A person resident in India can hold, own, transfer or invest in any immovable property situated outside India if such property was acquired, held or owned by him/her when he/she was resident outside India or inherited from a person resident outside India. A resident can acquire immovable property outside India by way of gift or inheritance from such a person, or a person resident in India who had acquired such property on or before July 8, 1947 and continued to be held by him with the permission of the Reserve Bank or a person resident in India who has acquired such property in accordance with the foreign exchange provisions in force at the time of such acquisition.

A resident can purchase immovable property outside India out of foreign exchange held in his/her Resident Foreign Currency (RFC) account. A resident can acquire immovable property outside India jointly with a relative who is a person resident outside India, provided there is no outflow of funds from India. A resident individual can send remittances under the Liberalised Remittance Scheme for purchasing immovable property outside India.

A company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, provided total remittances do not exceed the limits prescribed for initial and recurring expenses.

An NRI or an OCI can acquire by way of purchase any immovable property (other than agricultural land/ plantation property/farm house) in India or acquire by way of gift any immovable property (other than agricultural land/ plantation property/ farm house) in India from person resident in India or from an NRI or an OCI who in any case is a relative or acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired the property in accordance with the provisions of the foreign exchange law in force at the time of acquisition or acquire any immovable property in India by way of inheritance from a person resident in India. A person resident outside India, not being a NRI or OCI, who is a spouse of a NRI or a OCI may acquire one immovable property (other than agricultural land/ farm house/plantation property), jointly with his/her NRI/ OCI spouse. An NRI or an OCI may transfer any immovable property in India to a person resident in India or to an NRI or OCI.

A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those countries viz., Hindus, Sikhs, Jains, Buddhists, Parsis and Christians, who is residing in India and has been granted a Long Term Visa (LTV) by the Central Government may purchase only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for self-employment. 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.

Foreign Embassy/Diplomat/Consulate General may purchase/sell immovable property (other than agricultural land/ plantation property/ farm house) in India. A branch or office or any other place of business in India, other than a liaison office, established by a person resident outside India, may acquire immovable property in India which is necessary for or incidental to the activity carried on in India by such branch or office.

Payment, if any, for acquisition or transfer of immovable property must be through inward remittance or by debit to NRE/FCNR (B)/NRO account.

The Asian Clearing Union (ACU) is a system for clearing payments for trade transactions among the participant countries i.e. Bangladesh, India, Iran, Myanmar, Nepal, Pakistan, Sri Lanka, Bhutan and Maldives. The idea is to reduce the use of currencies like US Dollars, Euro, British Pounds, Japanese Yen etc. and thereby reduce the costs involved in routing the transactions through banks in those countries i.e. US, UK, Europe, Japan etc.

The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’, ‘ACU Euro’ and, ‘ACU Yen’, which are equivalent in value to one US Dollar, one Euro and one Japanese Yen, respectively. All instruments of payment are denominated in AMUs. Settlements of such instruments are made by AD Category-I banks through operation on ACU Dollar, ACU Euro and ACU Yen Accounts.

For receiving payment for exports or making payments for imports, the authorized dealers have been permitted to open ACU dollar, ACU Euro and ACU Yen accounts with their correspondents in other participating countries. Similarly, ADs have been allowed to open ACU dollar, ACU Euro and ACU Yen accounts in their books on behalf of their correspondents.

The essence of the procedure for settlement of eligible transactions through the ACU is that a large part of the transactions, as far as possible, should be settled directly through the accounts maintained by AD Category-I banks with banks in the other participating countries and vice versa; only the spill-over in either direction should be required to be settled by the Central Banks in the countries concerned through the Clearing Union.

AD Category-I banks are permitted to settle commercial and other eligible transactions in much the same manner as other normal foreign exchange transactions. The procedures for opening letters of credit, negotiation of documents, etc., in respect of trades in convertible currencies are applicable for trades routed through the ACU mechanism. So, payment for export from India is received by debit to ACU dollar accounts of the commercial banks of the participating countries maintained with ADs in India or by credit to the ACU dollar accounts of AD maintained with correspondent banks in other participating countries. The reverse is the case for imports into India.

While quoting the rates to their clients, the transactions denominated in ACU dollar, ADs should not differentiate between ACU Dollar and US dollar (and similarly for ACU Euro and ACU yen). The forward premiums quoted for US dollar, Euro and Yen against rupee are also applicable for the ACU dollar, ACU Euro and ACU Yen respectively.

For funding the ACU dollar, ACU Euro, ACU Yen accounts the ADs credit equivalent US dollar, Euro or Yen to the account of RBI with Federal Reserve Bank of New York or Deutsche Bank in Frankfurt or Bank of India, Tokyo, on the value date. Against that RBI will credit the AD bank’s account with the named correspondent in equivalent ACU dollar or ACU Euro or ACU Yen. The ADs can even replenish their balances by purchasing ACU dollar, ACU Euro or ACU Yen from a local bank having a surplus in that participating country. Similarly, the AD Banks can sell their excess liquidity in the ACU dollar or ACU Euro ACU Yen accounts to local banks in the participating country or RBI and receive credit in their accounts in US dollar, Euro or Yen.

Receipts from or payments to Nepal and Bhutan shall be in Indian Rupees, except when Nepal Rashtriya Bank allows payment in foreign currency for exports from India. Payments/receipts to/from Iran will be governed by special RBI instructions.

A PRI, not being a company incorporated in India, may borrow in INR from NRIs/PIOs only on a non-repatriation basis at a rate of interest not more than two per cent above Bank Rate prevailing on the date of availment of loan. The amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the lender, maintained with an authorised dealer (AD) in India. Period of loan shall not exceed 3 years and payment of interest and repayment of principal shall be made only to the NRO account of the lender.

A company incorporated in India that does not carry on agricultural/plantation/real estate business or trade in transferable development rights or act as Nidhi or Chit fund company, may borrow in INR, on repatriation or non-repatriation basis, from NRIs/PIOs by issuance of non-convertible debentures (NCDs) made by public offer. The rate of interest should not be more than the prime lending rate of State Bank of India on the date on which the resolution approving the issue is passed in the borrowing company’s General Body Meeting plus three per cent and the period of loan shall not be less than three years. If the borrowing is on repatriation basis then the percentage of NCDs issued to NRIs/PIOs to the total paid up value of all NCDs issued must not exceed the ceiling prescribed for issue of equity shares/convertible debentures for foreign direct investment in India. Further, the funds towards borrowing should be received through inward remittance from outside India or by debit to NRE/FCNR(B) account of the investor. If the borrowing is on non-repatriation basis then the loan amount should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the investor. Payment of interest and repayment of principal shall be made only to the NRO account of the lender.

A resident individual may grant interest free INR loan to a NRI relative with minimum maturity of one year within the overall limit under the Liberalised Remittance Scheme. The loan amount must be credited to the NRO account of the borrower. Repayment of loan shall be made by way of inward remittances from outside India or by debit to the NRO/NRE/FCNR(B) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.

The proceeds of above loans shall be utilised only for the own business of the borrower. Real estate activities, other than development of townships, construction of residential/commercial premises, roads or bridges, shall not be permitted. The proceeds shall not be used for investment or for on-lending in any manner whatsoever.

AD may grant INR loans to a NRI against security of shares and other securities or against the security of immovable property (other than agricultural or plantation land or farm house) subject to specified terms and conditions.

AD may grant INR loan to NRI employees of Indian companies for acquiring shares of the companies under the Employees Stock Option (ESOP) Scheme subject to specified terms and conditions.

An authorised or a housing finance institution in India approved by the National Housing Bank (NHB) may provide housing loan to a NRI or a PIO for acquisition of a residential accommodation in India subject to specified terms and conditions.

A body corporate registered or incorporated in India may grant rupee loan to its NRI/PIO employees subject to specified terms and conditions.

Section 2(e) of Foreign Exchange Management Act, 1999 (FEMA) defines “capital account transaction” as a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.

Section 4 of FEMA restricts certain types of transactions. It says, ‘save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India’.

Section 6 of FEMA says that ‘subject to Section 6(2), any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction.’ Section 6(2) empowers the Reserve Bank of India (RBI) to specify a class or classes capital account transactions, involving debt instruments, which are permissible, the limit up to which foreign exchange shall be admissible for such transaction and any condition which may be placed on such condition. Similar powers are given to Central government under Section 6(2)(A) of FEMA for non-debt instruments. The general stance is to prohibit capital account transactions unless specifically permitted,

Accordingly, the Central Government has notified the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 and RBI has notified Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. With the notification of the non-debt instruments and debt instrument norms, the framework for foreign investment in India has been largely simplified. Further, the non-debt instruments and debt instrument norms clearly distinguish between debt and non-debt instruments and demarcate the authority responsible for each kind of instrument, i.e., the Central Government or the RBI. This clarity is intended to ease the approval process for investors.

Rule 2(ai) of the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 defines ‘non-debt instruments’ as all investments in equity instruments in incorporated entities - public, private, listed and unlisted, capital participation in Limited Liability Partnerships, all instruments of investment recognized in the Foreign Direct Investment policy notified from time to time, investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvIts), investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest more than 50% in equity, junior-most layer (i.e. equity tranche) of securitization structure, acquisition, sale or dealing directly in immovable property, contribution to trusts; and depository receipts issued against equity instruments. It has 31 Rules and 10 Schedules detailing various conditions for such transactions.

The Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 has 6 Regulations and Two Schedules. Schedule I lists 11 classes of capital account transactions of persons resident in India and Schedule II lists 8 classes of capital account transactions for persons resident outside India. Subject to the provisions of the Act or the rules or regulations or direction or orders made or issued thereunder, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction specified in the Schedules, provided that the transaction is within the limit, if any, specified in the regulations relevant to the transaction.

Section 6(4) of FEMA allows a person resident in India to hold, own transfer or invest in foreign currency, foreign security or any immovable property outside India acquired, held or owned when he was resident outside India or inherited from a person resident outside India. Similarly, a person outside India can hold, own, transfer or invest in Indian currency, Indian security or any immovable property in India acquired, held or owned when he was resident in India or inherited from a person resident in India.

The Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 notified by the Reserve Bank of India (RBI) essentially deals with debt instruments, as the non-debt instruments are dealt with separately under the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019.

There is no definition of debt instruments in the said Regulations but should normally cover government and corporate bonds, all tranches of securitization structure which are not equity tranche, borrowing by Indian firms through loans, depositary receipts whose underlying securities are debt instruments and all other instruments that are not specified as non-debt instruments in the above referred Rules.

Schedule I to the said Regulations lists classes 11 classes of capital account transactions for which persons resident in India can draw or sell foreign exchange. These include investment in foreign securities, foreign currency loans raised in India and abroad, transfer of immovable property outside India guarantees issued in favour of a person resident outside India, export, import and holding of currency notes, loans and overdrafts (borrowings) from a person resident outside India, maintenance of foreign currency accounts in India and outside India, taking out of insurance policy from an insurance company outside India, loans and overdrafts to a person resident outside India and undertaking derivative contracts.

Similarly, Schedule II to the said Regulations lists 8 classes of capital account transactions for which persons resident outside India can draw or sell foreign exchange. These include investment in India i.e. issue of security by a body corporate or an entity in India and investment therein and investment by way of contribution to the capital of a firm or a proprietorship concern or an association of persons in India, acquisition and transfer of immovable property in India, guarantee in favour of, or on behalf of, a person resident in India, import and export of currency/currency notes into/from India, deposits between a person resident in India and a person resident outside India, foreign currency acciounts in India, remittance outside India of capital assets in India and undertaking derivative contracts.

The said Regulations prohibit transactions with entities in North Korea and investments by persons resident outside India in the business of chit fund, or as Nidhi Company or in agricultural or plantation activities or in real estate business, or construction of farm houses or in trading in Transferable Development Rights (TDRs). However, investments in development of townships, construction of residential/commercial premises, roads, bridges and Real Estate Investment Trusts (REITs)registered and regulated under SEBI (REITs) Regulations, 2014 are permitted.

The said Regulations allow an individual resident in India to undertake, sell or draw foreign exchange up to US$ 2,50,000/- for transactions mentioned in Schedule I but the limit of US$ 2,50,000/- cumulative for current account and capital account transactions for an individual. In other words, the resident individuals can not draw US$ 2,50,000/- separately for current account and capital transactions.

RBI has issued separate circulars and Master Directions on establishment of branch office (BO)/liaison office (LO)/ project office (PO) or any other place of business in India by foreign entities, direct investment by residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) abroad, borrowing and lending transactions in Indian rupees between persons resident in India and Non-Resident Indians/Persons of Indian Origin, acquisition and transfer of immovable property by Indian residents outside India and Non-residents in India, remittance of assets, deposits and accounts, external commercial borrowings, trade credit, borrowing and lending in foreign currency by Authorised Dealers (ADs) and persons other than Authorised Dealers. These directions lay down the modalities as to how the foreign exchange business has to be conducted by ADs.

Many times, people end up contravening the various provisions of law inadvertently or through oversight. Instead of taking a harsh view, the law has provided for the compounding of offences under Foreign Exchange Management Act, 1999 (FEMA).

Compounding means voluntary admission of any contravention, of pleading guilty and seeking redressal. Any contravention of the provisions of FEMA or rules or regulations made under the FEMA, any orders, directions or circulars issued by the Reserve Bank of India (RBI) can be compounded. The RBI has powers to compound all contraventions, except those mentioned under Section 3(a) of FEMA. It compounds the contraventions for a specified sum after giving an opportunity to the person applying for compounding to represent his case in person. Compounding offers an opportunity to settle the matters at the departmental level thus avoiding the prosecution and litigation route. The RBI will not allow compounding of offences under FEMA if the contravention relates to serious offences such as money laundering, terror financing or actions that threaten or undermine the sovereignty or integrity of the nation.

Any individual or corporate or entity, who has contravened any provisions of FEMA or the rules and regulations made under the said Act, any orders, directions, circulars issued by the RBI may apply for compounding on his own, suo moto, on coming to know of the contravention or soon after the contravention is brought to his notice by the RBI or by any other authority or by any other means.

The RBI has vested the powers of compounding with various authorities in its Regional offices and Central office depending on the type of contravention, the gravity of the offence and the amounts involved. The guidance structure for calculating the penalty to be imposed on compounding is also laid down by the RBI.

The process of compounding starts with submitting an application in the format prescribed in Annexure II of the Foreign Exchange (Compounding Proceedings) Rules, 2000 to the Compounding Authority along with the demand draft of Rs. 5000/-. In case of contravention relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office/Liaison Office, the applicants are required to furnish details as per Annexure III of the Foreign Exchange (Compounding Proceedings) Rules, 2000. The applicant should also submit an undertaking that he is not under any investigation by any agency such as DoE, CBI etc. Copy of Memorandum of Association, latest Audited Balance Sheet should also be submitted. The Compounding Authority may call for further information, record or other document. In case the contravener fails to submit the additional information called within the specified period, the application is liable for rejection. The application will be compounded on the basis of documents and submission made. Disposal of compounding application shall be made by issue of compounding order. However where there is a sufficient cause for further investigation, the RBI may refer the matter to Directorate of Enforcement. The application for compounding filed with the RBI for compounding of contravention is required to be disposed off by RBI within 180 days of the receipt of application.

The contravention penalty should be paid within 15 days from the date of the order. In case of non-payment of the amount indicated in the compounding order within 15 days of the order, it will be treated as if the applicant has not made any compounding application to the RBI. Such cases will be referred to the Directorate of Enforcement for necessary action.

Compounding orders passed on or after June 1, 2016 by the RBI are published on its website on a monthly basis.

Sections 3 (b) and (c) and Section 4 of Foreign Exchange Management Act, 1999 (FEMA) say that save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall make any payment to or for the credit of any person resident outside India in any manner or receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner or no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. There are also more provisions that refer to persons resident in India and persons resident outside. So, understanding the concept of residence is very important.

Section 2 (v) of FEMA brings five categories of persons within the definition of ‘person resident in India’. These are a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year, a person who has come to or stays in India, any person or body corporate registered or incorporated in India, an office, branch or agency in India owned or controlled by a person resident outside India and an office, branch or agency outside India owned or controlled by a person resident in India.

However, a person goes out of India or who stays outside India, for taking up employment outside India or for carrying on outside India a business or vocation outside India or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period, will be considered as a person resident in India in that year till the day he goes out of India, even if he had resided in India for less than 182 days.

On the other hand, a person who has come to or stays in India, in either case for or on taking up employment in India, or for carrying on in India a business or vocation in India or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period will be considered a resident only if he has stayed in India for more than 182 days.

Section 2 (w) of FEMA says that “person resident outside India” means a person who is not resident in India.

Students going abroad for education for a certain period will be considered as persons resident outside India, as per RBI’s AP (DIR) Circular no. 45 dated 12th December 2003.

A person resident in India for employment for a specific duration (irrespective of the length thereof) or for a specific job or assignment, the duration of which does not exceed three years, is referred as a ‘person not permanently resident’ under the explanation to Regulation 4 of the FEM (Transfer of Issue or any Foreign Security) Regulations 2000 and Regulation 5 of the FEM (Remittance of Assets) Regulations 2000. Such definitions are relevant only for the specific regulations and not for other provisions of FEMA.

The term ‘Non-resident Indian’ (NRI) is not defined in FEMA but in various RBI regulations dealing with transfer or issue of any foreign security, establishment in India of a branch or office or other place of business, borrowing or lending in rupees, investment in firm or proprietary concern in India and transfer or issue of security by a person resident outside India. These definitions will come into play in specific contexts and not for other provisions of FEMA.

The Central Government has made the Foreign Exchange Management (Current Account Transactions) Rules, 2000. It defines “Drawal” as drawal of foreign exchange from an authorized person and includes opening of Letter of Credit or use of International Credit Card or International Debit Card or ATM Card or any other thing by whatever name called which has the effect of creating foreign exchange liability. It has three Schedules.

Schedule III lists the types of transactions that will be subject to such limits and conditions as specified against each entry. In other words, every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein. However, this rule will not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter. The limits or conditions will also not apply to drawal made out of funds held in Exchange Earners’ Foreign Currency (EEFC) account of the remitter (barring gift remittances or donations by individuals and remittance by way of reimbursement of pre-incorporation expenses by others).

Under the Liberalised Remittance Scheme (LRS) a person an remit up to aggregate limit of USD 2,50,000 every year for private visits to any country (except Nepal and Bhutan), gift or donations, going abroad for employment, emigration, maintenance of close relatives abroad, travel for business, or attending a conference or specialized 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 or any other current account transaction. Remittances can be consolidated for family members where individual family members comply with its terms and conditions.

For going abroad for emigration or medical treatment or studies, more foreign exchange can be remitted if it is so required by the country of emigration, medical institute offering treatment or the university.

A person who is resident but not permanently resident in India and a citizen of a foreign State other than Pakistan or a citizen of India who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).

For travel, all tour related expenses including cost of rail/road/water transportation, cost of Euro Rail passes/tickets, etc. outside India and overseas hotel/lodging expenses shall be subsumed under the LRS limit. The tour operator can collect this amount either in Indian rupees or in foreign currency from the resident traveler.

Persons other than an individual can remit foreign exchange for donations up to one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for creation of Chairs in reputed educational institutes, contribution to funds (not being an investment fund) promoted by educational institutes; and contribution to a technical institution or body or association in the field of activity of the donor Company. They can remit commission, (per transaction) to agents abroad for sale of residential flats or commercial plots in India up to USD 25,000 or five per cent of the inward remittance whichever is more. They can remit remittances up to USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India. They can also remit by way of remittance pre-incorporation expenses up to five percent of investment brought into/India or USD 100,000, whichever is higher.

A ‘current account transaction’ means a transaction that does not alter the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.

It includes payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, payments due as interest on loans and as net income from investments, remittances for living expenses of parents, spouse and children residing abroad, and expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Section 5 of the Foreign Exchange Management Act, 1999 (FEMA) says that any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction, provided that the Central Government may, in public interest and in consultation with the Reserve Bank (RBI), impose such reasonable restrictions for current account transactions as may be prescribed.

Accordingly, the Central Government has made the Foreign Exchange Management (Current Account Transactions) Rules, 2000. It defines “Drawal” as drawal of foreign exchange from an authorized person and includes opening of Letter of Credit or use of International Credit Card or International Debit Card or ATM Card or any other thing by whatever name called which has the effect of creating foreign exchange liability. It has three Schedules.

Schedule I lists 8 types of transactions that are prohibited. These are remittance out of lottery winnings, remittance of income from racing/riding etc. or any other hobby, remittance for purchase of lottery tickets, banned/proscribed magazines, football pools, sweepstakes, etc., payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies, remittance of dividend by any company to which the requirement of dividend balancing is applicable, payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco, payment related to “Call Back Services” of telephones and remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme. Authorised Persons will not make foreign exchange available for these purposes.

Schedule II lists 10 types of transactions that require prior approval of different Ministries/Departments of Government of India. These include cultural tours, advertisement in foreign print media for the purposes other than promotion of tourism, foreign investments and international bidding (exceeding USD 10,000) by a State Government and its Public Sector Undertakings, remittance of freight of vessel chartered by a Public Sector Undertaking, payment for import by a Government Department or a Public Sector Undertaking on ‘Cost, Insurance and Freight (CIF) basis (i.e. other than Free On Board (FOB) and Free Alongside (FAS) basis), multi-modal transport operators making remittance to their agents abroad, hiring of transponders by Television Channels and Internet Service providers, remittance of container detention charges exceeding the rate prescribed by Director General of Shipping, remittance of prize money/sponsorship of sports activity abroad by a person other than International/National/State Level sports bodies, if the amount involved exceeds USD 100,000 and remittance for membership of P & I Club i.e. Protection and Indemnity Club. However, such approval will not be required where the payment is made out of funds held in Resident Foreign Currency (RFC) and Resident Foreign Currency (Domestic) Account of the remitter. The approval will not be required also for drawal made out of funds held in Exchange Earners’ Foreign Currency (EEFC) account of the remitter (except for remittance for membership of P & I Club i.e. Protection and Indemnity Club).

All creditworthy exporters, including those in small and medium sectors, with good track record would be eligible for issue of Gold Card by individual banks as per the criteria to be laid down by the latter. Applications for credit will be processed at norms simpler and under a process faster than for other exporters. Banks would clearly specify the benefits they would be offering to Gold Card holders. The sanction and renewal of the limits under the Scheme will be based on a simplified procedure to be decided by the banks. 'In-principle' limits will be sanctioned for a period of 3 years with a provision for automatic renewal subject to fulfillment of the terms and conditions of sanction. A stand-by limit of not less than 20 per cent of the assessed limit may be additionally made available to facilitate urgent credit needs for executing sudden orders. In the case of exporters of seasonal commodities, the peak and off-peak levels may be appropriately specified.

In respect of the delay in affording credit in respect of credit advices complete in all respects, the compensation stipulated by FEDAI should be paid to the exporter client, without waiting for a demand from the exporter.

The sanction of fresh/enhanced export credit limits should be made within 45 days from the date of receipt of credit limit application with the required details/information supported by requisite financial/operating statements. In case of renewal of limits and sanction of ad hoc credit facilities, the time taken by banks should not exceed 30 days and 15 days respectively, other than for Gold Card holders.

At times, exporters require ad hoc limits to take care of large export orders which were not foreseen earlier. Banks should respond to such situations promptly.

In case of established exporters having satisfactory track record, banks should consider sanctioning a 'Line of Credit' for a longer period, say, 3 years, with in-built flexibility to step-up/step-down the quantum of limits within the overall outer limits assessed. The step-up limits will become operative on attainment of pre-determined performance parameters by the exporters. Banks should obtain security documents covering the outer limit sanctioned to the exporters for such longer period.

Firms/companies dealing in purchase/sale of rough or cut and polished diamonds, diamond studded jewellery, with good track record of at least two years in import or export of diamonds with an annual average turnover of Rs. 3 crore or above during the preceding three licensing years (from April to March) are permitted to carry out their business through designated Diamond Dollar Accounts (DDAs). Under the DDA Scheme, it would be in order for banks to liquidate PCFC granted to a DDA holder by dollar proceeds from sale of rough, cut and polished diamonds by him to another DDA holder.

Export Credit can be granted for deemed exports, supplies from Domestic Tariff Area to SEZ area and supplies from one EOU/EPZ/SEZ Unit to another EOU/EPZ/SEZ Unit. Banks may treat the inputs supplied to farmers by exporters as raw material for export and consider sanctioning the lines of credit/export credit to processors/exporters to cover the cost of such inputs required by farmers to cultivate such crops to promote export of agri products. The processor units would be able to effect bulk purchases of the inputs and supply the same to the farmers as per a pre-determined arrangement. Banks can grant export credit against undrawn balances on export bills, retention money, exports on consignment basis, goods sent for exhibition and sale abroad, export of agro-based products and to processors in Agri Export Zones.

Foreign Exchange Management Act, 1999 (FEMA) mandates Reserve Bank of India (RBI) to regulate opening, holding and maintaining foreign currency accounts by a person resident in India and maintenance of deposits/accounts between a person resident in India and a person resident outside India. Accordingly, RBI has notified Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015, Foreign Exchange Management (Deposit) Regulations, 2016 and Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015.

A person resident in India may open an Exchange Earners Foreign Currency (EEFC) account with an Authorised Dealer (AD) in India as per the conditions stipulated in Schedule I to the FEM (Foreign Currency Accounts by a person resident in India) Regulations, 2015.

A person resident can open a Resident Foreign Currency (RFC) account with an AD bank in India out of foreign exchange received or acquired by him as pension or superannuation benefits or other monetary benefits from his overseas employer, by converting assets which were acquired by him when he was a non-resident or inherited from or gifted by a person resident outside India and repatriated to India, foreign exchange acquired or received before July 8, 1947 or any income arising or accruing thereon which is held outside India in pursuance of a general or special permission granted by the RBI or received as proceeds of Life Insurance Corporation of India claims/maturity/surrendered value settled in foreign exchange from an Indian insurance company permitted to undertake life insurance business by the Insurance Regulatory and Development Authority (IRDA).

A resident individual may open an Resident Foreign Currency (Domestic) account -RFC(D) account- to retain in a bank account in India the foreign exchange acquired in the form of currency notes, bank notes and travellers cheques from overseas sources such as, payment while on a visit abroad for services not arising from any business or anything done in India, honorarium or gift or for services rendered or in settlement of any lawful obligation from any person not resident in India and who is on a visit to India, honorarium or gift while on a visit to any place outside India, gift from a relative, unspent foreign exchange acquired from an authorised person for travel abroad, representing the disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/GDRs under the 10DR Scheme, 2014 or by way of earnings received as the proceeds of life insurance policy claims/maturity/surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the IRDA.

Firms and companies which comply with the eligibility criteria stipulated in the Foreign Trade Policy of Government of India may open Diamond Dollar Accounts (DDA) with an AD in India.

Indian agent of shipping or airline companies incorporated outside India, ship-manning/crew managing agencies in India, project offices of foreign companies, organisers of international seminars, conferences, conventions, etc., an exporter who has undertaken a construction contract or a turnkey project outside India or who is exporting services or engineering goods from India on deferred payment terms, a unit located in a Special Economic Zone (SEZ), an Indian company receiving foreign investment under FDI route in terms of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and Re-insurance and Composite Insurance brokers registered with IRDA can open and maintain foreign currency accounts in India with AD Banks.

All such accounts can be maintained as per the terms and conditions stipulated for each type of account in the FEM (Foreign Currency Accounts by a person resident in India) Regulations, 2015.

Foreign Exchange Management Act, 1999 (FEMA) mandates Reserve Bank of India (RBI) to regulate opening, holding and maintaining foreign currency accounts by a person resident in India and maintenance of deposits/accounts between a person resident in India and a person resident outside India. Accordingly, RBI has notified Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015, Foreign Exchange Management (Deposit) Regulations, 2016 and Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015.

The following persons can open a foreign currency account with a bank outside India for carrying on normal business and incidental transactions.

• An authorized dealer in India with its branch/head office/correspondent outside India.
• A branch outside India of a bank incorporated in India.
• An Indian shipping or airline company.
• Insurance/reinsurance companies registered with Insurance Regulatory and Development Authority of India (IRDA) to carry out insurance/reinsurance business.
• An India firm/company/body corporate in the name of its foreign office/branch or its representative posted outside India.
• An exporter who is exporting services and engineering goods on deferred payment terms or executing a turnkey project or a construction contract abroad.
• A person resident in India who has gone abroad for studies during his stay abroad.
• A person resident in India who is on a visit to a foreign country, during his stay abroad.
• A person going abroad to participate in an exhibition/trade fair, with a bank outside India, for crediting the sale proceeds of goods.
• A foreign citizen resident in India, being an employee of a foreign company, on deputation to the office/branch/subsidiary/joint venture/group company in India
• An Indian citizen, being an employee of a foreign company, on deputation to the office/branch/subsidiary/joint venture/group company in India
• A foreign citizen resident in India employed with an Indian company
• An Indian Party as defined in Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004
• A resident individual for the purpose of sending remittances under the Liberalized Remittance Scheme.
• Subject to compliance with the conditions in regard to raising of External Commercial Borrowings (ECB) or raising of resources through American Depository Receipts (ADRs) or Global Depository Receipts (GDRs), the funds so raised, pending their utilisation or repatriation to India, held in deposits in foreign currency accounts with a bank outside India.
• An Indian startup, having an overseas subsidiary, or the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary.
• The following persons resident outside India can open an account in Indian Rupees with a bank in India:
  1. Non-resident Indians (NRIs) and Person of Indian Origin (PIOs) are permitted to open and maintain Non-Resident (External) Accounts
  2. Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) can open and maintain Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account
  3. Any person resident outside India may open and maintain Non-Resident Ordinary (NRO) account
  4. Any person resident outside India, having a business interest in India, may open a Special Non-Resident Rupee Account (SNRR account) with an AD for the purpose of putting through bona fide transactions in rupees,
  5. Any resident or non-resident corporate/acquirers may open Escrow account in INR with an AD

A shipping or airline company incorporated outside India, can open, hold and maintain a Foreign Currency Account with an authorized dealer for meeting the local expenses in India of such airline or shipping company.

Unincorporated joint ventures (UJV) of foreign companies/entities, with Indian entities, executing a contract in India, can open and maintain non-interest bearing foreign currency account and an SNRR account for the purpose of undertaking transactions in the ordinary course of its business.

Foreign Portfolio Investor and a Foreign Venture Capital Investor, both registered with the Securities and Exchange Board of India (SEBI) can open and maintain a non-interest bearing foreign currency account for the purpose of making investments.

Acceptance of deposit from persons resident abroad by resident Indian entities and keeping deposits by Indian entities with a person resident outside India is permitted only in specified situations.

RBI has specific disciplines for all above referred accounts.

An Indian Party has been permitted to make investment/undertake financial commitment in overseas Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS), up to USD one billion (or its equivalent) in a financial year (within the ceiling of 400% of the net worth as per the last audited balance sheet).

Investments (or financial commitment) in unincorporated/incorporated entities overseas in the oil sector (i.e. for exploration and drilling for oil and natural gas, etc.) by Navaratna PSUs, ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) are permitted without any limit. Other Indian companies are also permitted under the Automatic Route to invest in unincorporated entities overseas in the oil sector up to the limit prescribed. Indian Parties are also permitted to participate in a consortium with other international operators to construct and maintain submarine cable systems on co-ownership basis under the automatic route.

The total financial commitment shall include the amount of equity shares and/or Compulsorily Convertible Preference Shares (CCPS), the amount of other preference shares, the amount of loan, the amount of guarantee (other than performance guarantee) issued by the Indian Party, the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the Indian Party and 50% of the amount of performance guarantee issued by the Indian Party.

The Indian Party/entity may extend loan/guarantee only to an overseas JV/WOS in which it has equity participation. Indian entities may offer any form of guarantee - corporate or personal. An authorised dealer in India may also give a Bank guarantee/issue SBLC to a joint venture company or a wholly-owned subsidiary of a company in India in connection with its business abroad.

An Indian Party may acquire shares of a foreign company engaged in a bonafide business activity, in exchange of ADRs/GDRs issued to the latter in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued there under from time to time by the Government of India.

Investments/financial commitments in Nepal are permitted only in Indian Rupees. Investments/financial commitments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. Investments/financial commitments are not permitted in an overseas entity located in the countries identified by the Financial Action Task Force (FATF) as “non co-operative countries and territories”.

Investments (or financial commitment) in JV/WOS abroad by Indian Parties through the medium of a Special Purpose Vehicle (SPV) are also permitted. Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV/WOS set up by their JV/WOS operating as either an operating unit or as a Special Purpose Vehicle (SPV) under the Automatic Route. The issuance of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route by the Reserve Bank of India.

Investment (or financial commitment) in an overseas JV/WOS may be funded out of drawal of foreign exchange from an AD bank in India, capitalisation of exports, swap of shares, proceeds of External Commercial Borrowings (ECBs)/Foreign Currency Convertible Bonds (FCCBs), in exchange of ADRs/GDRs, balances held in EEFC account of the Indian Party and proceeds of foreign currency funds raised through ADR/GDR issues. General permission has been granted to persons resident in India for purchase/acquisition of securities out of funds held in their RFC account, as bonus shares on existing holding of foreign currency shares and when not permanently resident in India, out of their foreign currency resources outside India.

Authorised Dealer (Category-1) Banks (AD) can consider and approve applications from foreign companies (a body corporate incorporated outside India, including a firm or other association of individuals) for establishing BO/LO/PO in India, except in specified cases, where the Reserve Bank of India (RBI) will deal with the applications.

The foreign company should be profit making in the previous five years and have a net worth of USD 100,000 (for BO) or USD 50,00 (for LO).If it is a subsidiary of another company, a letter of comfort from the parent company that satisfies the said criteria will do.

Approved BOs can engage in export/import of goods, rendering professional or consultancy services, carrying out research work in which the parent company is engaged, promoting technical or financial collaborations between Indian companies and parent or overseas group company, representing the parent company in India and acting as buying/selling agent in India, rendering services in Information Technology and development of software in India, rendering technical support to the products supplied by parent/group companies and representing a foreign airline/shipping company.

Approved LOs can engage in representing the parent company/group companies in India, promoting export/import from/to India, promoting technical/financial collaborations between parent/group companies and companies in India and acting as communication channel between the parent company and Indian companies.

There is a general permission to non-resident companies to establish POs in India, provided they have secured a contract from an Indian company to execute a project in India. Also, the project must have secured the necessary regulatory clearances and is funded directly by inward remittance from abroad. Or the project is funded by a bilateral or multilateral International Financing Agency, or a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the Project. For establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities subject specified conditions general permission is granted.

The validity period of an LO is generally for three years, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only. The validity period of PO is for the tenure of the project. The validity can be extended by three years for LOs by AD.

AD can open bank accounts for LO/BO/PO, for specified purposes and subject to prescribed conditions. Non-interest bearing foreign currency accounts can be opened for POs in India subject to specified conditions. AD can, based on their business prudence, Board approved policy and compliance to extant rules/regulations stipulated by Department of Banking Regulations of RBI extend fund/non-fund based facilities to BOs/POs only. Approved LO/BO/PO must submit Annual Activity Certificates to AD as prescribed. Acquisition of property by BO/PO shall be governed by the provisions of Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.

BOs can remit outside India profit of the branch net of applicable Indian taxes, on production of specified documents to the satisfaction of the AD through whom the remittance is made. AD can permit intermittent remittances by POs pending winding up/completion of the project provided they are satisfied with the bonafides of the transaction, subject to submission of prescribed documents.

AD can consider requests for closure of the BO/LO/PO and allow the remittance of winding up proceeds of BO/LO/PO and transfer of assets by PO subject to submission of specified documents by the concerned BO/LO/PO to the AD.

Export trade is regulated by the Ministry of Commerce and Industry through notified Foreign Trade Policy (FTP). Sections 7, 8 and 9 of the Foreign Exchange Management Act, 1999 spell out the obligations of the exporter to declare the full value of export goods, at the time of exports and to realize and repatriate the full value in foreign exchange to India within specified time limits, except in certain situations. Reserve Bank of India (RBI) has notified the 2Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 relating to export of goods and services from India (referred hereinafter as Export Regulations’).

It is obligatory on the part of the exporter to realize and repatriate the full value of goods, software, services to India within nine months from the date of export, except in case of goods exported to a warehouse established outside India, where the time limit is fifteen months.

Where the exports are made through Electronic Data Interchange (EDI) enabled Customs Houses, the declarations that the exporter will arrange to realize and repatriate the full export proceeds are made through the electronic shipping bills or bills of export filed by the exporter. In case, the exports are made through non-EDI Customs Houses, the declarations that the exporter will arrange to realize and repatriate the full export proceeds are made through Export Declaration Forms (EDF). Exporters of computer software and audio/video/television software must deliver the declaration in form SOFTEX to the designated official of Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Special Economic Zones (SEZs) in India.

Such a declaration is not necessary for export of trade samples of goods and publicity material supplied free of payment, personal effects of travelers, whether accompanied or unaccompanied, ship's stores, trans-shipment cargo and goods supplied under the orders of Central Government or of such officers as may be appointed by the Central Government in this behalf or of the military, naval or air force authorities in India for military, naval or air force requirements.

Exemption from declaration is also available for goods exported by way of gift of goods up to five lakh rupees in value, aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their re-import into India after overhauling or repairs, within a period of six months from the date of their export, re-export of leased aircraft or helicopter and/or engines or auxiliary power units (APUs) re-possessed by overseas lessor and duly de-registered by the Directorate General of Civil Aviation (DGCA) on the request of Irrevocable Deregistration and Export Request Authorisation (IDERA) holder under ‘Cape Town Convention’ subject to permission by DGCA/Ministry of Civil Aviation for such export/s and goods imported free of cost on re-export basis.

Such a declaration is also not necessary when Development Commissioners of the Special Economic Zones, Electronic Hardware Technology Parks, Software Technology Parks or Free Trade Zones permits re-export of imported goods found defective, for the purpose of their replacement by the foreign suppliers or collaborators, goods imported from foreign suppliers or collaborators on loan basis and goods imported from foreign suppliers or collaborators free of cost, found surplus after production operations.

Even replacement goods exported free of charge, goods sent outside India for testing subject to re-import into India, defective goods sent outside India for repair and re-import and exports permitted by the Reserve Bank of India on application made to it, subject to the terms and conditions, if any, as stipulated in the relevant permission.

The amount representing the full export value of the goods exported must be received through an Authorised Dealer (AD) Bank in the manner specified in the Foreign Exchange Management (Manner of Receipt & Payment) Regulations, 2016. Payments can also be received through International Credit Cards or through Online Payment Gateway Service Providers (OPGSPs) subject to specified conditions. Settlement of payment may be through Asian Clearing Union.

Payments may be received from third party (i.e. party other than the buyer) subject to specified conditions. Settlement of export transactions in currencies not having a direct exchange rate is also permitted subject to specified conditions. Export of goods and services against repayment of state credits granted by erstwhile Soviet Union (USSR) will continue to be governed by the extant directions issued by RBI, as amended from time to time.

Exporters can open and maintain Exchange Earners Foreign Currency (EEFC) accounts with a bank in India. Similarly, units in Special Economic Zones (SEZ) can open and maintain Foreign Currency accounts with a bank in India. Exporters of Diamonds can open and maintain Diamond Dollar accounts with a bank in India. Project/Service exporters, participants in international exhibition/trade fair and entities having foreign offices/branches can also open and maintain foreign currency account with a bank outside or in India. Parties engaged in counter trade involving adjustment of value of goods imported into India against value of goods exported from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party can open and maintain Escrow Account with a bank in India in US Dollar. All these accounts can be held and maintained subject to prescribed conditions. Export proceeds can be received in these accounts.

Export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are collectively referred to as ‘Project Exports’. Indian exporters are required to obtain the approval of the AD Category – I banks/ Exim Bank at post-award stage before undertaking execution of such contracts. Regulations relating to ‘Project Exports’ and ‘Services Exports’ are laid down in the revised Memorandum of Instructions on Project and Service Exports.

Prior approval of RBI is required for export of machinery, equipment, etc., on elongated credit terms and on lease, hire basis against collection of lease rentals/hire charges and ultimate re-import. Export of Indian currency is subject to limits and conditions laid down by RBI.

Where the goods are exported through EDI Customs stations, the export data is automatically transmitted to the Bank whose Code number is give by the exporter in the electronic shipping bill through the Export Data Processing and Monitoring System (EDPMS). The bank must mark off the entry in the EDPMS when payment is received against the shipping bill.

For exports made through non-EDI Customs stations, the exporters must submit the duplicate of the EDF duly endorsed by the Customs to the bank through whom payment will be received, within 21 days. The bank must mark of the EDF when payment is received against the shipping bill.

All software exporters can now file single as well as bulk SOFTEX form in the form of a statement in excel format to the competent authority for certification. The exporters have to submit the SOFTEX form in duplicate. STPI/SEZ will retain one copy and handover duplicate copy to exporters after due certification. The SOFTEX data from STPI/SEZ are transmitted in electronic format to RBI.

Exports of services may be made without furnishing any declaration, but export proceeds must be realized by the exporter within the stipulated time limits.

Exporters must follow up with the buyers abroad and try to realize export proceeds within the prescribed time limits. Banks should also closely watch realization of bills and take up with concerned exporters in cases where bills remain outstanding, beyond the due date for payment. Exporters can seek extension of time limit for realization of export proceeds and banks can grant extension in genuine cases.

Exporters can seek reduction in invoice value on account of pre-payment of usance bills and for any other genuine reasons and banks can allow reductions in genuine cases, subject to specified conditions. Exporters can seek change of buyers or consignees and banks can allow in genuine cases, subject to specified conditions.

Where, despite best efforts, the exporter is unable to realize the export proceeds, a request to write off can be made to the banks. Sometimes, claims are made by the foreign buyers due to delays, quality issues and so on. Sometimes, the export proceeds may have to be sent back to the buyers. Exporters are also allowed to seek self write-off up to specified limits. In all such case, the banks can examine the request on merits and on submission of necessary documents and allow the write-off in genuine cases, subject to specified conditions.

Exporters can seek set-off of export receivables against import payables. SEZ units can seek netting off of export receivables against import payments on the date of balance sheet of the SEZ unit. The banks can allow the same in genuine cases, subject to specified conditions.

When shipments from India for which payment has not been received either by negotiation of bills under letters of credit or otherwise are lost in transit, the banks must ensure that insurance claim is made as soon as the loss is known. In cases where the claim is payable abroad, the banks must arrange to collect the full amount of claim due on the lost shipment, through the medium of their overseas branch/correspondent and release the duplicate copy of EDF only after the amount has been collected. Claims which are partially settled directly by shipping companies/airlines under carrier’s liability abroad must also be repatriated to India by the exporters.

Banks can, on an application received from the exporter supported by documentary evidence from the ECGC and private insurance companies regulated by Insurance Regulatory Authority of India (IRDA) confirming that the claim in respect of the outstanding bills has been settled by them, write off the relative export bills.

If the exporter fails to arrange for delivery of the proceeds within the stipulated period or seek extension of time beyond the stipulated period, or seek and obtain write-off of the export bills, concerned bank should report the matter to the concerned Regional Office of RBI stating, where possible, the reason for the delay in realizing the proceeds.

An authorized dealer may give guarantee to a person resident outside India in respect of any debt, obligation or other liability incurred by a person resident in India on account of exports from India.

Banks can allow payment of agency commission, either by remittance or by deduction from invoice value, on application submitted by the exporter. The remittance on agency commission may be allowed subject to prescribed conditions.

Banks may consider the applications received from exporters and grant permission for opening/hiring warehouses abroad subject to prescribed conditions.

In case of exports on consignment basis, the agents/consignees may deduct from sale proceeds of the goods expenses incurred towards receipt, storage, handling and sale of the goods and remit the net proceeds to the exporter.

External Commercial Borrowings (ECBs) are commercial loans raised by eligible resident entities from recognized non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. The framework for raising loans through ECB (herein after referred to as the ECB Framework) comprises of two options – Foreign Currency denominated ECB and Indian Currency denominated ECD.

Under the automatic route, the cases are examined by the Authorised Dealer (AD) Category-I banks. Other cases will be examined by Reserve Bank of India (RBI under approval route.

All entities eligible to receive Foreign Direct Investment, Port Trusts, Units in Special Economic Zones (SEZ), Small Industries Development Bank of India (SIDBI) and Export Import Bank of India (Exim Bank) can borrow in foreign currency in the form of loans including bank loans, floating/fixed rate notes/bonds/debentures (other than fully and compulsorily convertible instruments), trade credits beyond 3 years, Foreign Currency Convertible Bonds, Foreign Currency Exchangeable Bonds and Financial Lease.

All entities eligible to raise Foreign Currency ECB and registered entities engaged in micro-finance activities, viz., registered ‘not for profit’ companies, registered societies/trusts/cooperatives and non-government organisations can borrow in Indian Rupee denominated ECB in the form of loans including bank loans, floating/fixed rate notes/bonds/ debentures/preference shares (other than fully and compulsorily convertible instruments), trade credits beyond 3 years, financial lease and plain vanilla Rupee denominated bonds issued overseas, which can be either placed privately or listed on exchanges as per host country regulations.

The lender should be a resident of Financial Action Task Force (FATF) or International Organisation of Securities Commission (IOSCO) compliant country, including on transfer of ECB. Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders. Individuals as lenders are permitted only if they are foreign equity holders or for subscription to bonds/debentures listed abroad. Foreign branches/subsidiaries of Indian banks are permitted as recognized lenders only for foreign currency (except FCCBs and FCEBs). Foreign branches/subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders for Rupee denominated Bonds issued overseas. However, underwriting by foreign branches/subsidiaries of Indian banks for issuances by Indian banks is not allowed.

Minimum Average Maturity Period (MAMP) or ECB is 3 years. Call and put options, if any, shall not be exercisable prior to completion of minimum average maturity. However, for the specific categories the MAMP will be as prescribed, subject to conditions specified.

The all-in-cost ceiling per annum is ‘benchmark’ rate plus 450 bps spread. Benchmark rate in case of foreign currency and trade credits refers to 6-months London Interbank Offered Rate i.e. LIBOR rate of different currencies or any other 6-month interbank interest rate applicable to the currency of borrowing. Benchmark rate in case of Rupee denominated ECB or trade credit will be prevailing yield of the Government of India securities of corresponding maturity.

Under the aforesaid framework, all eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route. Further, in case of foreign currency denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1. However, this ratio will not be applicable if the outstanding amount of all ECB, including the proposed one, is up to USD 5 million or its equivalent. The borrowing entities will also be governed by the guidelines on debt equity ratio, issued, if any, by the sectoral or prudential regulator concerned.

ECB cannot be utilized for activities in the negative list.

External Commercial Borrowings (ECBs) are commercial loans raised by eligible resident entities from recognized non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. The framework for raising loans through ECB (herein after referred to as the ECB Framework) comprises the following three tracks:

Track I: Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years. Manufacturing sector companies may raise foreign currency denominated ECBs with minimum average maturity period of 1 year.

Track II: Long term foreign currency denominated ECB with minimum average maturity of 10 years.

Track III: Indian Rupee (INR) denominated ECB with minimum average maturity of 3/5 years. Manufacturing sector companies may raise Indian Rupee denominated ECBs with minimum average maturity period of 1 year.

The ECB Framework enables permitted resident entities to borrow from recognized non-resident entities in the form of loans including bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares/debentures), buyers’ credit, suppliers’ credit, Foreign Currency Convertible Bonds (FCCBs), Financial Lease and Foreign Currency Exchangeable Bonds (FCEBs). However, ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs).

Under the ECB framework, ECBs can be raised either under the automatic route or under the approval route. For the automatic route, the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks. Under the approval route, the prospective borrowers are required to send their requests to the RBI through their ADs for examination. While the regulatory provisions are mostly similar, there are some differences in the form of amount of borrowing, eligibility of borrowers, permissible end-uses, etc. under the two routes. The forms of borrowing, mentioned above, can be raised both under the automatic and the approval routes, except for FCEBs that can be issued only under the approval route.

Overseas Organizations proposing to lend ECB have to furnish to the AD bank of the borrower a certificate of due diligence from an overseas bank, which, in turn, is subject to regulation of host-country regulators and such host country adheres to the Financial Action Task Force (FATF) guidelines on anti-money laundering (AML) and combating the financing of terrorism (CFT). The certificate of due diligence should comprise that the lender maintains an account with the bank at least for a period of two years, that the lending entity is organized as per the local laws and held in good esteem by the business/local community, and that there is no criminal action pending against it.

Individual lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender maintains an account with the bank for at least a period of two years. Other evidence/documents such as audited statement of account and income tax return, which the overseas lender may furnish, need to be certified and forwarded by the overseas bank. Individual lenders from countries which do not adhere to FATF guidelines on AML/CFT are not eligible to extend ECB.

Reserve Bank of India has notified Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 and Foreign Exchange Management (Guarantees) Regulations, 2000 giving the details of the disciplines for ECBs and related matters. RBI has also issued various circulars from time to time that are consolidated under FED Master Direction No.5/2015-16 dated 1st January 2016 (as amended).

The objective of the Foreign Exchange Management Act, 1999 is to facilitate external trade and payments and promote orderly development of foreign exchange market in India. However, there are certain allied laws dealing with foreign exchange enacted with different objectives. Familiarity with these laws is necessary for those dealing in foreign exchange because the restrictions in those laws will apply independently.

The Foreign Contribution (Regulation) Act, 2010 is a legislation enacted with the aim to consolidate the laws to regulate the acceptance of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to national interest and for matters connected therewith or incidental thereto. It covers donation, delivery or transfer made by any foreign source of any article (not being an article given to a person as a gift for his personal use, if the market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified), of any currency, (whether Indian or foreign) and of any security (as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section 2 of` Foreign Exchange Management Act, 1999).

Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 was enacted because violating of foreign exchange regulations and smuggling activities have deleterious effect on the national economy and thereby serious adverse effect on the security of the country. Having regard to the persons by whom and the manner in which such activities or violations are organized and carried on, and having regard to the fact that in certain areas which are highly vulnerable to smuggling, it was necessary to provide for detention of persons concerned in any manner therewith. So, this legislation provides for preventive detention in certain cases for the purposes of conservation and augmentation of foreign exchange and prevention of smuggling activities and matters connected therewith.

Foreign Trade (Development and Regulation) Act, 1992 was enacted to provide for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto. In its Master Directions to Authorised Persons, RBI says that Import trade and export trade are regulated by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce & Industry, Department of Commerce, Government of India. Authorised Dealer Category – I banks should ensure that the imports into India are in conformity with the Foreign Trade Policy in force and Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed by the Government of India and the Directions issued by Reserve Bank under FEMA.

Smugglers and Foreign Exchange Manipulators (Forfeiture of Property Act 1976) was enacted for the effective prevention of smuggling activities and foreign exchange manipulations which have a deleterious effect on the national economy. So, it was necessary to deprive persons engaged in such activities and manipulations of their ill-gotten gains. Such persons have been augmenting such gains by violations of wealth-tax, income-tax or other laws or by other means and have thereby been increasing their resources for operating in a clandestine manner and such persons have in many cases been holding the properties acquired by them through such gains in the names of their relatives, associates and confidants. So, the legislation was enacted to provide for the forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith or incidental thereto.

An Authorised Dealer Bank (AD) can give a guarantee to a person resident outside India, where the debt, obligation or other liability is incurred by an exporter, on account of exports or importer, in respect of imports on deferred payment terms.

AD may give guarantee or standby letter of credit or letter of comfort in respect of any debt, obligation or other liability in favour of overseas supplier, bank or financial institution for import of goods or in connection with payment of margin money in respect of approved commodity hedging transaction, subject to terms and conditions stipulated by RBI.

AD may give guarantee in respect of any debt, obligation or liability in connection with a trade transaction against a counter-guarantee of a bank of international repute resident abroad or as a counter guarantee to guarantee issued by his branch/correspondent on behalf of Indian exporter.

AD can give guarantee against advance payment for exports or replacement imports.

On behalf of a person resident in India acquiring shares or convertible debentures of an Indian company through open offers/delisting/exit offers, AD may give guarantees provided the transaction is in compliance with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations and covered by a counter guarantee of a bank of international repute resident abroad.

Subject to prescribed limits and conditions, AD may, in the ordinary course of his business, give a guarantee on behalf of his customer or branch/correspondent outside India in respect of missing or defective documents, or authenticity of signatures, in favour of organizations outside India issuing travellers cheques stocked for sale in India by AD or by his constituents who are authorised persons, in favour of foreign airlines/International Air Transport Association (IATA), on behalf of IATA approved travel agents and in favour of an non-resident service provider, on behalf of a resident customer who is a service importer, for an amount upto USD 100,000 or its equivalent.

On behalf of their registered Foreign Institutional Investor clients, AD (custodian bank) can issue Irrevocable Payment Commitments favouring Stock Exchanges/Clearing Corporation of Stock Exchanges, for purchase of shares and convertible debentures under the portfolio investment scheme notified by RBI.

With due approval from the approving authority, an exporting company can give a guarantee for performance of a project outside India or for availing credit facilities, fund-based or non-fund based, from a bank or financial institution outside India in connection with the execution of such project. An exporting company can give guarantee in lieu of bid bond for bidding in a contract outside India up to 5% of the contract value.

AD or an Indian entity may give guarantee on behalf of the latter’s Joint Venture (JV) or Wholly Owned Subsidiary (WOS) abroad in connection with the business of the latter. An Indian party setting up JV or WOS may give guarantee to or on behalf of the first generation step down operating company in connection with its business.

An agent in India of a shipping or airlines company incorporated outside India may give guarantee on behalf of such company in connection with its obligation or liability owed to any statutory or Government authority in India.

A bank which is an AD may, subject RBI directions in this behalf, permit a person resident in India or on behalf of such person to issue guarantee in favour of an overseas lender or security trustee to secure an external commercial borrowing.

An Indian Party may remit earnest money deposit or issue a bid bond guarantee for acquisition of a foreign company through bidding and tender procedure and make subsequent remittances.

Imports are regulated by the Ministry of Commerce through Foreign Trade Policy (FTP) and remittances for imports are allowed under Foreign Exchange Management (Current Account Transactions) Rules, 2000 for imports allowed under the FTP. Where the FTP allows imports against a license, the remittances can be made only against a license issued under the FTP. An importer can make payments in foreign exchange through an international card held by him through the credit card servicing bank in India against the charge slip signed by him.

Payments for imports must be settled within six months, except in cases where amounts are withheld towards guarantee of performance, etc. but delays may be permitted by banks due to quality disputes, financial difficulties etc. Interest can be remitted for delay up to three years. Deferred payment arrangements (including suppliers’ and buyers’ credit) up to five years, are treated as trade credits for which Reserve Bank of India (RBI) has issued procedural guidelines in the Master Directions for External Commercial Borrowings and Trade Credits. No time limits apply for payments against import of books.

AD Category – I banks can extend the time for settlement of import dues up to a period of six months at a time (maximum up to the period of three years) irrespective of the invoice value for delays on account of disputes about quantity or quality or non-fulfilment of terms of contract, financial difficulties and cases where importer has filed suit against the seller. Where RBI has issued sector specific guidelines for extension of time (i.e. rough, cut and polished diamonds), the same will apply.

While granting extension of time, banks must ensure that import transactions covered by the invoices are not under investigation by Directorate of Enforcement or Central Bureau of Investigation or other investigating agencies and for extension beyond one year, the total outstanding of the importer does not exceed USD one million or 10 per cent of the average import remittances during the preceding two financial years, whichever is lower.

Banks have to ensure that in case of all remittances for imports, evidence of imports is submitted. For this purpose, Import Data Processing and Management System (IDPMS) has been put in place. Under this system, banks should generate Outward Remittance Message (ORM) for each remittance made for imports. The importer has to declare the AD Code in the bill of entry (BoE) at the time of imports. Based on the AD code declared by the importer in the Electronic Data Interchange (EDI) enabled Customs stations, the banks must download the BoE issued by the Customs system from “BOE Master” in IDPMS.

For non-EDI ports, AD bank of the importer must upload the BoE data in IDPMS as per message format “Manual BOE reporting”, on daily basis on receipt of BoE from the Customer/Customs office. The importer must submit BoE number, port code and date for marking evidence of import under IDPMS. Importer must submit the Customs Assessment Certificate or Postal Appraisal Form, where import has been made by post, or Courier Bill of Entry where goods have been imported through couriers must be submitted. Multiple ORMs can be settled against single BoE and also multiple BoE can be settled against one ORM.

Banks can give extension for submission of BoE beyond the prescribed period. They can consider closure of BoE/ORM in IDPMS that involves write off to the extent of 5% of invoice value. Banks may close the BoE for such import transactions where write off is on account of quality issues, short shipment or destruction of goods by the port/Customs/health authorities.

Where imports are made in non-physical form, i.e., software or data through internet/data communication channels and where drawings and designs are received through e-mail/fax, a certificate from a Chartered Accountant that the software/data/drawing/design has been received by the importer, must be obtained by the banks from the importer.

For Import of gold, gold jewellery (including jewellery made of precious metals or/and studded with diamonds/precious stones/semi-precious) and Import of platinum/palladium/rhodium/silver/rough, cut & polished diamonds/precious and semi-precious stones, Reserve Bank of India (RBI) has issued special instructions.

Import bills and documents should be received from the banker of the supplier by the banker of the importer in India, except where the value of import bill does not exceed USD 300,000, import bills are received by wholly-owned Indian subsidiaries of foreign companies from their principals, import bills are received by Status Holder Exporters as defined in the Foreign Trade Policy, 100% Export Oriented Units/Units in Special Economic Zones, Public Sector Undertakings and Limited Companies and import bills are received by limited companies

AD Category–I banks may allow advance remittance for import of goods up to USD 100,000 for Public Sector Undertakings (PSU) and USD 200,000 for others. Beyond that limit, a bank guarantee or letter of credit should be obtained (unless that requirement is waived by the Government for PSU and individual banks for others up to USD 500,000/-). For advance payment for import of rough diamonds and aircrafts/helicopters and other aviation related purchases, RBI has issued special instructions.

AD category I banks are allowed to make payments to a third party for import of goods, subject to conditions that firm irrevocable purchase order/tripartite agreement is in place. However this requirement may not be insisted upon in case where documentary evidence for circumstances leading to third party payments/name of the third party being mentioned in the irrevocable order/invoice is produced. The banks must be satisfied with the bonafides of the transactions and should consider the Financial Action Task Force (FATF) Statement before handling the transactions. The Invoice should contain a narration that the related payment has to be made to the (named) third party. Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party

AD banks may handle the Merchanting Trade Transactions (MTT) – i.e. transactions where the goods acquired do not enter the Domestic Tariff Area, except where the goods acquired may require certain specific processing/value-addition. The goods must be allowed for exports/imports under the Foreign Trade Policy (FTP). The entire merchanting trade must be routed through the same AD bank. The entire MTT must be completed within an overall period of nine months and there shall not be any outlay of foreign exchange beyond four months. Any receipts for the export leg, prior to the payment for import leg, may be parked either in Exchange Earners Foreign Currency (EEFC) account or in an interest-bearing Indian Rupee account till the import leg liability arises. Payment for import leg may also be allowed to be made out of the balances in EEFC account of the merchant trader.

AD Category-l banks have been permitted to offer facility of payment for imports of goods and software of value not exceeding USD 2,000 by entering into standing arrangements with the Online Payment Gateway Service Providers (OPGSPs) subject to specified conditions. Settlement of payments for imports in convertible currencies that do not have a direct exchange rate is allowed subject to specified conditions. Banks can issue guarantees to facilitate imports, subject to specified conditions.

Section 47 of the Foreign Exchange Management Act, 1999 (FEMA) gives the Reserve Bank of India (RBI) the powers to, by notification, make regulations to carry out the provisions of the Act and the rules made thereunder. Accordingly, the RBI has notified the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 through notification no. FEMA 14(R)/2016-RB dated 2nd May 2016.

Receipts from or payments to Nepal and Bhutan shall be in Indian Rupees. However, receipts for export of goods to Nepal may be in free foreign exchange, provided the importer resident in Nepal has been permitted by the Nepal Rashtra Bank to make payment in free foreign exchange.

Receipts from or Payments to Islamic Republic of Iran shall be in any freely convertible currency and/or in accordance with the directions issued by RBI to the AD from time to time

For trade with member countries of Asian Currency Union (ACU), i.e. Bangladesh, Myanmar, Pakistan, Sri Lanka & Republic of Maldives, receipt for export or payments for imports of eligible goods and services by debit/credit to the ACU Dollar account and/or ACU Euro account and/or ACU Japanese Yen account in India of a bank of the member country in which the other party to the transaction is resident or by credit/debit to the ACU Dollar account and/or ACU Euro Account and/or ACU Japanese Yen account of the authorized dealer (AD) maintained with the correspondent bank in that member country. Receipts/Payments may also be made in any freely convertible currency in all other cases. However, in respect of exports from India to Myanmar or imports from Myanmar to India, payment may be received in any freely convertible currency or through ACU mechanism from Myanmar.

For all other countries and also for shipments from a member country of the ACU, where the supplier is resident of a country other than a member country of the ACU, payment may be made in a manner specified for countries in Group B of Regulation 5.

Receipt/payment in any freely convertible currency or receipt in rupees from the account of a bank situated in any country other than a member country of the ACU is permitted.

For exports/imports from/into India, receipts/payments must be made in a currency appropriate to the place of final destination/shipment or any other mode of receipt/payment as per RBI directions. Receipts/payments for exports/imports can be from a third party as per RBI guidelines.

Receipt for export may be in the form of a bank draft, cheque, pay order, foreign currency notes/travelers cheque, postal order, postal money order or by debit to FCNR/NRE/SNRR account maintained by a person or in rupees from the credit card servicing bank in India or from a rupee account held in the name of an Exchange House with an AD (maximum Rs. 15 lakhs) or as per RBI directions where the export or import is covered by Government to Government agreement or by the credit arrangement between Export Import Bank of India and a foreign financial institution. Receipt may be in the form of precious metals i.e. gold/silver/platinum equivalent to value of jewellery exported by Gem & Jewellery units in Special Economic Zones and Export Oriented Units on the condition that the sale contract provides for the same and the value is declared in the relevant EDF.

Payments for imports may be through an international credit card or by credit to SNRR account. For import of gold or silver in any form, payment may be made through crossed cheque or a draft, as per terms and conditions imposed by the Central Government.

'Remittance of assets' means remittance outside India of funds in a deposit with a bank/firm/company, provident fund balance or superannuation benefits, amount of claim or maturity proceeds of insurance policy, sale proceeds of shares, securities, immovable property or any other asset held in India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (FEMA) or rules/ regulations made under FEMA.

Authorised Dealers (AD) may allow remittance of assets, up to USD 1 million per financial year (other than sale proceeds of assets held on repatriation basis), by a foreign national where the person has retired from employment in India or has inherited from a person resident outside India who held or inherited from any asset when he was resident in India or the person is a non-resident widow/widower and inherited assets from her/his deceased spouse who was an Indian national resident in India. AD may also remit balances held in a bank account by a foreign student who has completed his/her studies. These facilities are not available for citizens of Nepal or Bhutan or a Person of Indian Origin (PIO).

ADs may allow Non-Resident Indians (NRIs)/PIOs, to remit up to USD one million, per financial year out of balances in their non-resident (ordinary) (NRO) accounts or sale proceeds of assets or assets acquired in India by way of inheritance/legacy or assets acquired under a deed of settlement made by either of his/her parents or a relative or in case settlement is done without retaining any life interest in the property.

ADs may allow remittances by Indian companies under liquidation on directions issued by a Court in India/orders issued by official liquidator in case of voluntary winding up on submission of of auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for and to the effect that the winding up is in accordance with the provisions of the Companies Act, 1956. In case of winding up otherwise than by a court, an auditor's certificate to the effect that there are no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance must be submitted.

ADs may also allow Indian entities to remit their contribution towards the provident fund/superannuation/pension fund in respect of their expatriate staff resident but “not permanently resident” in India.

ADs may permit remittance of assets on closure or remittance of winding up proceeds of branch office/liaison office (other than project office) on submission of copy of the permission from Reserve Bank of India for establishing the branch/office in India, auditor’s certificate indicating the manner in which the remittable amount has been arrived and other specified documents including a report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the office in India.

Prior approval of the Reserve Bank is necessary for remittance of assets where remittance is in excess of USD 1,000,000 (US Dollar One million only) per financial year on account of legacy, bequest or inheritance to a citizen of foreign state, resident outside India or by NRIs/PIOs (Persons of Indian Origin) out of the balances held in NRO accounts or sale proceeds of assets or the assets acquired by way of inheritance/legacy.

Remittance of funds from the sale of assets in India held by a person, whether resident in or outside India, not covered under the directions stipulated above will require approval of Reserve Bank of India.

The remittances are subject to payment of applicable taxes in India.

Rupee 'Pre-shipment/Packing Credit' means any loan or advance granted or any other credit provided by a bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment/working capital expenses towards rendering of services on the basis of order for the export of goods/services from India or any other evidence of an order for export from India.

The period for which a packing credit advance may be given by a bank will depend upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods/rendering of services. If pre-shipment advances are not adjusted by submission of export documents within 360 days from the date of advance, the advances will cease to qualify for prescribed rate of interest for export credit to the exporter ab initio.

Ordinarily, each packing credit sanctioned should be maintained as separate account for the purpose of monitoring the period of sanction and end-use of funds. Banks have been authorised to extend Pre-shipment Credit ‘Running Account’ facility in respect of any commodity, subject to prescribed conditions. The packing credit/pre-shipment credit may be liquidated out of proceeds of bills drawn for the exported commodities on its purchase, discount etc., thereby converting pre-shipment credit into post-shipment credit. It can also be repaid/prepaid out of balances in Exchange Earners Foreign Currency A/c (EEFC A/c) as also from rupee resources of the exporter to the extent exports have actually taken place.

Rupee 'Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods/services from India from the date of extending credit after shipment of goods/rendering of services to the date of realisation of export proceeds., and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time.

Post-shipment advance can mainly take the form of export bills purchased/discounted/negotiated, advances against bills for collection and advances against duty drawback receivable from Government. In the case of demand bills, the period of advance shall be the Normal Transit Period (NTP) as specified by FEDAI. In case of usance bills, credit can be granted for a maximum duration of 365 days from date of shipment inclusive of Normal Transit Period (NTP) and grace period, if any.

Post-shipment credit must be liquidated by the proceeds of export bills received from abroad in respect of goods exported / services rendered. It can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC A/C) as also from proceeds of any other unfinanced (collection) bills.

Authorised dealers have been permitted to extend pre-shipment Credit in Foreign Currency (PCFC) to exporters for domestic and imported inputs of exported goods at LIBOR/EURO LIBOR/EURIBOR related rates of interest. It is an additional window for providing pre-shipment credit to Indian exporters at internationally competitive rates of interest. It will be applicable to only cash exports. Banks are free to determine the interest rates on export credit in foreign currency.

PCFC can be liquidated out of proceeds of export documents on their submission for discounting/rediscounting under the Export Bill Rediscounting (EBR) Scheme or by grant of foreign currency loans (DP Bills). It can also be repaid / prepaid out of balances in EEFC A/c as also from rupee resources of the exporter to the extent exports have actually taken place.

Banks are permitted to extend the ‘Running Account’ facility under the PCFC Scheme to exporters for all commodities.

Foreign Exchange Management Act, 1999 (FEMA) was enacted with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. It replaced Foreign Exchange Regulation Act (FERA), 1973, which had become incompatible with the pro-liberalization policies and enabled a new foreign exchange management regime consistent with the framework of the World Trade Organization (WTO).

FEMA essentially makes violations, barring exceptions, civil offences that can be compounded. It makes stay of more than 182 days in a year, the main criterion for determining the status of resident. Under FEMA, all current account transactions are freely allowed, except for a small negative list of transactions and capital account transactions are permitted subject to limits and conditions prescribed by Central Government and RBI. FEMA extends to whole of India and also all entities outside India owned and controlled by an entity in India.

FEMA has 7 Chapters and 49 Sections, out of which 4 Chapters and 37 Sections deal with contraventions, penalties, adjudication, appeal, enforcement and miscellaneous matters. Section 2 gives 33 definitions. Chapter II (Sections 3 to 9) deals with Regulation and Management of Foreign Exchange and Chapter III (Sections 10 to 12) deals with Authorised Persons.

Under FEMA, Reserve Bank of India (RBI) plays the role of the regulator and only the ‘authorised persons’ i.e. persons authorised by RBI (mostly authorised dealers (mainly banks), money changers, off-shore banking units etc.) deal in foreign exchange or foreign securities. No other person, except as provided in FEMA or rules/regulations made under FEMA or with the general or special permission of RBI, shall deal in or transfer any foreign exchange or foreign security to any person not being an authorised person or make any payment to or for the credit of any person resident outside India in any manner or receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner or enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.

An authorised person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder.

Where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the RBI.

Section 46 of FEMA gives the Central Government powers to make Rules to carry out the provisions of the Act and specifies 12 non-limiting circumstances for use of the powers. Similarly, Section 47 of FEMA gives RBI powers to make Regulations to carry out the provisions of the Act and the rules made thereunder. It gives a list of 9 non-limiting circumstances for use of the powers.

Section 11 of FEMA gives RBI the powers to give the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security and to furnish such information, in such manner, as it deems fit.

Trade Credits refer to the credits extended by the overseas supplier, banks and financial institution, foreign equity holders for maturity up to three years for imports into India. Depending on the source of finance, such Trade Credits include suppliers’ credit or buyers’ credit.

Suppliers’ credit relates to the credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in International Finance Service Centers (IFSCs) located in India.

Imports should be permissible under the extant Foreign Trade Policy notified by the Ministry of Commerce, Government of India.

Authorised Dealers (ADs) are permitted to approve Trade Credit for import of non-capital and capital goods up to USD 50 million (USD 150 million for oil/gas refining & marketing, airline and shipping companies) or equivalent per import transaction.

While for the non-capital goods, the maturity period is up to one year from the date of shipment or the operating cycle whichever is less, for capital goods, the maturity period is up to three years from the date of shipment. For shipyards or shipbuilders, the period of Trade Credit for import of non-capital goods can be up to three years.

The all-in-cost ceiling per annum for raising Trade Credit is 250 basis points over 6 months London Inter-Bank Offered Rate - LIBOR (for the respective currency of credit or applicable benchmark). The all-in-cost include arranger fee, upfront fee, management fee, handling, processing charges, out of pocket and legal expenses, if any.

Trade Credit can be raised by a unit/developer in a Special Economic Zone (SEZ) FTWZ for purchase of non-capital and capital goods within an SEZ or from a different SEZ subject to compliance with specified parameters Further, a Domestic Tariff Area (DTA) entity is also allowed to raise Trade Credit for purchase of capital/non-capital goods from a unit/developer of a SEZ.

ADs can give bank guarantees, on behalf of the importer, in favour of overseas lender of TRADE Credits not exceeding the amount of Trade Credit. Period of such guarantee cannot be beyond the maximum permissible period for Trade Credit. Trade Credits may also be secured by overseas guarantee issued by foreign banks or overseas branches of Indian banks. Issuance of such guarantees i.e. guarantees by Indian banks and their branches/ subsidiaries located outside India will be subject to compliance with the provisions contained in Department of Banking Regulation on “Guarantees and Co-acceptances”, as amended from time to time.

For the purpose of raising Trade Credit, the importer may also offer security of movable assets (including financial assets)/immovable assets (excluding land in SEZs)/corporate/personal guarantee for raising Trade Credit. ADs may permit creation of charge on security offered accept corporate/personal guarantee, subject to specified conditions.

A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, execution outside India of a turnkey project or civil construction contract or in connection with exports on deferred payment terms, provided the terms and conditions stipulated by the authority which has granted the approval to the project or contract or export is in accordance with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.

An importer in India may, for import of goods into India, avail of foreign currency credit for a period not exceeding six months extended by the overseas supplier of goods, provided the import is in compliance with the Foreign Trade Policy of the Government of India in force.

Subject to specified conditions and restrictions and the manner specified :

• A person resident outside India (PRO) may subscribe, purchase or sell capital instruments of an Indian company
• A Foreign Portfolio Investor (FPI) may purchase or sell capital instruments of a listed Indian company on a recognised stock exchange in India
• A Non- Resident Indian (NRI) or an Overseas Citizen of India (OCI) may on repatriation basis purchase or sell capital instruments of a listed Indian company on a recognised stock exchange in India
• A NRI or OCI may, on non-repatriation basis, purchase or sell capital instruments of an Indian company or purchase or sell units or contribute to the capital of a LLP or a firm or proprietary concern
• A PRO, permitted for the purpose by the Reserve Bank (RBI) in consultation with Central Government, may purchase or sell securities other than capital instruments
• A FPI or NRI or OCI may trade or invest in all exchange traded derivative contracts approved by Securities and Exchange Board of India (SEBI) from time to time subject to the limits prescribed by SEBI
• A PRO may invest, either by way of capital contribution or by way of acquisition/transfer of profit shares of an LLP
• A Foreign Venture Capital Investor (VCI) may make investment
• A PRO, may invest in units of an Investment Vehicle
• A PRO may invest in the Depository Receipts (DRs) issued by foreign depositories against eligible securities
• A FPI or NRI or OCI may purchase, hold or sell Indian Depository Receipts (IDRs) of companies resident outside India and issued in the Indian capital market
• A PRO having investment in an Indian company may make investment in capital instruments (other than share warrants) issued by such company as a rights issue or a bonus issue
• An Indian company may 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
• A PRO may purchase convertible notes issued by an Indian startup company for an amount of twenty five lakh rupees or more in a single tranche.
• A startup company, engaged in a sector where investment by a PRO requires Government approval, may issue convertible notes to a person resident outside India only with such approval. Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment.
• A NRI or an OCI may acquire convertible notes on non-repatriation basis
• A PRO may acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines as prescribed for capital instruments
• Where a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an Indian company, has been approved by National Company Law Tribunal (NCLT)/Competent Authority, the transferee company or the new company, as the case may be, may issue capital instruments to the existing holders of the transferor company resident outside India,
• A PRO holding capital instruments of an Indian company or units in accordance with these Regulations or a person resident in India, may transfer such capital instruments or units so held by him

Investment by PRO is restricted in specified sectors.

Investors must comply with the reporting disciplines.