Forex And Trade

Disclaimers
The material is for general training purpose only and does not constitute professional advice.

Important Statutes And Rules

Foreign Exchange Management Act,1999
Notifications, Master circulars, Master Directions,A.P.(Dir) Series of circulars issued by RBI.
Circulars issued by DGFT
FEDAI guidelines
ICC rules including for
Uniform rules for collection 522
Uniform Custom and Practice for Documentary Credit (UCPDC) 600
Uniform rules of Demand Guarantees (URDG), 758
The International Standby Practices 1998 (ISP98)
Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credit (URR),
725

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Some concepts
Cash date/ Trade date- Date of Transaction
Spot Date - Second Working day from cash date
Tom Date - Next working day from cash date
Spot Rate - Rate quoted and transacted today for settlement on spot date.
Foreign Exchange Rates
A currency exchange rate is the value of a certain world currency with respect to another
currency.
Direct Quote
It is the amount of local currency needed to buy one unit of the foreign currency and the
amount of home currency respectively due to be received when one unit of foreign currency is
being sold.
i.e. 1 foreign currency unit = x home currency units
Indirect Quote
It is the amount of foreign currency needed to buy one unit of the home currency i.e. 1 home
currency unit = x foreign currency units.
Cross Currency Quote
When a currency quote is given without the Indian Rupee as one of its components, this is
called a cross currency, i.e. when home currency is not involved in the currency pair.
Categories of Dealers
1)
2)
3)
4)

Authorised Dealer Category I

Authorised Dealer Category II
Authorised Dealer Category III
Full Fledged Money Changer (FFMC)

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Forex
Sale of foreign currency and Travellers Cheques
Sale of Travel Card and reload of balance on card.

Clean outward remittances

Foreign Exchange Management (Current Account Transactions) Rules, 2000.

 Prohibited transactions (Schedule I)

 Transactions requiring prior approval (Schedule II)
 Permitted remittances subject to ceilings (Schedule III)

In respect of remittance applications for miscellaneous current account transactions

of amount not exceeding USD 25,000, Authorised Dealers may obtain simplified
Application-cum-Declaration form (Form A2)
Prohibited transactions (schedule I)
a) Remittance out of lottery winnings.
b) Remittance of income from racing/riding etc. or any other hobby.
c) Remittance for purchase of lottery tickets, banned /proscribed magazines, football
pools, sweepstakes, etc.
d) Payment of commission on exports made towards equity investment in Joint Ventures /
Wholly Owned Subsidiaries abroad of Indian companies.
e) Remittance of dividend by any company to which the requirement of dividend balancing
is applicable.
f) Payment of commission on exports under Rupee State Credit Route, except commission
up to 10% of invoice value of exports of tea and tobacco.
g) Payment related to "Call Back Services" of telephones.
h) Remittance of interest income on funds held in Non-Resident Special Rupee (Account)
Scheme.
Schedule II
Purpose of Remittance

Ministry /Department of GOI whose approval is required

Culture Tours

Ministry of Human Resources Development,

(Department of Education and Culture)

Advertisement in foreign print media other

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

Ministry of Finance, (Department of Economic Affairs)

Remittance of freight of vessel chartered by a

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

Ministry of Surface Transport,(Chartering Wing)

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Multi-modal transport operators making

remittance to their agent abroad
Remittance of hiring Charges of transponders
by
(a) TV Channels
(b) Internet Service provider

Registration Certificate from the Director General of shipping

Remittance of container detention charges

exceeding the rate prescribed by Director
General of Shipping

Ministry of Surface Transport ( Director General of Shipping)

Remittance of prize/sponsorship of sports

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

Ministry of Human Resources Development

(Development of Youth Affairs and Sports)

Remittance for membership of P&I Club

Ministry of Finance (Insurance Division )

Ministry of Information and Broadcasting

Ministry of Communication and information Technology

Transactions with ceilings (some examples of Schedule III)

a) Donations by Corporate, upto 1% of their forex earnings during the previous 3 FY or USD
50,00,000 whichever is less for specified purposes.
b) Exceeding net salary for a person resident but not permanently resident(less than 3
years) in India for remittance for maintenance of close relatives abroad.
c) Commission, per transaction, to agents abroad for sale of residential flats or commercial
plots in India exceeding USD 25,000 or 5% of the inward remittance whichever is more.
d) Remittances exceeding US$ 10,000,000 per project for any consultancy services in
respect of infrastructure projects and US$ 1,000,000 per project, for other consultancy
services procured from outside India.
e) Remittances exceeding 5% of investment brought into India or USD 1,00,000 whichever
is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

Limit USD 250,000 within the overall ceiling of LRS. Beyond which RBI approval required:
Private visits to any country (except Nepal and Bhutan)
Gift or donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Travel for business, conference, specialised training
Meeting expenses for medical expenses abroad
Attendant to a patient going abroad for medical treatment
Studies abroad
Any other current account transactions

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Exception where amount more than above may be taken without RBI approval

For medical treatment - Estimate from Medical institution offering treatment

For Emigration abroad - Excess may be allowed only towards meeting incidental
expenses in the country of immigration and not for earning points or credits to become
eligible for immigration by way of overseas investments in government bonds; land;
commercial enterprise; etc.

For Studies abroad -

Estimate from University where education taken.

Liberalised Remittance Scheme (LRS)

AD may freely allow remittances by resident individuals up to USD 250,000 per financial year
(April-March) for any permitted current or capital account transactions or a combination of
both.
The facility is available to all resident individuals including minors for transactions other than
which are otherwise not permissible under FEMA and those in the nature of remittance for
margins or margin calls to overseas exchanges / overseas counterparty.
Resident individuals are allowed to acquire immovable property and can acquire shares (of
listed companies or otherwise) or debt instruments or any other asset outside India without
prior approval of the Reserve Bank.
Individuals can also open, maintain and hold foreign currency accounts with a bank outside
India for making remittances under the Scheme without prior approval of the Reserve Bank.
Banks should not extend any kind of credit facilities to resident individuals to facilitate
remittances under the Scheme.
The facility is not available for making remittances directly or indirectly to Bhutan, Nepal,
Mauritius and Pakistan or any country identified by FATF as non co-operative country.
Application-cum-declaration form and PAN number with bank account with a bank for a
minimum period of one year prior to the remittance are mandatory conditions.
AD should be satisfied about source of funds.

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 Foreign Currency against surrender of forex done earlier for non residents and foreign
nationals
Reconversion of unspent Indian currency held by non-residents and foreign nationals, at the
time of their departure from India, into forex on the basis of Valid Encashment Certificate.
In case of ATM slips reconversion of Indian rupees to the extent of Rs.50000/- may be
allowed to foreign tourists only and not non-residents against original ATM receipts duly
verified with original debit/credit card and Valid Passport and Visa and confirmed Ticket for
departure within 7 days.

AML requirement
Sale may be made upto a maximum amount of Rs.50,000/- against cash receipt. Further for
cash received exceeding (Rs.25000/-upto 31.12.2015) Rs.50,000/- copy of PAN/Form 60 is
mandatory under Rule 114B of the Income Tax Act.
Also in case of travel outside India where the rupee equivalent of foreign exchange drawn
exceeds Rs 50,000 either for any single drawal or more than one drawal reckoned together for
a single journey/visit, it should be paid by cheque or draft.
It should be kept in mind that all sales to one person within 30 days of the last transaction is to
be treated as a single transaction for computation of above limit of Rs.50000/-.

Forex
Purchase of Foreign Currency
Purchase of Travelers Cheques
Refund of balance in Travel card
Purchase of foreign currency and Travellers Cheques
- Forex purchased for a specific purpose and not utilized for that purpose can be utilized
for any other eligible purpose for which drawal of foreign exchange is permitted.
However resident individual needs to surrender received / realised / unspent / unused
foreign exchange to an Authorised Person within a period of 180 days from the date of
receipt / realisation / purchase /acquisition / date of return of the traveller, as the case
may be other than for export of goods and services.
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- Returning traveller is permitted to retain with him, foreign currency travellers cheques
and currency notes up to an aggregate amount of USD 2000 and foreign coins without
any ceiling beyond 180 days.
AML Requirement.
- Payment in cash against purchase of forex from a resident individual upto a limit of USD
1000 or its equivalent currency.
- Limit USD 3000 or its equivalent currency in case of a Non resident or Foreign National.
- All purchase within a period of 30 days from the date of first transaction would be
aggregated for the purpose of considering the above limits.
- Currency Declaration Form (CDF) is required to be obtained in case of purchase of
currency exceeding USD 5000 or its equivalent currency and USD 10000 or its equivalent
currency for purchase of currency and Travellers Cheque put together.
Special accounts under FEMA
Eligible credits to NRE
1) Transfer from other NRE/FCNR accounts.
2) Interest accruing on the funds held in the account.
3) Repayment by resident individual of loan obtained from close relatives outside India
upto USD 250,000/- or its equivalent, if the loan was extended by way of inward
remittance in foreign exchange through normal banking channels or from NRE/FCNR
accounts. (RBI/2011-12/465 dated March 21, 2012)
4) Dividend income paid by Indian companies after the 1st April, 2003, irrespective of
source of investment.
5) Interest on NRO account at the time of credit.
6) Refund of application/earnest money made by the house building agencies on account
of non-allotment of flat/plot, together with interest (net of income tax payable thereon)
provided the original payment was made out of NRE/FCNR account or from remittance
from outside India through normal banking channels.
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7) Interest and Maturity proceeds of Govt Securities and dividend on units of mutual funds,
provided purchase from NRE/FCNR account or inward remittance.
8) Refund of share/debenture subscriptions to new issues of Indian companies, if
subscription was paid from NRE/FCNR account of remittance from outside India.
9) Proceeds of remittances to India in any permitted currency.
10)
Transfer from NRO account of NRI within the overall ceiling of USD one million
per financial year subject to payment of tax, as applicable.(i.e. as applicable if funds
were remitted abroad) (RBI/2011-12/536 dated May 07, 2012)
11)
Current Income such as rent, pension, interest, with CA certificate and
undertaking for payment of tax.
12)
Proceeds of personal cheques drawn by account holder on his foreign currency
account and of travellers cheques (issued outside India), bank drafts payable in any
permitted currency, deposited by the account holder in person to AD during his
temporary visit to India.
13)
Proceeds of foreign currency/bank notes tendered by account holder during his
temporary visit to India, provided
1) CDF is attached, where applicable.
2) notes are tendered to the AD(not money changer) in person by the account holder
himself and AD is satisfied that account holder is a person resident outside India.
FCNR Account (FCNR (B))
o Only in form of term deposits of minimum period of 1 year and maximum period of 5 years
from NRIs
o Interest paid on basis of 360 days to a year and calculated and paid at intervals of 180 days
each.
o No interest paid if premature done for less than 1 year and penalty to cover swap cost may
be charged.

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EEFC Account
o Only in form of non-interest bearing current account. No credit facilities are allowed against
the same.100% export proceeds can be credited to EEFC account.
o Sum total of the accruals in the account during a calendar month should be converted into
Rupees on or before the last day of the succeeding calendar month after adjusting for
utilisation and forward commitments.
o WEF 22.01.2013 , EEFC holders are permitted to access the forex market for purchasing
forex without utilizing fully the available balances in the EEFC accounts.(RBI/2012-13/390
A.P.(DIR series) Circular No.79).
Resident Foreign Currency (Domestic) Account (RFC)
A person resident in India can open, hold and maintain with an AD in India, a RFC Account, out
of foreign exchange acquired in the form of currency notes, bank notes and travellers cheques
from any of the sources like, payment for services rendered abroad, as honorarium, gift,
services rendered or in settlement of any lawful obligation from any person not resident in
India. Further the account may be opened / credited with foreign exchange earned abroad,
including proceeds of export of goods and/or services, royalty, honorarium, etc., and/or gifts
received from close relatives and repatriated to India through normal banking channels.
Further credits are unspent foreign exchange for travel, forex acquired while on visit to outside
India by way of honorarium or gift or forex received from non-resident, who is on a visit to
India as honorarium, gift, for services rendered or in settlement of any lawful obligation.
Diamond Dollar Account
Firms and companies dealing in purchase/sale of rough or cut diamonds/precious metal
jewellery with track record of atleast 2 years and average annual turnover of Rs.3 crores or
above during three preceding years.

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FCRA Act, 2010

o Person defined as (i) an individual; (ii) a HUF; (iii) an association; and (iv) a company
registered u/s 25 of the Companies Act, 1956.
o A person, having a definite cultural, economic, educational, religious or social
programme can receive foreign contribution after it obtains the prior permission of the
Central Government, or gets itself registered with the Central Government.
Foreign contribution means the donation, delivery or transfer made by any foreign source,
a) any currency, whether Indian or foreign
b) any security including any foreign security
c)any article not being an article given to a person as a gift for personal use, of market value in
India is in excess of Rs.25000/-.
d) Interest on foreign contribution deposited in any bank
e) A subsequent donation, delivery or transfer from person receiving from any foreign source is
also covered.
Explanation 3 Amount received by way of fee, cost in lieu of goods or services rendered by
such person in the ordinary course of his business, trade or commerce whether within India or
outside India is not foreign contribution.
Foreign source includes
i) Government of foreign country or territory and any agency of such govt.
ii)
Any International Agency except exempted entities
iii)
A foreign company
iv)
A corporation incorporated in a foreign country or territory
v)
A multi-national corporation, as defined
vi)
Indian Company with more than 50% shares with foreign Govt, foreign citizens,
foreign corporations, trusts, societies or other associations, formed or registered in a
foreign territory, foreign company.
vii) Trade union in any foreign country or territory
viii) A foreign trust or a foreign foundation or those are mainly financed by a foreign
country or territory.
ix)
A society, club or other association of individuals formed or registered outside India
x)
A citizen of a foreign country

Foreign contribution needs to be deposited in exclusive single account of a bank, as per order
for registration or prior permission granted by MHA. No local funds can be credited to such
account.
Foreign contribution received cannot be transferred to any other person unless such other
person is also registered under FCRA Act.
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Registration is valid for 5 years only and for existing registered associations the same would
expire automatically on 30th April, 2016.
Registration once granted can be cancelled by the Central Government.
Any person whose certificate has been cancelled shall not be eligible for registration for a
period of 3 years from date of cancellation.
Registration may also be suspended which would not only mean that no foreign contribution
can be received but also that funds already received cannot be utilised.
Every bank shall send a report to the Central Government within 30 days of any transaction in
respect of receipt of foreign contribution by any person who is required to obtain a certificate
of registration or prior permission under the Act, but who was not granted such certificate or
prior permission as on the date of receipt of such remittance.
The bank shall send a report to the Central Government within 30 days from the date of such
last transaction in respect of receipt of any foreign contribution in excess of one crore rupees
or equivalent thereto in a single transaction or in transactions within a duration of thirty days,
by any person , whether registered or not under the Act
who cannot accept foreign contribution
a) Candidate for election
b) Correspondent, columnist, cartoonist, editor, owner, printer, publisher of a registered
newspaper.
c) Judge, Govt servant or employee of body controlled by Govt.
d) Member of any legislature
e) Political party or office bearer thereof
f) Organisation of political nature, as specified
g) Association or Company in production or broadcast of audio news or audio visuals or
current affairs programmes and their correspondent or columnist etc.
h) Individuals or associations prohibited specifically.

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Imports into India

Nostro account
A Nostro account is a banking term to describe an account one bank holds with another bank in
a foreign country, usually in the currency of that foreign country.

Vostro Account
A Vostro account is a local currency account maintained by a local bank for a foreign
(correspondent) bank. This allows for easy cash management because currency is not required
to be converted.

SWIFT is a trademark of Society for Worldwide Interbank Financial Telecommunication.
SWIFT does not facilitate funds transfer; rather, it sends payment orders, which must be
settled by correspondent accounts that the institutions have with each other.

Incoterms (Incoterms 2010)

INCOTERMS are most frequently listed by category. Terms beginning with F refer to shipments
where the primary cost of shipping is not paid for by the seller.
C deal with shipments where the seller pays for shipping.
E terms occur when a seller's responsibilities are fulfilled when goods are ready to depart from
their facilities.
D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive
at some specific point. In addition, D terms also deal with the pier or docking charges found at
ports.
EXW (EX-Works), FOB (Free On Board), FCA (Free Carrier), FAS (Free Alongside Ship), CFR (Cost
and Freight), CIF (Cost, Insurance and Freight), DDU (Delivered Duty Unpaid), DDP (Delivered
Duty Paid)

Direct Import transactions

a) Receive the customer request with documents such as

Commercial invoice, AWB/BL, FEMA Declaration, NNL, BOE if payment more than USD 1
lakh.
b) Remittances against imports should be completed not later than six months from the date
of shipment, except in cases where amounts are withheld towards guarantee of
performance, etc.
c) AD Category I banks may permit settlement of import dues delayed due to disputes,
financial difficulties, etc. Interest in respect of delayed payments, usance bills or overdue
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interest for a period of less than three years from the date of shipment may be permitted as
per limit applicable to trade credits.
d) For proprietorship or a partnership the payment can be made only upto USD 3,00,000. If
import is in excess or equivalent of usd 300,000 the importer has to be necessarily a
company, a status holder, or a unit in SEZ.
e) A certificate issued by a CA required for Imports in non Physical form.
f) If import do not exceed USD 5000 no documents, except a simple letter, as long as it is for a
current account transaction (and is not in the Schedules I and II of the FEMA) and the
payment is made by a cheque drawn on the applicant's bank account or by a Demand Draft.

Advance remittance transactions

a) Customer request letter and other documents including PO/ PI, Import license, if
applicable etc.
b) If advance remittance exceeds USD 200,000 or its equivalent (USD 500,000 or its
equivalent for Services) any amount for merchanting trade transaction, an
unconditional, irrevocable standby Letter of Credit or a guarantee from an international
bank of repute situated outside India or a guarantee of an AD Category I bank in India,
if such a guarantee is issued against the counter-guarantee of an international bank of
repute situated outside India, is required.
c) In cases where the importer (other than a Public Sector Company or a
Department/Undertaking of the Government of India/State Government/s) is unable to
obtain bank guarantee from overseas suppliers and the AD bank is satisfied about the
track record and bonafides of the importer, the requirement of the bank guarantee /
standby Letter of Credit may not be insisted upon for advance remittances up to USD
5,000,000. Banks may frame their own internal guidelines to deal with such cases as the
bank's Board of Directors.
d) Some exemption is available for diamond importers, aircraft/helicopter purchase for
schedule Air transport Companies with specified conditions.
e) A Public Sector Company or a Department/Undertaking of the Government of India /
State Government/s which is not in a position to obtain a guarantee is required to obtain
a specific waiver for the bank guarantee from the Ministry of Finance, GOI before
advance remittance exceeding USD 100, 000.

Import under bills for collection/ Imports under LC

a) Documents are received from the Foreign Bank and check the availability of documents as per
the covering schedule of the foreign bank.
b) Print the Presentation Memo and send to the customer for acceptance.
c) Receive the request to make the payment / acceptance from the customer.
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d) Documents to be released only on realization of the bill. For usance bill the same is done after
acceptance.
e) If a non discrepant bill not accepted and is devolved and paid, documents are not to be
released to the customer till the time the bill amount is recovered from the customer account.
f) In case of direct receipt of documents from overseas seller by bank, report on each individual
overseas supplier from the overseas banker or a reputed credit agency if invoice value exceed
USD 300,000 provided the bank is satisfied about the bonafides of the transaction and track
record of the importer constituent.
g) In respect of imports on D/A basis, AD Category I bank should insist on production of
evidence of import at the time of effecting remittance of import bill and may allow further
three months, in case of certain conditions and satisfaction about genuineness of request.

Obtention and completion of Form A2 & A3.

Issuance of certificate from concurrent auditor every fortnight for due diligence and
verification of form A2 and A3

Obtention, updation and acknowledgement for Bill of Entry.

In case of all imports, where value of foreign exchange remitted/ paid for import into India
exceeds USD 100,000 or its equivalent, it is obligatory on the part of the AD bank through
whom the remittance was made, to ensure that the importer submits :The Exchange Control copy of the Bill of Entry for home consumption, or
The Exchange Control copy of the Bill of Entry for warehousing, in case of 100% Export
Oriented Units(with photocopy of ex-bond BOE), or
Customs Assessment Certificate or Postal Appraisal Form, Courier bill of entry as declared by
the importer to the Customs Authorities, where import has been made by post

Non physical imports

Where imports are made in non-physical form a certificate from a Chartered Accountant
that the software / data / drawing/ design has been received by the importer is required.

Other issues
Stamp and/or signature of Customs authority is available on BoE and for EDI system generated
BoE, original signature and stamp of customs authority on BoE is not mandatory. However,
genuineness of EDI generated bill of entry may be verified from Indian customs and excise
gateway.
After all the details are confirmed and updated in the register and Software, the
acknowledgement of submission of BoE to be given to client.
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Non submission of import evidence

In case an importer does not furnish any documentary evidence of import within 3 months
from the date of remittance involving foreign exchange exceeding USD 100,000, the AD bank
should rigorously follow-up for the next 3 months, including issuing registered letters to the
importer.
AD bank should forward a statement on half-yearly basis as at the end of June & December of
every year, in form BEF furnishing details of import transactions, exceeding USD 100,000 in
respect of which importers have defaulted in submission of appropriate document evidencing
import within 6 months from the date of remittance, to the Reserve Bank, within 15 days from
the close of the half-year to which the statement relates.
AD bank need not follow up submission of evidence of import involving amount of USD
100,000 or less provided they are satisfied about the genuineness of the transaction and the
bonafides of the remitter.

Trade credit refers to credit extended for imports directly by the overseas supplier, bank
and financial institutions for maturity of less than 3 years.
Suppliers' credit relates to credit for imports into India extended by the overseas
suppliers.
Buyers' credit refers to loans for payment of imports into India arranged by the importer
from a bank or financial institution outside India.
a) Not allowed for import of services and advance import.
b) Period maximum 1 year for non capital goods and 5 years for capital goods from date of
shipment.
c) Maximum period of credit, including the usance period of Letters of Credit opened for
import of Gold, Platinum, Palladium, Rhodium and Silver should not exceed 90 days from
the date of shipment, subject to conditions.
d) Maximum amount is 20 million per import transaction.
e) All in cost should be 350 basis points over 6 months Libor and includes arranger fee,
upfront fee, management fee, handling/ processing charges, out of pocket and legal
expenses, if any

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Export outside India

Export bill under LC from foreign bank.

Export bills for collection.
The exporter must submit a request letter stating clearly the documents to be delivered to the
foreign buyer and covering all instructions for the Indian Bank.
The documents must be accompanied by:
Commercial Invoice,
Packing List,
Bills of Exchange,
Signed and endorsed full set of original Bill of Lading/Airway Bill/ other transport document
and insurance policy, in case of CIF contracts.

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

Further exchange control copy of shipping bill with relevant EDF/SDF(withdrawn now)
/Softex form should be attached nominating the concerned bank.
Original LC duly endorsed and stamped should also be attached therewith, which should
be endorsed with the bill amount and returned back to customer. The documents must be
submitted within 21 days of the bill of lading.

Direct dispatch of documents to overseas buyer

AD Category I banks may regularize cases of dispatch of shipping documents by the exporter
direct to the consignee or his agent resident in the country of the final destination of goods, up
to USD 1 million or its equivalent, per export shipment, subject to the following conditions:
a) The export proceeds have been realised in full.
b) The exporter is a regular customer of AD Category I bank for a period of at least six
months.
c) The exporters account with the AD Category I bank is fully compliant with the Reserve
Banks extant KYC / AML guidelines.
d) The AD Category I bank is satisfied about the bonafides of the transaction.
Advance Against Export
Where an exporter receives advance payment from a buyer outside India, the exporter shall be
under an obligation to ensure that I. The shipment of goods is made within one year from the date of receipt of advance
payment;
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II.
III.

The rate of interest, if any, payable on the advance payment does not exceed LIBOR +
100 basis points, and
The documents covering the shipment are routed through the Authorised Dealer
through whom the advance payment is received;
Provided that in the event of the exporters inability to make the shipment, partly or
fully, within one year from the date of receipt of advance payment, no remittance
towards refund of unutilised portion of advance payment or towards payment of
interest, shall be made after the expiry of the period of one year, without the prior
approval of the Reserve Bank.

Export bills under Advance payment

Banks may allow exporters to received advance payment for exports of goods which may
take more than 1 year to manufacture and ship and export agreement provides the same
subject to prescribed conditions, such as;
a) KYC and due diligence for overseas buyer
b) AML guidelines are ensured
c) Export advance to us to execute export
d) No instance of refund exceeding 10% of the advance payment in last 3 years
e) Rate of interest, if any should not exceed LIBOR+ 100 basis points.

Export bills under Long term Advances
Cir no.132 dated 21.05.2014
Exporters with minimum 3 years satisfactory track record-advance upto 10 years tenor
for long term supply contracts:
a) KYC and due diligence for overseas buyer
b) Firm irrevocable supply order with capacity of exporter to execute.
c) Not under adverse notice of ED or other regulatory agency
d) Advance to be adjusted through future exports
e) Rate of interest, if any should not exceed LIBOR+ 200 basis points.
f) Documents through one bank only.
g) No double financing and no liquidation of NPA rupee loan
h) Receipt of USD 100 million or more to be reported

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Manner of Export Realisation

Full export value of goods exported shall be received through an AD Bank in following manner:
a. Bank draft, pay order, banker's or personal cheques.
b. Foreign currency notes/foreign currency travellers cheques from the buyer during his
visit to India.
c. Payment out of funds held in the FCNR/NRE account maintained by the buyer
d. International Credit Cards of the buyer.
e. All transactions between a person resident in Nepal or Bhutan may be settled in Indian
Rupees or routed through ACU mechanism.
f. In precious metals, equivalent to value of jewellery exported.
g. Through Online Payment Gateway Service Providers (OPGSPs) for export value not
exceeding USD 10000.
h. Settlement system under ACU mechanism

Realisation of Export Proceeds

Exporter to realise and repatriate the full value of goods or software to India as under:
(i) By Units in Special Economic Zones (SEZs) 9 months
(ii) By Status Holder Exporters, 100 % Export Oriented Units (EOUs) and units set up under
Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and
Biotechnology Parks (BTPs) schemes : 9 months
(iii) Goods exported to a warehouse established outside India : As soon as it is realised and
in any case within fifteen months from the date of shipment of goods; and
(iv) In all other cases: 9 months
Follow-up of Overdue Bills
Banks should furnish to the RBI, on half-yearly basis, a consolidated statement in Form XOS
giving details of all export bills outstanding beyond six months from the date of export as at
the end of June and December every year. The statement should be submitted in triplicate
within 15 days from the close of the relative half-year. Now centralised and online wef
December, 2013.

FIRC

a) Printing of FIRC on security stationery only in cases where the Foreign Inward
Remittance has been received for any one of the following purposes:
o Advance Payment for Exports
o Receipt of export proceeds by an AD Bank other than the one who handles/handled the
GR Form
o FDI/FII

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Issue of Duplicate FIRC

a)
b)
c)
d)

Customer request requesting for issuance of duplicate FIRC.

Stamped (as per state Stamp Act) indemnity from the beneficiary.
Check that the FIRC has not been utilized.
The duplicate FIRC may be issued after a period of 10 days has elapsed from the date of
uploading the details on the FEDAI website.
e) Write/Affix a rubber stamp on the duplicate copy as prescribed.

Issuance of GR waiver certificate.

1. GR waiver from exporters for export of goods free of cost, for export promotion up to 2 per
cent of the average annual exports of the applicant during the preceding three financial
years subject to a ceiling of Rs.5 lakhs. For status holder exporters, the limit as per the
present Foreign Trade Policy is Rs.10 lakhs or 2 per cent of the average annual export
realization during the preceding three licensing years (April-March), whichever is higher.
2. Export of goods not involving any foreign exchange transaction directly or indirectly.
3. Goods are being exported for re-import after repairs / maintenance / testing / calibration,
etc., subject to the condition that the exporter shall produce relative Bill of Entry within one
month of re-import of the exported item from India.
4. Goods being exported for testing are destroyed during testing, banks may obtain a
certificate issued by the testing agency that the goods have been destroyed during testing.
5. Firms / Companies and other organizations participating in Trade Fair/Exhibition abroad can
take/export goods for exhibition and sale outside India.
The exporter shall produce relative Bill of Entry within one month of re-import into India of
the unsold items and the sale proceeds of the items sold are repatriated to India in
accordance with the FEMA.
The exporter shall report to the bank the method of disposal of all items exported, as well as
the repatriation of proceeds to India.Such transactions approved by the AD Category I banks
will be subject to 100 per cent audit by their internal inspectors/auditors.

Issuance of Bank Realisation Certificate (BRC)

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

http://dgftcom.nic.in/exim/2000/apdx07/indexapp07.htm
BRC to be issued at the request of the customer for fully realized export bills only. AD obtain a
request letter with standard BRC format, copies of invoice, transport documents and
GR/Freight bill/Insurance Receipt/Shipping Bill. The amount to be stated in BRC is net amount
CA Lokesh Gupta

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exclusive of freight, insurance & commission, if included therein and other details are
completely filled in the relevant format.
Copy of the BRC handed over to the customer alongwith Certified Invoice.
e-BRC mandatory w.e.f. 17.8.2012. (DGFT circular no.8 dated 6.7.2012)
Extension of Time for realisation of export proceeds and Write off
Extension of time and Self write-off by the exporters
(i) For export proceeds due within the prescribed period during a financial year all
exporters (Including Status Holder exporters) have been allowed to write-off (including
reduction in invoice value) outstanding export dues and extend the prescribed period of
realization beyond 12 months or further period as applicable. Limits as prescribed wef
March 12 , 2103
A)Self write-off by an exporter
5%*
b) Self write-off by Status Holder Exporters
10%*
c) Write-off by Authorized Dealer bank
10%*
*of the total export proceeds realized during the previous calendar year.
Other cases including cases under investigation by ED, DRI, CBI to be referred to RBI in
Form ETX through AD Bank.

Conditions of Write off of export proceeds:

Amount to remain outstanding for more than 1 year
Documents furnished for all efforts by exporter to realize the dues
Exporter has surrendered proportionate export incentives.
CA certificate for self write off, providing requisite details.
Case under any one of below cases:
Overseas buyer declared insolvent
Overseas buyer not traceable over long period
Exported goods auctioned/destroyed by Port/customer etc
Balance due in case settled through Indian Embassy, Foreign Chamber of Commerce etc.
Undrawn balance of export bill turning unrealisable
Cost of legal action disproportionate to balance outstanding or decree cannot be
executed
Bill for difference between LC value and export value or difference in freight charges but
bill dishonoured.

CA Lokesh Gupta

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Intermediary Trade
Merchant trade transactions
 Completion of both legs within 9 months
 Foreign exchange outlay within 4 months.
 Both the legs are routed through the same AD bank
 Where the payment for export leg of the transaction precedes the payment for
import leg, AD banks should ensure that the terms of payment are such that the
liability for the import leg of the transaction is extinguished by the payment
received for the export leg of the transaction and should not be available for other
than import payment or short term deployment of fund.
 If advance for the import leg-the same is against BG from an international bank of
repute wef 17.1.2014.
 All other points are applicable as for export/import leg; except
BOE for import leg
Shipping bill for export leg

CA Lokesh Gupta

email calokeshgupta@gmail.com

Mob:98104 34904

Export Finance

Pre-Shipment Finance



Export Packing Credit (EPC)

Packing Credit in Foreign Currency (PCFC)

Post-Shipment Finance




Bills Purchased/ Bills Discounted

Advances against bills for collection
Advances against duty drawback receivable from Government.

Pre-Shipment Finance EPC/PCFC

Packing Credit' means any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing, manufacturing or packing of
goods prior to shipment / working capital expenses towards rendering of services on the
basis of letter of credit opened in his favour or in favour of some other person, by an
overseas buyer or a confirmed and irrevocable order for the export of goods / services
from India or any other evidence of an order for export from India having been placed on
the exporter or some other person, unless lodgement of export orders or letter of credit
with the bank has been waived.
Maximum period of Finance is 360 days from the date of advance and otherwise the
advance will cease to qualify for prescribed rate of interest for export credit to the exporter
ab initio

Different accounts may be maintained for each disbursement or a running account facility
may be granted(not allowed for sub-suppliers).

Liquidation of PC may be out of proceeds of bills drawn for the exported commodities on
its purchase, discount etc. thereby converting pre-shipment credit into post-shipment
credit. Also balance of EEFC account may be used for the same.

CA Lokesh Gupta

email calokeshgupta@gmail.com

Mob:98104 34904

Export Finance

Post-Shipment Finance - Bills Purchased/ Bills Discounted

Period
In the case of demand bills, the period of advance shall be the Normal Transit Period (NTP) as
specified by FEDAI.
In case of usance bills, credit can be granted for a maximum duration of 365 days from date of
shipment inclusive of Normal Transit Period (NTP) and grace period, if any.
'Normal transit period' means the average period normally involved from the date of
negotiation / purchase / discount till the receipt of bill proceeds in the Nostro account of the
bank concerned, as prescribed by FEDAI from time to time. It is not to be confused with the
time taken for the arrival of goods at overseas destination.
Export Finance
Concessional rate offered to exporters by the bank subject to floor rate of 7% and claim of
interest subvention @3% on RBI by the banks on monthly basis after obtaining certificates
from CA.
Banks are required to completely pass on the benefit of interest subvention, as applicable, to
the eligible exporters upfront and submit the claims to RBI for reimbursement duly certified by
the external auditor. The subvention would be reimbursed by RBI on the basis of claims
submitted by the banks.

CA Lokesh Gupta

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Bank Guarantees

Domestic Guarantees

Foreign Inward Guarantee

Foreign Outward Guarantee

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

Domestic Guarantees

Issuance and amendment

a) Branch to issue guarantees on a stamp paper of adequate value subject to the local Stamp
Act of that particular state.
b) Entry in software under appropriate head i.e. Financial BG or performance BG.

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Mob:98104 34904

Letter of Credits
Undertaking to pay a third party at a given date according to agreed stipulations and against
presentation of documents, the counter value of the goods or services dispatched/ supplied,
rendered or otherwise.

Inland LC

Import LC

Standby Letter of Credit

LC Advising

Letter of credit is forwarded to the beneficiary by the advising bank. The advising bank
acts as a conduit between the issuing bank and the beneficiary. But it does not undertake
any liability on its own account. The advising bank ensures that the LC is apparently
authentic, the international banks use test key arrangements with correspondent banks to
ensure that messages used are secure. By an authenticated message the advising bank
holds out to the beneficiary that the message is an authenticated/authorized message
from the sender.

LC Confirmation

Confirmation of LC constitutes an undertaking on part of the confirming bank to pay to

the negotiating bank or the beneficiary without recourse if the documents are presented
in accordance with the terms and conditions of the LC. This undertaking is in addition to
the undertaking provided by the issuing bank.
Confirmation would not be added on transferrable LC.

LC Transfer

The first beneficiary of a letter of credit may request for the transfer of the credit to the
second beneficiary. This is allowed as per UCPDC. The credit should clearly nominate a
bank to transfer the LC and also provide for transfer of the credit before a LC can be
transferred. A transfer can be in parts or in whole as per the request of the first
beneficiary.

CA Lokesh Gupta

email calokeshgupta@gmail.com

Mob:98104 34904

Foreign Direct Investment into India

Investment in Company
Intimation within 30 days of inward remittance
KYC from foreign bank, FIRC and form from customer
FC-GPR form within 30 days of issuance of shares
Investment in Liaison Office (LO)/ Branch Office(BO) in India
Two Routes:
Reserve Bank Route
Government Route
Form FNC through AD Banks
Annual Activity Certificates(AAC) from CAs by September 30 or within 6 months of from due
date of Balance Sheet with copy to DG Income Tax (International Taxation), New Delhi.
Branch Offices permitted to remit outside India profit of the branch net of Indian Taxes.
Documents to be filed with AD are certified copy of Audited accounts and CA certificate
certifying manner of arriving at remittable profit, permitted activities and no profit on
revaluation of assets.
Liaison Office (LO)/ Branch Office(BO) in India
Permissible activity of liaison office
i. Representing in India the parent company / group companies.
ii. Promoting export / import from / to India.
iii. Promoting technical/financial collaborations between parent/group companies and
companies in India.
iv. Acting as a communication channel between the parent company and Indian companies.
Permissible activity of branch office
I. Export / Import of goods.
II. Rendering professional or consultancy services.
III. Carrying out research work, in areas in which the parent company is engaged.
IV. Promoting technical or financial collaborations between Indian companies and parent or
overseas group company.
V. Representing the parent company in India and acting as buying / selling agent in India.
VI. Rendering services in information technology and development of software in India.
VII. Rendering technical support to the products supplied by parent/group companies.
VIII. Foreign airline / shipping company.
Not allowed retail trade, manufacturing or processing activities.
CA Lokesh Gupta

email calokeshgupta@gmail.com

Mob:98104 34904

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

Prohibition
Investment in a foreign entity engaged in real estate (meaning buying and selling of real estate
or trading in Transferable Development Rights (TDRs) but does not include development of
townships, construction of residential/commercial premises, roads or bridges) or banking
business, without the prior approval of the Reserve Bank.
Automatic Route
an Indian party has been permitted to make investment in overseas JVs/ WOS, not
exceeding 400 per cent of the net worth as on the date of last audited balance sheet of
the Indian party, i.e. a company incorporated in India or a body created under an Act of
Parliament or a partnership firm registered under the Indian Partnership Act, 1932 . The
limit of 400% is not applicable for investment:
A) made from EEFC Account
B)Funds raised through ADR/GDR
Automatic Route Conditions
a)The Indian party should not be on the Reserve Banks Exporters' caution list / list of
defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau
(India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank
or under investigation by any investigation / enforcement agency or regulatory body.
b) All transactions relating to a JV / WOS should be routed through one branch of an
Authorised Dealer bank to be designated by the Indian party.
c)If investment exceed USD 5 million or swap, valuation by Cat 1 merchant banker and in other
cases by CA/CPA.
File Form ODI with AD within 30 days from date of transaction.
Approval Route
Prior approval of the Reserve Bank would be required in all other cases of direct investment
including investment by proprietorship concerns and unregistered partnership firms, trusts and
Society, subject to satisfying certain eligibility criteria. For this purpose, application together
with necessary documents should be submitted in Form ODI through their Authorised Dealer
Category I banks. Post investment changes / additional investment in existing JV / WOS will
require filing of Form ODI
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Obligations
File Share certificates with AD
Repatriate due receivable from foreign entity

 ODI part I, II, III and IV Online Filing

Part II - Reporting of Remittances

Part III - Annual Performance Report (APR)
Part IV Report on Closure/Disinvestment/Voluntary Liquidation/ Winding up of JV /
WOS

External Commercial Borrowings

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

 Commercial loans like bank loans

 Foreign Currency Convertible Bonds (FCCBs)
 Preference Shares
 Foreign Currency Exchangeable Bonds
 Buyers credit and suppliers credit
Automatic Route

Borrowing should be from recognised lenders and should comply with amount and
maturity norms and should be utilised for permitted End-use.
 Maximum all-in-cost ceiling is as follows:
Average Maturity Period
All-in-cost Ceilings over 6 month
LIBOR*
Three years and up to five years
350 basis points
More than five years
500 basis points
Borrowers may enter into loan agreement complying with the ECB guidelines with recognised
lender for raising ECB under Automatic Route without the prior approval of the Reserve Bank.
The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India
before drawing down the ECB.

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Reporting Arrangements
For allotment of Loan Registration Number (LRN), borrowers are required to submit Form 83,
in duplicate, certified by a CS or CA to the designated AD bank. One copy is to be forwarded by
the designated AD bank to RBI.
The borrower can draw-down the loan only after obtaining the LRN from RBI.
Borrowers are required to submit ECB-2 Return certified by the AD bank on monthly basis so as
to reach RBI within seven working days from the close of month to which it relates.

Returns by Authorized Dealer

R Return
XOS
BEF Part I and II
EBW
Statement of default in Merchanting Trade Transaction (MTT) wef June, 2014
Quarterly reports on opening/closing of Diamond Dollar Account within 10 days of end of
quarter.
Fortnightly report on Diamond Dollar account balances within 7 days of close of fortnight.
Form 83 and Form ECB
Reporting of remittance under Liberalised Remittance Scheme.
ODI Part I,II, III and IV
FCGPR Part A
FC-TRS
Non residents deposits consolidated return in XBRL format.
Form 15CA and form 15CB return
Other approvals from RBI

Service Tax Guidelines

Pay service tax in reference to RBIs reference rate,
or
0.14% for transaction upto Rs.1 lakh (minimum Rs.35)
Rs.140+0.07% for transaction >Rs.1 lakh<Rs.10 Lakh
Rs.770+0.014% for transaction >Rs.10 Lakh (maximum Rs.7000)
0.5% swach bharat cess also added.
Transaction between all banks including bank located outside India or money changer is
exempt (Not no.27/2011)

CA Lokesh Gupta

email calokeshgupta@gmail.com

Mob:98104 34904