fund: Inward remittance from abroad
through banking channels or out of funds held in NRE/ FCNR(B) account
For subscription to NPS: : Inward remittance from abroad through banking channels
or out of funds held in NRE/ FCNR(B)/ NRO account
Remittance of sale proceeds:
Sale proceeds (net of taxes) of the equity instruments may be remitted outside India
or may be credited to the NRE (PIS) account.
Sale proceeds (net of taxes) of the units of mutual funds and subscription to NPS
may be remitted outside India or may be credited to the NRE (PIS)/ FCNR (B)/
NRO account.
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Schedule IV to FEM Non-Debt Regulation 2019
Schedule IV – Investment on Non-Repatriable Basis
Non-Repatriable means -
Only Dividend / Interest can be sent back abroad
Principal + Gains cannot be repatriated
A. Purchase/ sale of equity instruments or convertible notes or units or contribution to
the capital of an LLP
Eligible Investor:
NRI
OCI
a company, a trust and a partnership firm incorporated outside India and owned and
controlled by NRIs or OCIs [Owned & Controlled not defined in Sch. IV, therefore as
per Rule 23, Ownership shall mean beneficial holding of 50% + of Share Capital / LLP
and major profit share Control shall mean right to appoint majority of Directors /
Partners / DPs with NRIs
Investment in:
Equity instruments i.e. shares / CCDs / warrants etc. without any limit either on the
stock exchange or outside it
Units issued by an investment vehicle without any limit, either on / off stock exchange
The capital of a Limited Liability Partnership without any limit.
Convertible notes issued by a startup company in accordance with these Regulations.
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Schedule IV – Investment on Non-Repatriable Basis (Cont…)
Investment deemed to be domestic investment at par with the investment made by residents
Shall not invest in equity instruments or units of a Nidhi or company engaged in
agricultural/ plantation activities or Real Estate Business or Construction of Farm Houses
or dealing in TDRs.
Real Estate Business means Dealing in land to earn profits but excludes Leasing of
property / Investment in REIT units / earning of rent income
Mode of Payment inward remittance from abroad through banking channels or out of
funds held in NRE/ FCNR(B)/ NRO account
Sale/ maturity proceeds
Credited only to the NRO account of the investor, irrespective of the type of account
from which the consideration was paid
Amount invested + capital appreciation shall not be allowed to be repatriated abroad
[NRI may avail USD $ 1 Million scheme]
Schedule IV to FEM Non-Debt Regulation 2019 (Cont.)
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Schedule IV – Investment on Non-Repatriable Basis (Cont…)
B. Investment in a Firm or Proprietary Concern
Eligible Investor:
NRI
OCI
Investment in:
Capital of firm / proprietary concern
Restricted Sectors for NRIs/ OCI:
Agricultural / Plantation / Real Estate Business / Print Media
Mode of Payment inward remittance from abroad through banking channels or out of
funds held in NRE/ FCNR(B)/ NRO account
Sale/ maturity proceeds
Credited only to the NRO account of the investor, irrespective of the type of account
from which the consideration was paid
Amount invested + capital appreciation shall not be allowed to be repatriated abroad
[NRI may avail USD $ 1 Million scheme]
Schedule IV to FEM Non-Debt Regulation 2019 (Cont.)
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Schedule V – Investment by Other Non-Resident Investors
Permission to other non-resident investors for purchase of securities:
Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies,
Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks may
purchase securities subject to such terms and conditions specified by RBI/ SEBI.
“Eligible Foreign Entity (EEE)” as defined in SEBI circular dated the 9th October
2018 and having actual exposure to Indian physical commodity market may
participate in domestic commodity derivative markets in accordance with framework
specified by the Securities and Exchange Board of India.
Mode of Payment Inward remittance from abroad through banking channels
Sale/ maturity proceeds Eligible for remittance abroad
Schedule V to FEM Non-Debt Regulation 2019
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Schedule VI – Investment in LLP
Contribute to the capital of an LLP operating in sectors/ activities where
Foreign investment up to 100% is permitted under automatic route
There are no FDI linked performance conditions
Investment in compliance of LLP Act, 2008
No FDI in LLP in following cases:
Sectors with performance linked conditions. [E.g. FS, Real Estate, Single Brand
Retail]
Sectors eligible to receive less than 100% FDI under Automatic Route
Sectors where FDI possible only with Govt. permission
Agriculture / Plantation / Print Media / Private Security
Sectors not opened up for FDI – Tobacco / Railways
Foreign Investors not allowed to Invest in LLP:
Pakistani / Bangladeshi entity / citizen
FVCI
FPI
Meaning of FDI Linked Performance Conditions:
FDI linked performance conditions are the sector specific conditions stipulated in Rule
3 of Schedule I to these Rules for companies receiving foreign investment
Schedule VI to FEM Non-Debt Regulation 2019
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Schedule VI – Investment in LLP (cont…)
Pricing
Capital Contribution ≥ FMV worked out as per any Int’l Accepted Valuation
Methodology by CA / CMA / Regd. Valuer
Transfer of Capital Contribution or profit Share from R to NR ≥ FMV & vice versa
Payment
Only Cash Consideration (no CoC as allowed for FDI)
Inward remittance / NRE / FCNR (B) Account
Automatic Route Conversion of Co. with FDI into LLP and Conversion of LLP with
FDI into Co. only if :
Sector where FDI up to 100% in Automatic Route
No FDI linked Performance Conditions
Other Conditions
Designated Partner – must be an Indian Company / Indian Resident
Resident DP u/s. 7 of LLP Act must be a Resident u/s. 2 of FEMA,1999
DP responsible for all compliances and penalties on LLP
LLPs cannot avail ECBs
Schedule VI to FEM Non-Debt Regulation 2019 (Cont.)
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Schedule VII – Investment by Foreign Venture Capital Investor (FVCI)
Subject to terms & condition as laid down by CG, FVCI may purchase:
Securities issued by Indian company engaged in sector in which FVCI is allowed to
invest
Units of Venture Capital Fund (VCF) or of a Cat I AIF or units of scheme/ fund set up
by VCF/ Cat I AIF
Equity/ equity linked instrument/ debt instrument issued by an Indian start-up
irrespective of the sector in which start-up is engaged. Definition of start-up would be
as given in DPIIT’s notification no. G.S.R. 364(E) dated 11.04.2018.
If the investment is into the equity instrument, then the sectoral caps/ entry routes/
attendant conditions will apply
FVCI may purchase the securities or instrument from issuer/ person holding the instrument
FVCI may acquire/ transfer to any person resident in or outside India, any security or
instrument at a price that is mutually acceptable to the buyer and seller/ issuer.
Mode of Payment Inward remittance from abroad through banking channels or out of
funds held in Foreign Currency/SNRR account.
Schedule VII to FEM Non-Debt Regulation 2019
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Schedule VII – Investment by Foreign Venture Capital Investor (FVCI) (cont…)
List of sectors in which a FVCI is allowed to invest:
Biotechnology
IT related to hardware and software development
Nanotechnology
Seed research and development
R&D in new chemical entities in pharma sector
Dairy industry
Poultry industry
Production of bio-fuels
Hotel-cum-convention centres with seating capacity of > 3000
Infrastructure sector (same meaning as given in Harmonised Master List of
Infrastructure sub-sectors approved by GOI vide notf. No. 13/06/2009 – INF dated
27.03.2012)
Remittance of sale proceeds Sale proceeds (net of taxes) of the securities may be
remitted outside India or may be credited to the Foreign Currency/ SNRR account.
Schedule VII to FEM Non-Debt Regulation 2019 (Cont.)
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Schedule VIII – Investment by PROI in an Investment Vehicle
PROI (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside
India (other than entity incorporated in Pakistan or Bangladesh) may invest in units of
Investment Vehicle
PROI who has acquired/ purchased units may sell/ transfer in any manner or redeem the
units as per regulation framed by SEBI/ direction issued by the Reserve Bank
Investment Vehicle may issue its units to PROI against swap of equity instrument of a SPV
proposed to be acquired by such Investment Vehicle
Investment made by IV into an India entity shall be reckoned as indirect foreign investment
if Sponsor/ manager/ investment manager:
is not owned and controlled by resident Indian citizen; or
is owned or controlled by PROI
Mode of Payment Inward remittance from abroad through banking channels or out of
funds held in NRE/ FCNR (B) account.
Remittance of sale proceeds Sale proceeds (net of taxes) of the units may be remitted
outside India or may be credited to the NRE/ FCNR (B) account.
Schedule VIII to FEM Non-Debt Regulation 2019
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Schedule IX – Investment in Depository Receipts by a PROI
Issue or transfer of eligible instrument to a foreign depository for the purpose of
issuance of depository receipts by eligible persons(s):
Any security in which PROI is allowed to invest under these rules shall be eligible
instrument
Eligible to issue/ transfer eligible instrument to foreign depository
Domestic custodian may purchase eligible instrument on behalf of PROI for
converting instruments into depository receipts in terms of Depository Receipt
Scheme, 2014 (DR Scheme, 2014)
Eligible instrument transferred/ issued to foreign depository + eligible instrument
already held shall not exceed the limit on foreign holding
Eligible instrument shall not be issued/ transferred at a price less than the price
applicable to a corresponding mode of issue/ transfer of such instrument to domestic
investor
Depository Receipt issued under The Issue of Foreign Currency Convertible Bonds
and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be
deemed to have been issued under corresponding provision of DR Scheme 2014.
Schedule IX to FEM Non-Debt Regulation 2019
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Schedule X – Issue of Indian Depository Receipts
Companies incorporated o/s India may issue IDRs through a domestic depository to a PRI/
PROI subject to:
Issue is in compliance with Companies (Registration of Foreign Companies) Rules
2014 and the SEBI (Issue of Capital and Disclosure Requirement) Regulation 2009
Issue of IDRS by financial/ banking companies having presence in India (either
through branch/ subsidiary) shall require prior approval of sectoral regulator(s)
IDRs shall be denominated in INR only
Proceeds of the IDRs shall be immediately repatriated outside India
FPI/ NRI/ OCI may purchase, hold or sell IDRs subject to:
Limited two way fungibility of IDRs shall be permissible
IDRs shall not be redeemable before expiry of 1 year from date of issue
Mode of Payment Out of funds held in their NRE/ FCNR (B) account
Remittance of sale proceeds Redemption/ conversion of IDRs into underlying equity
shares shall be in compliance with FEM (Transfer or Issue of any Foreign Security)
Regulation 2004
Schedule X to FEM Non-Debt Regulation 2019
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Harshal Bhuta
Agriculture & Animal Husbandry Sector[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
Other Conditions:
The term ‘under controlled conditions’ covers the following:
‘Cultivation under controlled conditions’ for the categories of Floriculture, Horticulture, Cultivation
of vegetables and Mushrooms is the practice of cultivation wherein rainfall, temperature, solar
radiation, air humidity and culture medium are controlled artificially. Control in these parameters
may be effected through protected cultivation under green houses, net houses, poly houses or any
other improved infrastructure facilities where micro-climatic conditions are regulated
anthropogenically.
Activity Sectoral Cap Entry Route
(a) Floriculture, Horticulture and Cultivation of vegetables &
mushrooms under controlled conditions;
(b) Development and production of seeds and planting material;
(c) Animal Husbandry (including breeding of dogs),
Pisciculture, Aquaculture and Apiculture; and
(d) Services related to agro and allied sectors.
Note: Other than the above, foreign investment is not
allowed in any other agricultural sector/ activity.
100% Automatic
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Manufacturing Sector
• Manufacturing activities may be either self manufacturing by
the investee entity or contract manufacturing in India through
a legally tenable contract, whether on Principal to Principal
or Principal to Agent basis. Further, a manufacturer is
permitted to sell his products manufactured in India through
wholesale and/or retail, including through e-commerce,
without Government approval.
• Notwithstanding the Provision of these Regulations on
Trading Sector, 100% Foreign Investment under Government
approval route is allowed for Trading, including through E-
commerce, in respect of food products manufactured and/or
produced in India (locally produced and packaged foods
products). Applications for foreign investment in food
products retail trading would be processed in the Department
of Industrial Policy & Promotion before being considered by
the Government for approval.
Activity Sectoral Cap Entry Route
Manufacturing Sector 100% Automatic
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Construction Development Sector
Activity Sectoral Cap Entry Route
Construction-Development Projects (which would
include development of townships, construction of
residential/commercial premises, roads or bridges,
hotels, resorts, hospitals, educational institution,
recreational facility, city and regional level
infrastructure, townships.)
100% Automatic
Conditions:
1. Each phase of the construction development project would be considered as a separate project.
2. The investor will be permitted to exit on completion of the project or after development of trunk
infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.
3. Notwithstanding anything contained at (b) above, a person resident outside India will be permitted
to exit and repatriate foreign investment before the completion of project under automatic route,
provided that a lock-in period of three years, calculated with reference to each tranche of foreign
investment has been completed. Further, transfer of stake from a person resident outside India to
another person resident outside India, without repatriation of foreign investment will neither be
subject to any lock-in period nor to any government approval.
4. The Indian investee company to sell only developed plots. For the purposes of this policy
"developed plots" will mean plots where trunk infrastructure i.e. roads, water supply, street lighting,
drainage and sewerage, have been made available.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Construction Development Sector (Cont.)
Note:-
1. Foreign investment is not permitted in an entity which is engaged or proposes to engage in real
estate business, construction of farm houses and trading in transferable development rights
(TDRs).
2. Condition of lock-in period will not apply to Hotels and Tourist Resorts, Hospitals, Special
Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs/
OCIs.
3. Completion of the project will be determined as per the local bye-laws/ rules and other
regulations of State Governments.
4. Foreign investment up to 100 percent under automatic route is permitted in completed projects
for operating and managing townships, malls/ shopping complexes and business centres.
Consequent to such foreign investment, transfer of ownership and/ or control of the investee
company from persons resident in India to persons resident outside India is also permitted.
However, there would be a lock-in-period of three years, calculated with reference to each
tranche of foreign investment and transfer of immovable property or part thereof is not
permitted during this period.
5. Real estate broking services shall be excluded from the definition of “real estate business” and
100% foreign investment is allowed in real estate broking services under automatic route.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Construction Development Sector (Cont.)
‘Real estate business’ means dealing in land and immovable property with a view to earning
profit therefrom and does not include development of townships, construction of residential/
commercial premises, roads or bridges, educational institutions, recreational facilities, city
and regional level infrastructure, townships;
o Earning of rent income on lease of the property, not amounting to transfer will not amount
to real estate business.
o Transfer in relation to real estate includes,
i. the sale, exchange or relinquishment of the asset; or
ii. the extinguishment of any rights therein; or
iii. the compulsory acquisition thereof under any law; or
iv. any transaction involving the allowing of the possession of any immovable property
to be taken or retained in part performance of a contract of the nature referred to in
section 53A of the Transfer of Property Act, 1882 (4 of 1882); or
v. any transaction, by acquiring capital instruments in a company or by way of any
agreement or any arrangement or in any other manner whatsoever, which has the
effect of transferring, or enabling the enjoyment of, any immovable property.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Construction Development Sector (Cont.)
Issues:
• How does one interpret the term “phase”? – Area allocation vs. sanctioned plan
• What if trunk infrastructure is pre-existing? Would that make exit simpler for investor? –
City projects vs. suburban projects
• When is the project considered to have been completed? – BCC vs. OC
• Should “developed plots” also include completed premises built thereupon?
• Activity of Leasing of property is not considered as ‘real estate business’. Can an investor
invest into a pure leasing company?
• Leasing of Property should not amount to transfer. However transfer includes any
agreement or arrangement enabling enjoyment of property?
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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E-Commerce Sector
Activity Sectoral Cap Entry Route
B2B E-commerce 100% Automatic
Market Place Model 100% Automatic
Conditions:
1. ‘E-commerce’ means buying and selling of goods & services over digital and electronic
network.
2. ‘E-commerce entity’ means a company incorporated under CA.
3. ‘Inventory based model of e-commerce’ means an e-commerce activity where inventory of
goods and services is owned by e-commerce entity and is sold to the consumers directly;
4. ‘Market place model of e-commerce’ means providing of an information technology
platform by an ecommerce entity on a digital & electronic network to act as a facilitator
between buyer and seller.
5. ‘Digital & electronic network’ will include network of computers, television channels and
any other internet application.
6. Marketplace e-commerce entity will be permitted to enter into transactions with sellers
registered on its platform on B2B basis.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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E-Commerce Sector (Cont.)
Conditions(Cont.):
7. E-commerce marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfillment, call centre, payment collection and other services.
8. E-commerce entity providing a marketplace will not exercise ownership or control over the
inventory i.e. goods purported to be sold.
Explanation: Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity
if > 25% of purchases of such vendor are from the marketplace entity or its group companies which
will render the business into inventory based model.
9. An entity having equity participation by e-commerce marketplace entity or its group
companies or having control on its inventory by e-commerce marketplace entity or its group
companies, will not be permitted to sell its products on the platform run by such
marketplace entity.
10. Goods/ services made available for sale electronically on website should clearly provide
name, address and other contact details of the seller.
11. Payments for sale may be facilitated by the e-commerce entity in conformity with the
guidelines issued by the Reserve Bank in this regard.
12. Any warranty/ guarantee of goods and services sold will be the responsibility of the seller.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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E-Commerce Sector (Cont.)
Conditions(Cont.):
13. E-commerce entities providing marketplace will not, directly or indirectly, influence the
sale price of any goods or services and shall maintain level playing field. Services should
be provided by e-commerce marketplace entity or other entities in which e-commerce
marketplace entity has direct or indirect equity participation or common control, to vendors
on the platform at arm’s length and in a fair and non discriminatory manner.
14. No e-commerce marketplace entity shall mandate any seller to sell any of their product
exclusively on its platform.
15. e-commerce marketplace entity with FDI shall have to obtain and maintain a report of
statutory auditor by 30th of September every year for the preceding financial year
confirming compliance of the e-commerce guidelines.
Issues
o Since ‘e-commerce’ means buying and selling of services too, how does one determine if it
owns inventory of services?
o What is meant by directly / indirectly influencing sale price?
o Sr. No. 9 simple mentions ‘equity participation’ whereas Sr. No. 13 explicitly mentions
‘direct or indirect equity participation’. Is there a difference?
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Cash and Carry Wholesale Trading Sector
Activity Sectoral cap Entry Route
Cash and Carry Wholesale Trading / Wholesale
Trading (including sourcing from MSEs)
100% Automatic
Definition:
1. Cash and Carry Wholesale trading (WT)/ Wholesale trading, shall mean sale of goods/ merchandise
to retailers, industrial, commercial, institutional or other professional business users or to other
wholesalers and related subordinated service providers.
2. Wholesale trading shall, accordingly, imply sales for the purpose of trade, business and profession,
as opposed to sales for the purpose of personal consumption. The yardstick to determine whether
the sale is wholesale or not shall be the type of customers to whom the sale is made and not the size
and volume of sales. Wholesale trading shall include resale, processing and thereafter sale, bulk
imports with export/ ex-bonded warehouse business sales and B2B e-Commerce.
Conditions:
1. Except in cases of sales to Government, sales made by the wholesaler shall be considered as 'cash
and carry wholesale trading/ wholesale trading' with valid business customers, only when WT is
made to the following entities:
i. Entities holding sales tax/ VAT registration/ service tax/ excise duty/Goods and Services Tax
(GST) registration; or
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Cash and Carry Wholesale Trading Sector (Cont.)
ii. Entities holding trade licenses i.e. a license/ registration certificate/ membership certificate/
registration under Shops and Establishment Act, issued by a Government Authority/
Government Body/ Local Self Government Authority, reflecting that it is itself/ himself/
herself engaged in a business involving commercial activity; or
iii. Entities holding permits/ license etc. for undertaking retail trade (like tehbazari and similar
license for hawkers) from Government Authorities/ Local Self Government Bodies; or
iv. Institutions having certificate of incorporation or registration as a society or registration as
public trust for their self-consumption.
3. Full records indicating all the details of such sales like name of entity, kind of entity, registration/
license/ permit etc. number, amount of sale etc. should be maintained on a day to day basis.
4. WT of goods shall be permitted among companies of the same group. However, such WT to group
companies taken together shall not exceed 25 percent of the total turnover of the wholesale
venture.
5. WT can be undertaken as per normal business practice, including extending credit facilities subject
to applicable regulations.
6. A wholesale/ cash and carry trader can undertake single brand retail trading. An entity undertaking
wholesale/ cash and carry as well as retail business will be mandated to maintain separate books of
accounts for these two arms of the business and duly audited by the statutory auditors. Conditions
under these Regulations for wholesale/ cash and carry business and for retail business have to be
separately complied with by the respective business arms.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Single Brand Product Retail Trading Sector
Activity Sectoral Cap Entry Route
Single Brand Product Retail Trading (SBRT) 100% Automatic
Conditions:
1. Products to be sold - 'Single Brand' only. Covers only products - branded during
manufacturing.
2. Products should be sold under the same brand internationally. [Not applicable to Indian
brands.]
3. A PROI, whether owner of the brand or otherwise - permitted to undertake ‘single brand’
product retail trading in the country for the specific brand - directly by the brand owner or
through a legally tenable agreement executed between the Indian entity undertaking single
brand retail trading and the brand owner. [Not applicable to Indian brands.]
4. A SBRT operating through brick and mortar stores - permitted to undertake retail trading
through e-commerce.
5. Indian brands are those which are owned and controlled by resident Indian citizens and/or
companies which are owned and controlled by resident Indian citizens.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Single Brand Product Retail Trading Sector (Cont.)
Conditions (Contd.):
6. Sourcing norms:
• If foreign investment > 51%, then minimum sourcing to be done from India = 30% of the
value of goods purchased, preferably from MSMEs, village and cottage industries, artisans
and craftsmen, in all sectors. || Self certification for domestic sourcing + Verification by
Statutory auditors from a/cs. || Sourcing norm to be met as an average of first 5 FY years.
Thereafter, it is to be met on an annual basis. || Sourcing should be done by FDI recipient
Indian company only.
• All procurements made from India by the SBRT entity shall be counted towards local
sourcing, irrespective of whether the goods procured are sold in India or exported.
• SBRT entity is also permitted to set off sourcing of goods from India for global operations
against the mandatory sourcing requirement of 30%. For this, purpose, ‘sourcing of goods
from India for global operations’ shall mean value of goods sourced from India for global
operations for that single brand ( in INR terms) in a particular financial year directly by the
entity undertaking SBRT or its group companies (R/ NR), or indirectly by them through a
third party under a legally tenable agreement.
• Sourcing of goods from SEZs in India would qualify as sourcing from India.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Single Brand Product Retail Trading Sector (Cont.)
Conditions (Contd.):
6. Sourcing norms:
• A SBRT entity operating through brick and mortar stores, can also undertake retail trading
through e-commerce. However, retail trading through e-commerce can also be undertaken
prior to opening of brick and mortar stores, subject to the condition that the entity opens
brick and mortar stores within two years from date of start of online retail.
• Exemption from sourcing norms for first three years from opening of 1st store for products
having state-of-the-art and cutting-edge technology and where local sourcing not possible. ||
A Committee under the Chairmanship of Secretary, DIPP, with representatives from NITI
Aayog, concerned Administrative Ministry and independent technical expert(s) on the subject
will examine the claim of applicants on the issue of the products being in the nature of ‘state-
of-art’ and ‘cutting-edge’ technology where local sourcing is not possible and give
recommendations for such relaxation.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Multi Brand Product Retail Trading Sector
Activity Sectoral Cap Entry Route
Multi Brand Retail Trading (MBRT) 51% Govt. Approval
Conditions:
1. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,
fishery and meat products can be unbranded. Government will have the first right to procure
agricultural products.
2. Minimum amount as foreign investment - USD 100 million.
3. Of USD 100 million – 50% of the total foreign investment brought in the first tranche - invested in
'back-end infrastructure' within 3 yrs
1. 'back-end infrastructure' will include capital expenditure on all activities, excluding that on
front-end units; for instance, back-end infrastructure will include investment made towards
processing, manufacturing, distribution, design improvement, quality control, packaging,
logistics, storage, warehouse, agriculture market produce infrastructure etc.
2. Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end
infrastructure. Subsequent investment in the back-end infrastructure would be made by the
MBRT retailer as needed, depending upon its business requirements.
4. Retail trading, in any form, by means of e-commerce – not permissible for companies with foreign
investment in MBRT.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Multi Brand Product Retail Trading Sector (Cont.)
Conditions (Contd.):
5. Sourcing norms: ≥ 30% of the procurement value of manufactured/ processed products to be
sourced from Indian micro, small and medium industries, which have a total investment in
plant & machinery not exceeding USD 2 million. || MSME valuation would refer to the value
at the time of installation, without providing for depreciation. Their status would be reckoned
only at the time of first engagement with the retailer and such industry shall continue to
qualify as a MSME for this purpose, even if it outgrows the said investment of USD 2 million
during the course of its relationship with the said retailer. || Sourcing from agricultural co-
operatives and farmers co-operatives would also be considered in this category. || Sourcing
norm to be met as an average of first 5 FY years. Thereafter, it is to be met on an annual basis.
6. Self-certification by company and verification by Statutory audits required for compliance
with Sourcing norms, minimum capitalisation norms and capital utilisation norms for back-end
infrastructure building
7. Retail sales outlets may be set up opened only in cities which cross threshold population.
Provision to be made for requisite facilities such as transport connectivity and parking. || State
/ Union Territories can have their own state policy for implementation.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Other Financial Service Sector
Activity Sectoral Cap Entry Route
Other Financial services 100% Automatic
Conditions:
1. Other Financial Services will mean financial services activities regulated by financial sector
regulators, viz., RBI, SEBI, IRDA, PFRD, NHB or any other financial sector regulator as
may be notified by the Government of India.
2. 'Other Financial Services' activities need to be regulated by one of the Financial Sector
Regulators. In all such financial services activity which are not regulated by any Financial
Sector Regulator or where only part of the financial services activity is regulated or where
there is doubt regarding the regulatory oversight, foreign investment up to 100 percent will
be allowed under Government approval route subject to following minimum capitalization
requirement:
Type Entity Activity Minimum FDI Capital
Fund Based
activities
Unregistered / Exempted Unregulated US$ 20mn
Non-Fund based
activities
Unregistered / Exempted Unregulated US$ 2mn
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Other Financial Service Sector (Cont.)
Conditions (Cont.):
3. Fund based activities: Merchant Banking, Under Writing, Portfolio Management
Services, Stock Broking, Asset Management, Venture Capital, Custodian Services,
Factoring, Leasing & Finance, Housing Finance, Credit Card Business, Micro Credit,
Rural Credit
4. Non-fund based activities: Investment advisory services, Financial Consultancy,
Forex Broking, Money Changing Business, Credit Rating Agencies’
5. Any activity which is specifically regulated by an Act, the foreign investment limits
will be restricted to those levels/ limit that may be specified in that Act, if so
mentioned.
6. Downstream investments by any of these entities engaged in "Other Financial
Services" will be subject to these Regulations.
[Schedule 1 to FEM (Non-Debt Instruments) Rules, 2019]
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Case Studies
Harshal Bhuta
Case Study - I
Question: Can he undertake this arrangement of swapping IndCo. shares with Foreign
Company Shares?
India
(1)
Facts: Mr. X, a Resident Indian, is holding shares in the capacity of promoter of IndCo.
which is engaged in hospitality business. Now, Mr. X has became an NRI. After becoming
NRI, Mr. X wants to widen hospitality business across the globe by incorporating Individual
Companies in respective jurisdictions. Further, he wants to consolidate his holding in all
companies across the globe into one holding company by way of share swap arrangement at a
fair value.
O/s India
RI
IndCo.
(2) (4)(3)
NRI NRI
UKCo. USCo.
GerCo.AusCo.NRI
IndCo. IndCo. IndCo.
FCo.
USCo.
GerCo.UKCo.
AusCo.
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Facts: Mr. A, a Person Resident Outside India (PROI) since 40 years, had stock
broking business in UK. Due to his ill health, Mr. A died 2 months back. At the time
of his death, Mr. A owned following assets in UK: 1 apartment, 2 luxury cars, 2 bank
accounts, three diamond rings and 5,000 shares of IBM. Mr. A had acquired these
assets while being PROI. His son Mr. B is presently a resident in India and is
working as tax head of an large MNC Bank in India. Mr. B is named as the sole
inheritor of assets of Mr. A.
India
Mr. BMr. A’s
Assets
UK
Inheritance?
Question: Would Mr. B able to inherit assets of Mr. A while being PRI?
Case Study - II
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Case Study - III
Question: Can the foreign company make investment under FDI into Indian
company which proposes to operate fantasy gaming app in India on a paid /
subscription basis?
Facts: A foreign company successfully runs a fantasy gaming app outside India. It
wants to incorporate an Indian company to replicate its overseas success in popular
Indian sports such as kabaddi and cricket.
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Facts: TP Limited, a company incorporated in India is engaged in the business of
manufacturing smartphones in India. TP Ltd is WOS of TP Inc. USA. TP Limited
decided to issue 1,22,500 shares @ Rs. 100/- per share to TP Inc for capex. TP Ltd
was supposed to receive Rs. 12,25,00,000/- (USD 1,75,000/-* Rs. 70/- Per USD),
however, it received short amount due to deduction of bank charges @ 0.05%.
Accordingly, it received Rs. 12,24,38,750/- instead (Bank charges of Rs. 61,250/-).
Thereafter, it decided to issue only 1,20,000/- shares.
Questions:
1) What is the course of action to be adopted by TP Limited?
• Refund differential amount attributable to short allotment in USD (Assume Rs. 71
per USD) viz. 2500 shares * Rs. 100 = Rs. 2,50,000 / 71 = 3521.12 USD?
• Refund differential amount attributable to short allotment in INR viz. 2500 shares
* Rs. 100 = Rs. 2,50,000.
• Refund differential amount attributable to short allotment in USD, net of shortfall
due to deduction of bank charges viz. (Rs. 2,50,000 – Rs.61,250) / 71 = 2658.45
USD?
• Refund differential amount attributable to short allotment in INR, net of shortfall
due to deduction of bank charges viz. Rs. 2,50,000 – Rs.61,250 = Rs. 188,750/-
Case Study - IV
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Facts: ZM Pvt. Ltd. is an Indian restaurant aggregator and food delivery company
which has received 30% of its share capital as FDI since its inception. It has
approached WJ Resto Pvt. Ltd. to offer an opportunity to them to become a partner
restaurant. ZM Pvt. Ltd. would charge 25% commission on total F&B revenue made
by the partner restaurant through their platform – either by way of booking
reservations or delivery through the platform. During Diwali festival, ZM Pvt. Ltd.
extended an offer to the partner restaurant to lower the commission to 5% instead of
25% if they in turn agree to offer higher discount of 20% discount to subscribers of
platform owned by ZM Pvt. Ltd.
Question: Is the offer of ZM Pvt. Ltd. in compliance with the FDI policy?
Case Study - V
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FEM (Debt Instruments) Regulations, 2019
Harshal Bhuta
Important Definitions Debt Instruments
Debt Instruments means the instruments listed under Schedule I of the
regulations.
FPI or Foreign Portfolio Investor
“FPI” or “Foreign Portfolio Investor” means a person registered in
accordance with the provisions of the Securities and Exchange Board of
India (Foreign Portfolio Investors) Regulations, 2014.
NRI
“NRI” or “Non-Resident Indian” means an individual resident outside India
who is a citizen of India.
OCI
“OCI” or “Overseas Citizen of India” means an individual resident outside
India who is registered as an Overseas Citizen of India Cardholder under
section 7(A) of the Citizenship Act, 1955 ( 57 of 1955);
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Issue of Redeemable NCPS / Redeemable NCD as bonus in Scheme of
Arrangement - Rule 6 of FEM (Debt Instruments) Regulations, 2019:
Upon approval by National Company Law Tribunal (NCLT)/ Competent
Authority, the Indian company can issue non-convertible redeemable preference
shares/ debentures to shareholders who are resident outside India, out of its
general reserves by way of distribution as bonus, subject to the following
conditions:
The original investment made in the Indian company by a person resident
outside India is in accordance with these regulation and the conditions
specified therein;
The said issue is in accordance with the provisions of the Companies Act,
2013 and the terms and conditions, if any, stipulated in the scheme
approved by National Company Law Tribunal (NCLT)/ Competent
Authority;
The Indian company is not engaged in any activity/ sector in which foreign
investment is prohibited.
Merger / Demerger / Amalgamation of Indian companies
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Schedule I to FEM Debt Instr. Regulation 2019Schedule I – Purchase/ Sale of debt instruments by a person resident O/s India
A. Permission to Foreign Portfolio Investors (FPI):
Subject to terms and condition specified by SEBI and RBI, FPI may purchase the
following debt-instrument on repatriation basis:
dated Government securities/ treasury bills;
NCDs/ bonds issued by an Indian company;
commercial papers issued by an Indian company;
units of domestic MF or ETFs which invest less than or equal to 50% in equity;
Security Receipts (SRs) issued by Asset Reconstruction Companies;
debt instruments issued by banks, eligible for inclusion in regulatory capital;
Credit enhanced bonds;
Listed non-convertible/ redeemable pref. shares or debentures issued in terms of
Regulation 6 of these Regulations;
Securitised debt instruments, including (i) any certificate or instrument issued by a
special purpose vehicle (SPV) set up for securitisation of asset/s with banks, Financial
Institutions or NBFCs as originators;
Rupee denominated bonds/ units issued by Infrastructure Debt Funds;
o This will include instruments issued on or after 22.11.11 and held by FPIs.
Municipal Bonds :
Provided that FPIs may offer such instruments as permitted by the Reserve Bank from time
to time as collateral to the recognized Stock Exchanges in India for their transactions in
exchange traded derivative contracts as specified in sub Reg. 2 of Reg. 5.
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Schedule I – Purchase/ Sale of debt instruments by a person resident O/s India (cont…)
B. Permission to NRIs or OCIs – Repatriation basis:
A NRI or OCI may without limit purchase the following instrument on
repatriation basis:
Government dated securities (other than bearer securities) or treasury bills or units
of domestic MF or ETFs which invest less than or equal to 50% equity;
Bonds issued by a PSU in India;
Bonds issued by Infrastructure Debt Funds;
Listed non-convertible/ redeemable preference shares or debentures (as per
Reg.6);
NRI/ OCI may purchase debt instruments issued by the banks.
NRI may subscribe to National Pension Scheme provided he is eligible to invest.
B. Permission to NRIs or OCIs – Non-Repatriation basis
An NRI/ OCI may without limit on non-repatriation basis:
Purchase Gov. sec. (other than bearer securities), treasury bills, units of domestic
MF or ETFs which invest less than or equal to 50% in equity, or National Plan/
Savings Certificates;
Purchase listed non-convertible/ redeemable pref. shares or debentures (as per
Reg.6);
Subscribe to chit funds authorised by the Registrar of Chits or an officer
authorised by the State Government in this behalf.
Schedule I to FEM Debt Instr. Regulation 2019 (Cont.)
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Schedule I to FEM Debt Instr. Regulation 2019 (Cont.)Schedule I – Purchase/ Sale of debt instruments by a person resident O/s India (cont…)
D. Permission to Foreign Central Banks or Multilateral Development Banks for purchase
of Government Securities:
Foreign Central Banks, Multilateral Development Banks or any other entity permitted
by the Reserve Bank, may purchase or sell dated Government Securities/treasury bills,
as per terms and conditions specified by the Reserve Bank.
Mode of Payment
FPI: Inward remittance from abroad through banking channels or out of funds held in
foreign currency/ SNRR account.
NRI/ OCI (Non-Repatriation basis): Inward remittance from abroad through banking
channels or out of funds held in NRE/ FCNR(B) account.
NRI/ OCI (Repatriation basis): Inward remittance from abroad through banking channels
or out of funds held in NRE/ FCNR(B)/ NRO account.
Foreign Central Banks or Multilateral Development Banks: Inward remittance from
abroad through banking channels or out of funds held in an account opened with RBI
approval.
Other non-resident investors: inward remittances from abroad through banking channels.
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Schedule I to FEM Debt Instr. Regulation 2019 (Cont.)
Schedule I – Purchase/ Sale of debt instruments by a person resident O/s India (cont…)
Permission for Sale of Instrument
A person resident outside India who has purchased instruments in accordance with this
Schedule may sell/ redeem the instruments subject to such terms and conditions as
may be specified by RBI/ SEBI.
Remittance/ Credit of sale/ maturity proceeds
FPI: Remit abroad or credit to foreign currency/ SNRR account of the FPI.
NRI (Repatriation basis): Remit abroad or credit to NRE/ FCNR(B)/ NRO account.
However, if the payment for the purchase of instrument was made out of funds held in
NRO account, credit should be made to NRO account only.
NRI (Non-Repatriation basis): Credit to NRO account.
In all other cases, the sale/ maturity proceeds (net of taxes) may be remitted abroad or
credited to an account opened with the prior permission of the RBI.
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Acquisition of Immovable Property in India(Subsumed in FEM (Non-Debt Instruments) Rules , 2019
Harshal Bhuta
Immovable Property in India Applicable to NRIs / OCIs
Particulars NRI / OCI
Acquisition
Purchase (other than agricultural land/ farmhouse/
plantation etc) from
Resident/ NRI/ OCI [Rule 24(a)]
Acquire as gift (other than agricultural land/ farmhouse/
plantation etc) from
Resident/ NRI/ OCI [Rule 24(b)]
who is a relative
Inheritance
Acquire (any IP) as inheritance from a. Any person who has acquired it
under laws in force [Rule 24(c)];
b. Resident [Rule 24(c)]
Sale
Sell (other than agricultural land / farmhouse / plantation
etc) to
Resident/ NRI/ OCI [Rule 24(d) &
Rule 24(e)]
Sell (agricultural land / farmhouse / plantation etc) to Resident [Rule 24(d)]
Gift
Gift (other than agricultural land / farmhouse / plantation
etc) to
Resident/ NRI/ OCI [Rule 24(d) &
Rule 24(e)]
Gift (agricultural land / farmhouse / plantation etc) to Resident [Rule 24(d)]
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Immovable Property in India
Joint acquisition of the property by the spouse of an NRI/ OCI
A PROI, not being a NRI/ OCI who is a spouse of NRI/ OCI may acquire one immovable
property (other than agricultural land/ farm house/ plantation property) jointly with his/
her NRI/ OCI spouse subject to:
The consideration for transfer, shall be made out of (i) funds received in India
through banking channels by way of inward remittance from any place outside India
or (ii) funds held in any non-resident account maintained in accordance with the
provisions of the Act and the regulations made by the RBI;
Payment for any transfer of immovable property shall not be made either by
traveler’s cheque or by foreign currency notes or by any other mode other than those
specifically permitted under this clause;
Marriage has been registered and subsisted for a continuous period of not less than
two years immediately preceding the acquisition of such property;
Non-resident spouse is not otherwise prohibited from such acquisition.
Prohibition on acquisition/ transfer of property in India by Citizens of
certain countries
No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran,
Nepal, Bhutan, Hong Kong or Macau or Democratic People’s Republic of Korea (DPRK)
without prior permission of the RBI shall acquire/ transfer immovable property in India,
other than lease, not exceeding five years. This prohibition shall not apply to an OCI.
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Immovable Property in India
Payment for Acquisition of Immovable Property
Out of funds received in India through normal banking channels by way of inward
remittance from any place outside India or by debit to his NRE / FCNR (B) / NRO
account;
Payments cannot be made by traveller’s cheque or by foreign currency notes or by other
mode except those specifically mentioned above
Repatriation of sale proceeds of immovable property
Property acquired by way of Sec 6(5) or his successor cannot repatriate outside India the
sale proceeds of such immovable property without the prior permission of the RBI except
by NRIs and PIOs up to USD 1 million
Sale of IP (other than agricultural land/ farm house/ plantation property) in India by a
NRI/ OCI resident outside India provided:
IP acquired by the seller in accordance with FEMA
Amount for acquisition of IP paid out of funds received in India through banking
channels by way of inward remittance or out of funds held in his NRE/ FCNR (B)
account;
In the case of residential property, the repatriation of sale proceeds is restricted to not
more than two such properties
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Immovable Property in India
DOs for NRIs / OCIs
Can acquire property for holding/self-use
Can only inherit agricultural land, plantations & farm houses
Can sell the property & repatriate sale proceeds abroad, most of the times
Can give property on rent & repatriate funds abroad post payment of taxes
Spouse of foreign origin of NRI / OCI Can jointly acquire IP subject to conditions
No limit on number of properties acquired in India
DON’Ts for NRIs / OCIs
Can not purchase agricultural land, plantations & farm houses
Can not do Real Estate Trading, or trade in Transferable Development Rights
Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan,
Macau, Hong Kong and Democratic People’s Republic of Korea cannot, without prior
permission of the Reserve Bank, acquire or transfer immovable property in India, other than
on lease, not exceeding five years. (Prohibition does not apply to OCI)
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Immovable Property in India Compounding Orders – Acquisition of Immovable Property in India (1/6)
Applicant Name Mr. Barry Kendal Dansie, Ms. Wendy Dansie, Mr. Derek Alfred Parker
and Ms. Catherine Margaret Ingram
Compounding App.
No. & Date of Order
C.A. No. 48/2016,
21st October, 2016
Period of
contravention and
Compounding Fees
21 Years 10 Months 21 days approximately
Rs. 30,00,000/-
Facts of the case The applicants, being foreign nationals of non-Indian origin, had
jointly acquired property on 17th April, 1995 for Rs.10,00,000/- in Goa,
India.
The applicants did not obtain RBI approval at the time of acquisition.
They were subsequently granted permission by RBI to dispose of the
property in question within a period of six months to a person eligible
to acquire the same as per FEMA provisions subject to fulfillment of
certain conditions.
The immovable property was sold by the applicants on 09th March,
2016 for a consideration of Rs.90,00,000/-.
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Immovable Property in India
Name of the Applicant Mr. Barry Kendal Dansie, Ms. Wendy Dansie, Mr. Derek Alfred Parker
and Ms. Catherine Margaret Ingram
Contravention Section 31(1) of erstwhile FERA, 1973 stipulated that no person who
was not a citizen of India shall, except with the previous general or
special permission of RBI, acquire any immovable property situate in
India.
Regulation 8 of erstwhile FEMA Notification No. 21/2000-RB stated
as follows: “No person resident outside India shall transfer any
immovable property in India provided that the Reserve Bank may for
sufficient reasons, permit the transfer, subject to such conditions as
may be considered necessary.”
Since the applicants were foreign nationals of non-Indian origin at the
time of acquisition of immovable property in India, they were
obligated to obtain RBI permission under FERA before making such
acquisition. Further, they continued to hold such property even after
introduction of FEMA without obtaining permission from RBI. Thus
the applicants contravened the provisions of Section 31(1) of erstwhile
FERA, 1973 read with Regulation 8 of notification ibid.
Compounding Orders – Acquisition of Immovable Property in India (1/6 cont.)
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Immovable Property in India
Our Comments• Though RBI may possess powers to grant permission to either acquire or transfer
immovable property in India under provisions of FEMA, it is a point to ponder
whether RBI could have compounded at all the contravention of provisions of FERA
viz. acquisition of immovable property without obtaining RBI approval in the year
1995.
• Penalty has been levied under Section 13 of FEMA, 1999 at thrice the amount of
purchase consideration without giving regard to guidance note on compounding
matrix. In doing so, it has not neutralized undue gains earned by the applicants. (Para
7.4 (ii) (iv) of FED Master Direction on Compounding of Contravention under FEMA
states that “in cases where it is established that the contravenor has made undue gains,
the amount thereof may be neutralized to a reasonable extent by adding the same to
the compounding amount calculated as per chart.”)
Compounding Orders – Acquisition of Immovable Property in India (1/6 cont.)
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Immovable Property in India
Applicant Name Mrs. Rajini Kodeswaran
Compounding App.
No. & Date of Order
C.A. No. 76/2016,
28th August, 2018
Period of
contravention and
Compounding Fees
9 Years 2 Months 5 days approximately
Rs. 18,78,208/-
Facts of the case The applicant, a Sri Lankan Citizen, had acquired an immovable
property in Chennai, India on 17th October, 2008 for a total
consideration of Rs. 6,84,000/-. Subsequently, she constructed a flat on
the same property by incurring a cost of Rs. 32,97,085/-.
Since a citizen of Sri Lanka was not permitted then to acquire
immovable property without taking permission from RBI, she was
advised by RBI to sell the immovable property immediately within 6
months to a PRI who is citizen of India and not to repatriate sale
proceeds of the property outside India w/o prior RBI approval. The
property under reference was sold by the applicant on 12th May, 2017
for total sale consideration of Rs. 44,00,000/-. The contravention was
accordingly regularized by RBI vide letter dated 12th January, 2018.
Compounding Orders – Acquisition of Immovable Property in India (2/6)
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Immovable Property in India
Name of the Applicant Mrs. Rajini Kodeswaran
Facts of the case
(cont.)
Since the valuation report dated 20th July 2018 submitted by applicant
indicated appreciation in value of land to Rs. 24,82,350/- since the year
2008, the applicant was considered to have Rs. 17,98,350/- (Rs.
24,82,350 - Rs. 6,84,000) as undue gain. Whereas the purchase price of
the immovable property i.e. Rs. 6,84,000/- and the cost of construction
was Rs. 32,97,085/- aggregating to Rs. 39,81,085/- was considered as
the amount of contravention.
The period of contravention was taken as the period between date of
purchase and the date of regularization by RBI (viz. 12th January
2018).
Contravention Regulation 7 of erstwhile FEMA notification No. 21/2000-RB stated :
“No person being a citizen of Pakistan, Bangladesh, Sri Lanka,
Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong without
prior permission of the Reserve Bank shall acquire or transfer
immovable property in India, other than lease, not exceeding five
years.”
The applicant, being a Sri Lankan Citizen, acquired IP in India w/o the
prior RBI approval and thus contravened the provisions of Reg. 7.
Compounding Orders – Acquisition of Immovable Property in India (2/6 cont.)
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Immovable Property in India
Our Comments• The actual amount of undue gains (Rs. 44,00,000 – Rs. 6,84,000 – Rs. 32,97,085 = Rs.
4,18,915) has been ignored completely.
• Additionally, typical allowance for opportunity cost equivalent to notional returns on
investment in FDs / GOI securities has also not been given.
• Undue gain has been computed purely by taking into consideration the notional
appreciated sale value of land minus the actual cost of acquisition of land.
• The amounts corresponding to cost of construction of flat as well as realized sale value
of entire property have not been taken into consideration at all.
• The period of contravention should have ended on the date of sale i.e. 12th May, 2017.
However, the period of contravention has been considered upto the date of
regularization i.e. 12th January, 2018.
Compounding Orders – Acquisition of Immovable Property in India (2/6 cont.)
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Immovable Property in India
Applicant Name Mr. Joel Queirel and Mrs. Benedicte Pascale Mireille Caille
Compounding App.
No. & Date of Order
C.A. No. 90/2019,
26th February, 2019
Period of
contravention and
Compounding Fees
11 Years 11 Months 03 Days
Rs. 30,00,000/-
Facts of the case The applicants are non-resident French citizens of non–Indian origin.
They have acquired a plot in Kerala, India in joint names without RBI
permission and subsequently, built a residential building on the same
plot. As per information furnished by the applicants, the source of fund
to make payment for purchase of land under reference, was brought
from France. Cost of acquisition of land was Rs. 15,00,000/- whereas
construction cost amounted to Rs. 85,00,000/-.
The applicants were advised by RBI to sell the property under
reference to PRI within 6 months. Applicants sold the said property for
a total consideration of Rs. 75,00,000/-.
Compounding Orders – Acquisition of Immovable Property in India (3/6 )
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Immovable Property in India
Name of the Applicant Mr. Joel Queirel and Mrs. Benedicte Pascale Mireille Caille
Facts of the case
(cont.)
Though the applicants have submitted the valuation report prepared by
Er. J.K. Nair wherein the land and Building has been valued
at Rs. 84,91,000/-. RBI has independently obtained the valuation report
prepared by V. Sankaranarayanan, wherein the land and building is
valued at Rs. 1,28,75,000/-.
Contravention Regulation 8 of Notification No. FEMA 21/2000-RB ibid. states that
save as otherwise provided in the Act or Regulations, no person
resident outside India shall transfer any immovable property in India,
provided that the Reserve Bank may, for sufficient reasons, permit the
transfer, subject to such conditions as may be considered necessary.
Since the applicant being a foreign national and non-resident in India
had acquired the immovable property in India without the prior RBI
approval, applicants had contravened the above provision of FEMA.
Our Comment• Calculation of amount of contravention:
1) Rs. 1,00,00,000/- being cost of acquisition of land as well as construction cost
2) Rs. 28,75,000/- being diff. of amount as per valuation report obtained by RBI and COA
Compounding Orders – Acquisition of Immovable Property in India (3/6 cont.)
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Immovable Property in India
Applicant Name Mr. Sha Mathew
Compounding App.
No. & Date of Order
C.A. No. 87/2019,
08th March, 2019
Period of
contravention and
Compounding Fees
5 Years 10 Months 04 Days
Rs. 24,53,590/-
Facts of the case The applicant being an NRI had purchased an agricultural properties in
Idukki district, Kerala, India for Rs. 16,38,700/-.
The acquisition of immovable property viz. agricultural land by an NRI
without RBI permission is not permitted as per FEMA guidelines.
Thus, the applicant was advised by the RBI to sell the immovable
property to a PRI within 6 months and not to repatriate sale proceeds of
the property without prior RBI approval.
Applicant had transferred property under consideration to Mr. Kevin
Sha. As per the valuation report submitted by the applicant, value of
land has been appreciated to Rs. 40,30,000/-.
Compounding Orders – Acquisition of Immovable Property in India (4/6 )
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Immovable Property in India Compounding Orders – Acquisition of IP in India w/o RBI approval (4/6 cont.)
Name of the Applicant Mr. Sha Mathew
Contravention Regulation 8 of Notification No. FEMA 21/2000-RB ibid. states that
save as otherwise provided in the Act or Regulations, no person
resident outside India shall transfer any immovable property in India,
provided that the Reserve Bank may, for sufficient reasons, permit the
transfer, subject to such conditions as may be considered necessary.
Regulation 3(a) of Notification No. FEMA 21/2000-RB dated May 03,
2000 states that a person resident outside India who is a citizen of India
may acquire any immovable property in India other than agricultural /
plantation / farm house.
Since the applicant being a NRI had acquired the agricultural land in
India without the prior RBI approval, applicant had contravened the
above provision of FEMA.
Our Comments• Calculation of amount of contravention:
1) Rs. 16,38,700/- being cost of acquisition of land
2) Rs. 23,91,300/- being difference of amount as per valuation report and COA
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Immovable Property in India
Applicant Name Mr. Chandan Kumar Mishra
Compounding App.
No. & Date of Order
C.A. No. 89/2019,
18th March, 2019
Period of
contravention and
Compounding Fees
1 Year 3 Months 1 Day
Rs. 1,43,680/-
Facts of the case The applicant had purchased an agricultural land in Coimbatore
district, India for Rs. 97,60,000/-.
The acquisition of immovable property viz. agricultural land by an NRI
without RBI permission is not permitted as per FEMA guidelines.
Thus, applicant was advised by the RBI to sell the immovable property
to a PRI within 6 months and not to repatriate sale proceeds of the
property without prior RBI approval.
However, applicant had already transferred property under
consideration to Mrs. Shanti Mishra. As per the valuation report
submitted by the applicant, value of land has been appreciated to Rs.
98,00,000/-.
Compounding Orders – Acquisition of Immovable Property in India (5/6)
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Immovable Property in India
Name of the Applicant Mr. Chandan Kumar Mishra
Contravention Regulation 8 of Notification No. FEMA 21/2000-RB ibid. states that
save as otherwise provided in the Act or Regulations, no person
resident outside India shall transfer any immovable property in India,
provided that the Reserve Bank may, for sufficient reasons, permit the
transfer, subject to such conditions as may be considered necessary.
Regulation 3(a) of Notification No. FEMA 21/2000-RB dated May 03,
2000 states that a person resident outside India who is a citizen of India
may acquire any immovable property in India other than agricultural /
plantation / farm house.
Since the applicant being a NRI had acquired the agricultural land in
India without the prior RBI approval, applicant had contravened the
above provision of FEMA.
Our Comment• RBI has properly calculated compounding fee taking into the consideration undue gains
made by the applicant on account of appreciation in the value of land.
Compounding Orders – Acquisition of Immovable Property in India (5/6 cont.)
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Immovable Property in India
Applicant Name Mr. Jayant Nanda
Compounding App.
No. & Date of Order
C.A. No. 93/2019,
20th May, 2019
Period of
contravention and
Compounding Fees
15 Years 22 Days
Rs. 29,75,000/-
Facts of the case The applicant is a NRI since 1990. From the year 2003 to 2007, the
applicant had acquired 6 pieces of agricultural land for Rs. 9,75,000/-
in Gujarat, India without RBI approval.
As NRI is not allowed to acquire agricultural land without RBI
approval, applicant was advised by RBI to sell the property to the PRI.
Applicant had transferred property under reference to Mrs. Anita
Jayant Nanda on 03rd October, 2018.
The contravention has been regularized by RBI subject to the
compounding.
Compounding Orders – Acquisition of Immovable Property in India (6/6 )
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Immovable Property in India
Name of the Applicant Mr. Jayant Nanda
Contravention Regulation 8 of Notification No. FEMA 21/2000-RB ibid. states that
save as otherwise provided in the Act or Regulations, no person
resident outside India shall transfer any immovable property in India,
provided that the Reserve Bank may, for sufficient reasons, permit the
transfer, subject to such conditions as may be considered necessary.
Regulation 3(a) of Notification No. FEMA 21/2000-RB dated May 03,
2000 states that a person resident outside India who is a citizen of India
may acquire any immovable property in India other than agricultural /
plantation / farm house.
Since the applicant being a NRI had acquired the agricultural land in
India without the prior RBI approval, applicant had contravened the
above provision of FEMA.
Our Comment• Penalty has been levied under Section 13 of FEMA, 1999 at thrice the amount of
purchase consideration without giving regard to guidance note on compounding matrix.
In doing so, it has not neutralized undue gains earned, if any by the applicant.
Compounding Orders – Acquisition of Immovable Property in India (6/6 cont.)
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Case Studies
Harshal Bhuta
Facts: Mr. DT, a non-resident Indian has settled in USA since last 15 years. Mr. DT
had acquired a residential premises in Goa during the year 2011 for consideration of
Rs. 50 lakhs. Payment for the same has been made by Mr. DT as (i) Rs. 35 Lakhs out
his NRE account and (ii) Balance Rs. 15 Lakhs out his NRO account. Since,
presently investment in real estate is not as impressive as it was earlier, Mr. DT has
sold the said residential premises for Rs. 1.5 crore to a person resident in India. Now,
Mr. DT wants to repatriate the sale proceeds outside India to his foreign bank
account held in USA.
Question: Whether Mr. DT is permitted to repatriate the sale proceeds outside India
as per FEMA guidelines?
Case Study - I
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Outward Remittances (Residents)
Harshal Bhuta
Liberalised Remittance Scheme (LRS)
Liberalised Remittance Scheme (Master Direction No. 7/2015-16)
AD may freely allow remittances by resident individuals up to USD 2,50,000 per
Financial Year (April-March) for any permitted current or capital account transaction
or a combination of both.
The Scheme is available to all resident individuals including minors.
The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.
The LRS limit has been revised in stages consistent with prevailing macro and micro
economic conditions. During the period from February 4, 2004 till date, the LRS limit
has been revised as under:
Remittances under the Scheme can be consolidated in respect of family members
subject to individual family members complying with its terms and conditions.
However, clubbing is not permitted by other family members for capital account
transactions such as opening a bank account/investment/purchase of property, if they
are not the co-owners/co-partners of the overseas bank account/ investment/property.
The limit of USD 2,50,000/- per FY also subsumes remittance made for private visit/
gift/ donation/ medical treatment abroad/ studies abroad.
Date Feb 4, 2004Dec 20,
2006
May 8,
2007
Sep 26,
2007
Aug 14,
2013Jun 3, 2014
May 26,
2015
LRS limit
(USD)25,000 50,000 1,00,000 2,00,000 75,000 1,25,000 2,50,000
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Liberalised Remittance Scheme (LRS)
Prohibited items under the LRS
Remittance for any purpose specifically prohibited under Schedule-I (like
purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any
item restricted under Schedule II of Foreign Exchange Management (Current
Account Transactions) Rules, 2000.
Remittance from India for margins or margin calls to overseas exchanges /
overseas counterparty.
Remittances for purchase of FCCBs issued by Indian companies in the
overseas secondary market.
Remittance for trading in foreign exchange abroad.
Capital account remittances, directly or indirectly, to countries identified by
the Financial Action Task Force (FATF) as “non- cooperative countries and
territories”, from time to time.
Remittances directly or indirectly to those individuals and entities identified
as posing significant risk of committing acts of terrorism as advised
separately by the Reserve Bank to the banks.
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Liberalised Remittance Scheme (LRS)
Purpose for which Resident Individual can avail of foreign exchange
facility
Private visits to any country (except Nepal and Bhutan)
Gift or donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Travel for business, or attending a conference or specialised training or for
meeting expenses for meeting medical expenses, or check-up abroad, or for
accompanying as attendant to a patient going abroad for medical treatment/
check-up
Expenses in connection with medical treatment abroad
Studies abroad
Any other current account transaction which is not covered under the
definition of current account in FEMA 1999.
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Liberalised Remittance Scheme (LRS)
Documentation by the remitter
The individual will have to designate a branch of an AD through which all the capital
account remittances under the Scheme will be made.
The applicants should have maintained the bank account with the bank for a minimum
period of one year prior to the remittance for capital account transaction.
For permissible current account transaction, AD should carry out due diligence.
The resident individual seeking to make the remittance should furnish Form A2 for
purchase of foreign exchange under LRS.
AD bank may insist to produce Form 15CA and CA Certificate in Form 15CB.
It is mandatory for the resident individual to provide his/her PAN to make remittance.
Retention of funds abroad
Investor, who has remitted funds under LRS can retain/ reinvest the income earned on
the investments.
At present, the resident individual is not required to repatriate the funds or income
generated out of investments made under the Scheme.
However, resident individual who has made ODI within LRS limit, shall have to
comply with ODI regulation.
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Liberalised Remittance Scheme (LRS)
Do’s and Don’ts
A resident cannot gift to another resident, in foreign currency, for the credit of the
latter’s foreign currency account held abroad under LRS.
Ultimate responsibility is of the remitter to ensure compliance to the extant FEMA
rules/regulations.
There are no restrictions on the frequency of remittances under LRS.
Once a remittance is made for an amount up to USD 2,50,000 during the financial
year, a resident individual would not be eligible to make any further remittances under
this scheme, even if the proceeds of the investments have been brought back.
The remittances can be made in any freely convertible foreign currency.
The remittance to non-cooperative countries listed by FATF not allowed.
If a sole proprietorship firm intends to remit the money under LRS by debiting its
current account then the eligibility of the proprietor in his individual capacity has to be
reckoned.
A resident individual can make a rupee loan to a NRI/PIO who is a close relative
(‘relative’ as defined in Section 2(77) of the Companies Act, 2013) of the resident
individual by way of crossed cheque/ electronic transfer subject to the fulfillment of
certain condition as prescribed.
Resident individual can make a rupee gift to a NRI/PIO who is a relative as defined in
Section 2(77) of Companies Act. The amount should be credited to the NRO a/c of the
NRI/ PIO.
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Harshal Bhuta
Liberalised Remittance Scheme (LRS)
Amendments made by Finance Bill 2020 which relates to LRS
An AD receiving an amt or an aggregate of amt of ≥7 lakh rupees in a FY for
remittance out of India under the LRS, shall be liable to collect TCS, if AD receives
sum in excess of said amount from a buyer being a person remitting such amount out
of India @ 5%. In non- PAN/Aadhaar cases @ 10%.
A seller of an overseas tour program* package who receives any amount from any
buyer, being a person who purchases such package, shall be liable to collect TCS @
5%. In non-PAN/ Aadhaar cases @ 10%.
The above TCS provision shall not apply if the buyer is -
o liable to deduct tax at source under any other provision of the Income Tax Act
and he has deducted such amount.
o CG, SG, an embassy, a High Commission, legation, commission, consulate, the
trade representation of a foreign State, a local authority or any other person
notified by CG in the Official Gazette for this purpose.
* Overseas tour program package is proposed to be defined to mean any tour package which
offers visit to a country or countries or territory or territories outside India and includes
expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature
or in relation thereto.
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Outward Remittances (NRI/ PIO)
Harshal Bhuta
Remittance of Assets o/s India by NRI/PIO AD Bank may allow to remit upto $ 1 million per year (popularly known as $1 million scheme):
out of :
balances in NRO
sale proceeds of assets
assets acquired in India by way of inheritance/ legacy;
in respect of assets acquired under a deed of settlement made by either of his / her parents
or a relative as defined in Companies Act, 2013. The settlement should take effect on the
death of the settler;
in case settlement is done without retaining any life interest in the property i.e. during the
lifetime of the owner/ parent, it would tantamount to regular transfer by way of gift and
remittance of sale proceeds of such property would be guided by instructions on remittance
of balance in the NRO account mentioned above
NRI/PIO to give declaration that
Remittance is out of balances held in the account arising from his / her legitimate
receivables in India
Remittance is not by borrowing from any other person
Remittance is not a transfer from any other NRO account
Practically, AD banks also insist on furnishing CA certificate in Form 15CB
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Case Studies
Harshal Bhuta
Facts: Mr. N, a person resident in India is into the business of cutting and polishing
diamonds. As the Indian real estate sector is not as impressive as it was, Mr. N is
contemplating to buy a house property in New Jersey, USA. Mr. N wants to purchase
an under construction property for a total consideration of USD 5,30,000/-. The
developer will call for initial remittance of USD 80,000/- and thereafter call for
remaining amount in equal instalments per quarter totalling to twelve instalments
over twelve quarters.
Questions: Whether Mr. N is permitted to acquire the said property in New Jersey,
USA on an instalment basis?
Case Study - I
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Harshal Bhuta
Facts: Mr. PS had booked an immovable property in California in the year 2018 for
USD 10,00,000/- on an installment basis. Mr. PS had already paid the first instalment
that accrued in the year 2018-19 out of his LRS entitlement for FY 2018-19.
Now for the year 2019, Mr. PS has received the second instalment call letter for USD
2,10,000/-. For FY 2019-20, Mr. PS has already utilised USD 37,000/- for his Son’s
education abroad, USD 10,000/- for purchase of shares of Alphabet Inc. and USD
5,000/- for family vacations abroad out of his LRS entitlement for FY 2019-20.
Thus, utilising USD 52,000/- out of his total LRS entitlement for FY 2019-20.
PRI is allowed to remit USD 2,50,000/- per year under LRS. Therefore, Mr. PS is
falling short of USD 12,000/- (USD 2,50,000/- less USD 52,000/-) to pay for the
instalment of the property purchased.
Question: To meet the shortfall of USD 12,000/- there are 3 options that Mr. PS
is exploring. Kindly advice him on the following options:
Mr. PS’s mother sending remittance from India under LRS on his behalf to
the California developer;
Mr. PS’s cousin in US making payment on his behalf as a gift;
Mr. PS’s cousin in US is making payment on his behalf as a loan.
Case Study - II
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Harshal Bhuta
Facts: Mr. A has utilised the entire LRS limit of USD 2,50,000/- for FY 2019-20. He
now wants to travel abroad
Questions:
1) Whether LRS Limit would apply for booking from India of air tickets for foreign
travel and overseas accommodation?
2) Whether LRS Limit would apply to duty free shopping at airports in India?
3) Whether LRS Limit would apply if any purchase is made abroad by using Indian
credit card?
Case Study - III
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Harshal Bhuta
Facts: Mr. CA has recently qualified the chartered accountancy examination held by
the ICAI. Mr. CA is desirous of working in the field on International Taxation as it is
very evolving subject recently. As Mr. CA do not have material knowledge/ insight
on the subject of International Tax Laws, Mr. CA is planning to subscribe to
International database for a block period of 5 years for a consideration of 6000/-
Pounds. Mr. CA will make the payment from his Indian credit card for the purchase
of the publication.
Questions: Is TDS applicable on such payment? Mr. CA required to furnish
Chartered Accountants certificate in Form 15CB for the same? Mr. CA is required to
furnish Form 15CA?
Case Study - IV
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Harshal Bhuta
Facts: Mr. P, an Non-Resident Indian wants to settle in USA. The United States EB-
5 Immigrant Investor Visa Program, provides a method for eligible Immigrant
Investors to become lawful permanent residents informally known as “green card”
holders by investing at least USD 500,000/- (from 21.11.2019 it is USD 9,00,000).
As per the subscription agreement, Mr. P proposes to remit (i) USD 5,00,000/- for
subscription of units as capital contribution for EB-5 and (ii) USD 40,000/- for
related administrative fees. Mr. P intends to remit such funds from India.
Questions:
1) Whether Mr. P is required to deduct tax at source while making the remittance?
2) Whether Mr. P is required to furnish Form 15CB and 15CA?
Case Study - V
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Harshal Bhuta
Facts: Mr. Q, an Resident Indian wants to settle in Grenada. Grenada’s Citizenship
by Investment Programme allows individuals and their families to obtain citizenship
by investment. For the same, Mr. P proposes to remit (i) USD 1,50,000/- for
contribution to National Transformation Fund in the form of donation (ii) USD
1,500/- for application fees (iii) USD 5,000/- for due diligence fees and (iv) USD
1,500/- for processing fees.
Questions:
1) Whether Mr. Q is required to deduct tax at source while making the remittance?
2) Whether Mr. Q is required to furnish Form 15CB and 15CA?
Case Study - VI
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Change in Residential Status
Harshal Bhuta
Facts: Mr. John is a British national and a Overseas Citizen of India. He is working
as CEO of an event management company that he founded in India in the year 2018.
He draws salary from the Indian company and remits the same to the UK for family
maintenance.
He had purchased an immovable property in UK on mortgage while he was person
resident outside india (PROI). His next instalment of mortgage payment is now due.
Mr. John works in the Indian company for about 20 days in a month and for balance
days, he goes to UK to provide consultancy services to the NGO based in UK. He
has stayed in India for more than 182 days during FY 2018-19. Income earned by
Mr. John for providing consultancy services to the UK NGO gets directly credited in
his UK bank account. He holds NRO and NRE a/c in India.
Question: Are his affairs in order for the purpose of FEMA?
Case Study - I
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Emigrating Indians
Harshal Bhuta
Emigrating Indians Assets in India: Sec 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.
Bank a/c’s
Resident a/c into NRO a/c
EEFC and RFC(D) balance can be credited into NRE/FCNR(B) a/c
Shares and Securities
Immediately intimate company, registrar, broker, depository of change in residential status to
comply with FEM Debt Regulation and FEM Non-Debt rules provisions
Borrowings and lending
See impact of change in residential status (Reg. 8 of FEMA 3(R))
Immovable property – Covered u/s 6(5)
Insurance policy
Can continue to hold life/general insurance policy in India. No permission required for payment
of premium
Partner in firm or proprietor of concern
Can continue to remain partner/proprietor. Intimation to be given about change in status.
However, loan given to firm / concern to be governed as per the borrowing & lending regulation
NRI / PIO can become karta of HUF. Residential status of HUF?
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Case Studies
Harshal Bhuta
Facts: Mr. D’Souza takes up an employment in Portugal. He currently operates the
following Bank Accounts/ Deposits jointly held with close relatives:
Questions: Kindly advise Mr. D’Souza about transition on change in residential
status:
Case Study - I
Fixed Deposits First name Rs. 30,00,000/-
Current a/c First name Rs. 2,50,000/-
RFC(D) a/c First name Rs. 5,75,000/-
Savings a/c Second name Rs. 12,00,000/-
Fixed Deposits First name
Convert to NRO a/c
Thereafter can continue a/c with
resident relative on “former or
survivor basis”. Can also give POA
to them for operating the account.
Current a/c First name
RFC(D) a/c First name Can be converted to
NRE/FCNR(B)
Savings a/c Second name Para 3 of RBI Master Direction 19/2015-16: Can continue
as resident a/c on “either or survivor basis”. Other
conditions applicable.
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Returning Indians
Harshal Bhuta
Returning Indians Assets abroad: Sec 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.
Bank a/c’s
Redesignation of NRO/NRE/FCNR a/c
Continuation of Foreign bank accounts covered under Sec 6(4)
Can take benefit of RFC a/c
Shares and Securities – Covered u/s 6(4)
Immovable property – Covered u/s 6(4)
Insurance policy
Can continue to hold life/general insurance policy o/s India. No permission required for
payment of premium. However, maturity proceeds to be repatriated within 7 days.
Partner in firm or proprietor of concern
Advisable to take RBI permission to continue being partner/proprietor of foreign firm/concern.
Movable assets? – Covered u/s 6(4)?
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Case Studies
Harshal Bhuta
Facts: Mr. Antonio returns to India from USA after 10 years. He currently owns the
following Bank Accounts/ Deposits:
Questions: Kindly advise Mr. Antonio about transition on change in residential
status:
Case Study - I
FCNR(B) a/c $ 2,20,000/-
NRE FD a/c Rs. 37,50,000/-
NRE Savings a/c Rs. 3,50,000/-
NRO a/c Rs. 3,50,000/-
Wells Fargo Bank Savings a/c $ 28,000/-
FCNR(B) a/c Can continue up to maturity. Thereafter, convert to Resident a/c or RFC
a/c.
NRE FD a/cConvert into Resident a/c or RFC a/c immediately
NRE Savings a/c
NRO a/c Convert to Resident a/c immediately
Wells Fargo
Bank Savings a/c
Can continue as per Sec 6(4) of FEMA, 1999
Seminar on FEMA - Goa Branch of WIRC04th March 2020 139
Harshal Bhuta
Thank you
Seminar on FEMA - Goa Branch of WIRC04th March 2020 140