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Key changes in Foreign Exchange laws in India

Foreign Exchange Management (Deposit)
Regulations, 2000 Credit to Non Resident
(External) Rupee Accounts
In terms of Regulation 5(6) of Foreign Exchange Management
(Borrowing or Lending in Foreign Exchange) Regulations, 2000
notified vide Notification No. FEMA 3/2000-RB dated May 3,
2000 an individual resident in India may borrow a sum not
exceeding USD 250,000/- or its equivalent from her / his close
relatives outside India, subject to the conditions mentioned
therein.
Further simplification of process have been brought that AD
Category-I banks may allow repayment of such loans to NRE /
Foreign Currency Non-Resident (Bank) [FCNR(B)] account of
the lender concerned subject to the condition that the loan to
the resident individual was extended by way of inward
remittance in foreign exchange through normal banking
channels or by debit to the NRE / FCNR(B) account of the
lender and the lender is eligible to open NRE / FCNR(B) account
within meaning of the Foreign Exchange Management
(Deposit) Regulations, 2000 notified vide Notification No.
FEMA 5/2000-RB dated May 3, 2000, as amended from time to
time. Such credit shall be treated as an eligible credit to the
NRE / FCNR(B) account in terms of Para 3(j) of Schedule-1 read
with Para 5 of Scheule-2 of Notification No. FEMA 5/2000-RB,
ibid.
Clarification - Establishment of Project Offices
in India by Foreign Entities General
Permission
In terms of Regulation 4 of Notification No. FEMA 22 /2000-RB
dated May 3, 2000, viz., Foreign Exchange Management
(Establishment in India of Branch or Office or other Place of
Business) Regulations, 2000, no person, being a citizen of
Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China,
Contributed by CA. Sudha G. Bhushan
shall establish in India, a branch office or a liaison office or a
project office or any other place of business by whatever name
called, without the prior permission of the Reserve Bank. A
general permission have been granted to a foreign entity for
setting up a Project office in India, subject to certain conditions.
It is clarified that the general permission accorded in terms of
the November 15, 2003 guidelines is subject to the adherence
to the provisions of Regulation 4 of Notification No. FEMA 22
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/2000-RB dated 3rd May 2000, ibid, alongwith their specified established in India in accordance with the Foreign Exchange

conditions. Management (Establishment in India of Branch or Office or

other Place of Business) Regulations, 2000, a branch, office or

Release of Foreign Exchange for Imports other place of business, excluding a liaison office, acquires any

Further Liberalisation immovable property in India in accordance with the provision

of said regulation, the said person has to file with the Reserve
Bank a declaration in the form IPI annexed to those regulations,
In terms of A.P.(DIR Series) Circular No. 106 dated June 19,
not later than ninety days from the date of such acquisition. As
2003 applications by persons, firms and companies for making
the form is required to be submitted by such persons only, the
payments, exceeding USD 500 or its equivalent towards
form is suitably amended to reflect the position.
imports into India must be made in Form A-1. It has been

decided as a measure of liberalization to raise the above limit It is clarified that the extant regulations do not prescribe any

for foreign exchange remittance towards imports without any reporting requirements for transactions where a person

documentation formalities, from USD 500 or its equivalent to resident outside India who is a citizen of India or a Person of

USD 5000 or its equivalent, with immediate effect. Indian Origin (PIO) as defined in Regulation 2(c) of Notification

Contributed by CA. Sudha G. Bhushan

No. FEMA 21/2000-RB, ibid, acquire/s immovable property in
India in accordance with the said provisions of the aforesaid
Clarification - Purchase of Immovable Property
Notification. Form IPI has been, accordingly, amended for
in India Reporting requirement
greater clarity.

Regulation 5 of Notification No. FEMA 21/2000-RB viz. Foreign For amended form click here

Exchange Management (Acquisition and Transfer of

Immovable Property in India), Regulations, 2000 dated May 3,

2000, when a person resident outside India, who has

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Export of Goods and Services - Receipt of
advance payment for export of goods Involving
shipment (manufacture and ship) beyond one
year

As per sub-regulation (2) of Regulation16 of the Foreign

Exchange Management (Export of Goods and Services)

Regulations, 2000, notified vide Notification No.FEMA.23/RB-

2000, dated 3rd May 2000, prior approval of the Reserve Bank
is required to be obtained by an exporter for receipt of advance
where the export agreement provides for shipment of goods

extending beyond the period of one year from the date of

receipt of advance payment.

Contributed by CA. Sudha G. Bhushan

It has been decided to permit AD Category- I banks to allow
exporters to receive advance payment for export of goods
which would take more than one year to manufacture and ship

and where the export agreement provides for shipment of

goods extending beyond the period of one year from the date
of receipt of advance payment subject to the following

conditions:-

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i) KYC and due diligence exercise by the AD Category I bank

for the overseas buyer;

ii) compliance with the Anti Money Laundering standards

iii) the transaction is a bona-fide transaction;

iv) progress payment, if any, should be received directly from

the overseas buyer strictly in terms of the contract;

v) the rate of interest, if any, payable on the advance payment

shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100
basis points;

vi) there should be no instance of refund exceeding 10% of the

advance payment received in the last three years;

Contributed by CA. Sudha G. Bhushan

vii) the documents covering the shipment should be routed

through the same authorised dealer bank; and

viii) in the event of the exporter's inability to make the

shipment, partly or fully, no remittance towards refund of
unutilized portion of advance payment or towards payment of

interest should be made without the prior approval of the

Reserve Bank.

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External Commercial Borrowings (ECB) for (vi) industrial parks,
Infrastructure facilities within National
(vii) urban infrastructure (water supply, sanitation and
Manufacturing Investment Zone (NMIZ)
sewage projects),

As per Foreign Exchange Management (Borrowing or Lending (viii) mining, refining and exploration and

in Foreign Exchange) Regulations, 2000, notified vide

(ix) cold storage or cold room facility, including for farm
Notification No. FEMA 3/2000-RB dated May 3, 2000, and A.P.
level pre-cooling, for preservation or storage of
(DIR Series) Circular No. 5 dated August 1, 2005, availing of ECB
agricultural and allied produce, marine products
is permissible for the infrastructure sector, which is defined to
and meat. Developers of SEZ were also allowed to
include
provide such infrastructure facilities within the SEZ.

(i) power,
Keeping in view the infrastructural needs of the proposed

(ii) telecommunication, National Manufacturing Investment Zones (NMIZs), it has now

been decided to allow developers of NMIZ also to avail of ECB

(iii) railways,

Contributed by CA. Sudha G. Bhushan

under the "approval route" for providing infrastructure

(iv) road including bridges, facilities within the NMIZ, as indicated above.

(v) sea port and airport,

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Contributed by CA. Sudha G. Bhushan

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