Review of FEMA Notifications
AP (DIR Series) (2000-2001) Circular No. 28, dated 30-3-2001
Review of FEMA Notifications issued by RBI during August 2000 - February 2001
Authorised
dealers are aware that the Reserve Bank has, by notifications, made certain Regulations
to carry out the provisions of the Foreign Exchange Management Act, 1999 (42 of
1999). The regulations notified, i.e., Notification FEMA Nos. 1 to 25 were
circulated vide AD (MA Series) Circular No. 11, dated 16th May, 2000. The
Reserve Bank has since issued further notifications bearing Serial Nos. 26 to
39 (given below). The synopsis of these Regulations is furnished in the
following paragraphs :
Notification
No. FEMA 26/2000-RB dated 14th August, 2000 in partial modification of
Notification No. FEMA 3/2000-RB, dated 3rd May, 2000
1. In terms
of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000, authorised dealers were permitted to grant credit facilities
against the balances held in EEFC accounts. It has been decided that credit
facilities, both fund based and non-fund based, against the balances held in
EEFC accounts should not be granted. In this regard attention of authorised
dealers is invited to AP (DIR Series) Circular No. 6, dated 14th August, 2000.
Notification
No. FEMA 27/2000-RB, dated 14th August, 2000, in partial modification of
Notification No. FEMA 10/2000 - RB, dated 3rd May, 2000
2. The
procedure for opening/holding and maintenance of Exchange Earners’ Foreign
Currency (EEFC) accounts is given in the Foreign Exchange Management (Foreign
Currency Account by a Person Resident in India) Regulations, 2000. Regulation 9
of the Regulations indicate the forms of deposits, viz., current, saving or
term deposits permissible under the EEFC Accounts Scheme and paragraph 1(1) of
Schedule to the Regulations indicate the limits up to which inward remittances
could be credited to the EEFC accounts. The captioned notification was issued
amending the said regulation 9 and prohibiting opening of EEFC accounts in the
form of term deposits. The limits of eligible credits to the EEFC accounts were
revised to 35 per cent for export oriented units or units in (a) export
processing zone, or (b) software technology park, or (c) electronic hardware
technology park and to 25 per cent for other persons resident in India with
effect from 14th August, 2000. In this regard attention of authorised dealers
is invited to AP (DIR Series) Circular No. 6, dated 14th August, 2000.
Notification
No. FEMA 28/2000-RB, dated 5th September, 2000 in partial modification of
Notification No. FEMA 25/2000-RB, dated 3rd May, 2000.
3. The
Foreign Exchange Management (Foreign Exchange Derivative Contracts)
Regulations, 2000 have been amended by the captioned notification to enable
importers/exporters of crude oil and petroleum products to hedge their exposure
to price risk. In this regard attention of authorised dealers is invited to AP
(DIR Series) Circular No. 11 dated 5th September, 2000.
Notification
No. FEMA 29/2000-RB, dated 26th September, 2000, in partial modification of
Notification No. FEMA 16/2000-RB, dated 3rd May, 2000
4. Authorised
dealers are aware that borrowing and lending of Indian rupees between two
residents does not attract any provisions of the Foreign Exchange Management Act,
1999. In cases where a rupee loan is granted against the guarantee provided by
a non-resident, there is no transactions involving foreign exchange until the
guarantee is invoked and non-resident guarantor is required to meet the
liability under the guarantee. The non-resident guarantor may discharge the
liability by (i) payment out of rupee balances held in India, or (ii) by
remitting the funds to India, or (iii) by debit to his FCNR/NRE account
maintained with an authorised dealer in India. In such cases the non-resident
guarantor may enforce his claim against the resident borrower to recover the
amount and on recovery he may seek repatriation of the amount if the liability
is discharged either by inward remittance or by debit to FCNR/NRE account. However,
in case the liability is discharged by payment out of rupee balances, the
amount recovered can be credited to the NRO or NRSR account of the non-resident
guarantor.
The
Reserve Bank vide its Notification No. FEMA 29/2000-RB, dated 26th September,
2000 has granted general permission to a resident, being a principal debtor to
make payment to a person resident outside India, who has met the liability
under a guarantee. Accordingly, in case where the liability is met by the
non-resident out of funds remitted to India or by debit to his FCNR/NRE
account, the repayment may be made by credit to the FCNR/NRE/NRO/NRSR account
of the guarantor provided, the amount remitted/credited shall not exceed the
rupee equivalent of the amount paid by the non-resident guarantor against the
invoked guarantee.
Notification
No. FEMA 30/2000-RB, dated 17th November, 2000 in partial modification of
Notification No. FEMA 10/2000-RB, dated 3rd May, 2000
5. The
procedure for opening and maintenance of Exchange Earners’ Foreign Currency
(EEFC) accounts is given in the Foreign Exchange Management (Foreign Currency
Accounts by a Person Resident in India) Regulations, 2000. The captioned
notification seeks to amend the procedure for opening, holding and maintenance
of the Exchange Earner’ Foreign Currency (EEFC) accounts. The amendments are :
(i) EEFC
accounts can be opened, held, or maintained only in the form of non-interest
bearing current account.
(ii) Limits
of eligible credits to the EEFC accounts are revised to 70 per cent for export
oriented units or units in (a) export processing zone, or (b) software
technology park, or (c) electronic hardware technology park and to 50 per cent
for other persons resident in India.
Attention
of authorised dealers is invited to AP (DIR Series) Circular No. 16, dated 10th
October, 2000.
Notification
No. FEMA 31/2000-RB, dated 27th November, 2000 in partial modification of
Notification No. FEMA 4/2000-RB, dated 3rd May, 2000
6. Regulation
7 of the Foreign Exchange Management (Borrowing and Lending in Rupees)
Regulation, 2000 enables an authorised dealer to grant loans in India to a
non-resident Indian for the borrower’s personal or business requirements. Since
the loan is to be utilised in India, the amendment is made to proviso (d) of
regulation (7) enabling credit of the loan amount to the non-resident ordinary
account of the borrower. It is clarified that the loan amount cannot be
credited to the NRE/FCNR/NRNR account of the non-resident borrower or remitted
out of India.
Notification
No. FEMA 32/2000-RB, dated 26th December, 2000 in partial modification of
Notification No. FEMA 20/2000-RB, dated 3rd May, 2000
7. The
captioned notification seeks to amend the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident outside India) Regulations, 2000
enabling registered foreign venture capital investors (FVCIs) to invest in
Indian venture capital undertakings/venture capital funds. In this regard
attention of authorised dealers is invited to AP (DIR Series) Circular No. 24,
dated 6th January, 2001.
Notification No. 33 FEMA/2001-RB.
8. Not issued.
Notification
No. FEMA 34/2001-RB, dated 22nd January, 2001 in partial modification of
Notification No. FEMA 10/2000-RB, dated 3rd May, 2000
9. The
captioned amendment is made to facilitate foreign nationals resident in India
to open and maintain foreign currency accounts with a bank outside India. The
facility is available to such foreign nationals who are employees of a foreign
company and are on deputation to the office/branch/subsidiary/joint venture in
India of the foreign company. The salary payable to the employee for services
rendered in India can be credited to the account provided that—
(i) the
amount to be credited to such account shall not exceed 75 per cent of the
salary accrued to such person from the foreign company;
(ii) the
remaining salary shall be paid in Indian rupees; and
(iii) the
income-tax under the Income-tax Act, 1961 shall be paid on the entire salary as
accrued in India.
Notification
No. FEMA 35/2001-RB, dated 16th February, 2001 in partial modification of
Notification No. FEMA 20/2000-RB, dated 3rd May, 2000
10. The
notification seeks to amend the Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident outside India) Regulations, 2000. It has now
been decided to prohibit foreign investment in an Indian company engaged in
print media by foreign institutional investors (FIIs), NRIs/OCBs and foreign
venture capital investors. The restriction will apply to investment by
NRIs/OCBs on non-repatriation basis also.
Notification
No. FEMA 36/2001-RB, dated 27th February, 2001 in partial modification of
Notification No. FEMA 23/2000-RB, dated 3rd May, 2000
11. The
amendments made to the Foreign Exchange Management (Export of Goods and
Services) Regulations, 2000 are as under :
(a)
Regulation 4 –
(i) Exemptions
are granted to certain exports from the requirement of declaration on
prescribed Form. Similar concessions are granted to units in “electronic
hardware technology parks, electronic software technology parks” and “special
economic zones”.
(ii) Reserve
Bank has been authorised to waive the requirement of declaration on GR Forms
and to permit export of defective goods for repairs subject to re-import.
(b) Regulation
6 - Sub-regulation 3(i) is substituted to provide for declaration to be made by
units in special economic zones for exports of computer software and
audio/video/television software in Form Softex.
(c) Regulation
9 - The existing regulation is numbered as Sub-regulation (2) permits the units
situated in special economic zones to realise and repatriate to India the full
export value of goods or software within a period of twelve months from the
date of export. Reserve Bank has also been empowered to extend the said period
beyond twelve months. The Bank has also been empowered to direct, if necessary,
that a unit shall cease to be governed by provisions of sub-regulation (2) and
in such a case the unit shall be governed by sub-regulation (1).
(d) The
format of the Form SOFTEX has revised.
Notification
No. FEMA 37/2001-RB, dated 27th February, 2001 in partial modification of
Notification No. FEMA 10/2000-RB, dated 3rd May, 2000
12. The
Notification seeks to amend the Foreign Exchange Management (Foreign Currency
Accounts by a Person Resident in India) Regulations, 2000. The units in Special
Economic Zone (SEZ) are now permitted to credit 100 per cent of its foreign
exchange receipts to its EEFC account except foreign exchange acquired, by way
of purchase against rupees from any person resident in India other than another
unit in a SEZ.
Notification
No. FEMA 38/2001-RB, dated 27th February, 2001 in partial modification of
Notification No. FEMA 6/2000-RB, dated 3rd May, 2000
13. The
Notification seeks to amend the Foreign Exchange Management (Export and Import
of Currency) Regulations, 2000. In terms of regulation 3 of the said
Regulations, any person resident in India can take outside India, except to
Nepal or Bhutan, currency notes of Government of India or Reserve Bank of India
upto an amount not exceeding Rs. 5,000. The amendment empowers Reserve Bank to
permit a person, on an application made to it and on being satisfied to take or
send out of India or bring, into Indian currency notes of Government of
India/Reserve Bank of India of value exceeding Rs. 5,000 subject to such terms
and conditions as the Bank may stipulate.
Notification
No. FEMA 39/2001-RB, dated 27th February, 2001 in partial modification of
Notification No. FEMA 16/2000-RB, dated 3rd May, 2000
14. The
amendment authorises a company in India to make payment in rupees to its
non-whole-time director, who is a person resident outside India and who is on a
visit to India for the company’s work. The payments can be towards sitting
fees, commission or remuneration, travel expenses in accordance with the
provisions of the concerned company’s memorandum of association or articles of
association or in terms of any other agreement entered into by it or in any
resolution passed by its general meeting/Board of directors. Such payments
shall however, be subject to compliance of any other laws, rules, regulations
or directions applicable in this behalf.