recent updates in fema - the chamber of tax consultants october-20… · · 2017-09-08investment...

25th October 2016 The Chamber of Tax Consultants 1

Recent Changes in FEMA

and its Implications CHAIRMAN – PANKAJ BHUTA

SPEAKER – TANVI VORA

Outbound Investments



Overseas Direct Investment (ODI) – Rationalization and reporting of ODI Forms

(A.P. (DIR Series) Circular No. 62 dated 13th April 2016)

Format of ODI reporting changed

New reporting format for Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), Portfolio Investment and

overseas investment by Mutual Funds

Reporting of purchase and repurchase of ESOPs shall continue to be reported in the existing format



Overseas Direct Investment (ODI) – Rationalization and reporting of ODI Forms (cont..)

Part I – Application for allotment of Unique Identification Number (UIN) and reporting of Remittances / Transactions:

Section A – Details of the IP / RI.

Section B – Capital Structure and other details of JV/ WOS/ SDS.

Section C - Details of Transaction/ Remittance/ Financial Commitment of IP/ RI.

Section D – Declaration by the IP/ RI.

Section E – Certificate by the statutory auditors of the IP/ self-certification by RI.

Part II - Annual Performance Report (APR)

Part III – Report on Disinvestment by way of

a. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of overseas JV / WOS;

b. Sale/ Transfer of the shares of the overseas JV/ WOS to another eligible resident or non-resident;

c. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of IP; and

d. Buy back of shares by the overseas JV/ WOS of the IP / RI.



Overseas Direct Investment (ODI) – Rationalization and reporting of ODI Forms (cont..)

Any post investment changes subsequent to the allotment of the UIN are to be reported in Form ODI Part I

Disinvestment from the JV/WOS to be reported in Form ODI Part III

ODI by Resident Individual Certification of Form ODI Part I by statutory auditor or chartered accountant not

compulsory. Self-certification by the RI may be accepted.

Online Reporting of Form ODI

Online filing of Form ODI revamped

Concept of AD Maker, AD Checker and AD Authorizer introduced. Each bank to obtain user-ids for Maker, Checker

and Authorizer for accessing online OID application

Various changes in Form ODI



Overseas Direct Investment (ODI) – Submission of Annual Performance Report


Indian Party (IP) / Resident Individual (RI) which have made ODI have to annually file Form APR

Online OID Application modified to enable AD Banks to view outstanding position of all APRs

Certification of APR by statutory auditor not insisted for Resident Individuals. Self-certification may be accepted

In case of multiple IPs / RIs Obligation to submit APR shall lie with IP / RI having maximum stake in the JV / WOS or

as mutually agreed among them (such IP/RI taking responsibility to file APR to furnish appropriate undertaking to AD

Bank)

Form APR to be filed in Form ODI Part II by 31st December every year (earlier date 30th June)

APR to be based on latest audited annual accounts unless exempted by RBI

Non Compliance of APR filing will be treated as FEMA contravention

Various changes in APR reporting

Inbound Investments


Inbound Investments

Investment in companies engaged in tobacco related activities

(A.P. (DIR Series) Circular No. 2 dated 3rd July 2015)

As per Notification 20/2000, FDI prohibited in manufacturing of cigars, cheroots, cigarillos and cigarettes, of

tobacco or of tobacco substitutes

Clarification Prohibition applies only to manufacturing of the products mentioned above. FDI in other

activities relating to these products shall be governed by the sectoral restrictions in FDI policy issued by DIPP

and Schedule 1 of Notification FEMA 20/2000

Eg Wholesale Cash and Carry, Retail Trading etc.

Foreign Investment in India by Foreign Portfolio Investors

(A.P. (DIR Series) Circular No. 6 dated 16th July 2015)

Clarification Restriction on investments with less than three years residual maturity shall not be applicable

to investment by FPIs in security receipts issued by Asset Reconstruction Companies. However, investment in

SRs shall be within the overall limit prescribed for corporate debt from time to time.


Inbound Investments

Investment by Foreign Portfolio Investors (FPI) in Government Securities

(A.P. (DIR Series) Circular No. 19 dated 6th October 2015) / (A.P. (DIR Series) Circular No. 55 dated 29th March 2016)

Concept of Medium Term Framework (MTF) for FPI limits in Government securities introduced

Features of the MTF:

The limits for FPI investment in debt securities will henceforth be announced/ fixed in Rupee terms.

The effective increase in limits for the following two quarters will be announced every half year in March and September.

The limits for FPI investment in the Central Government securities will be increased in phases to reach 5 per cent of the outstanding stock by March 2018. In aggregate terms, this is expected to open up room for additional investment of ₹ 1,200 billion in the limit for Central Government securities by March 2018 over and above the existing limit of ₹ 1,535 billion for all Government securities.

Separate limit for investment by all FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2 per cent of the outstanding stock by March 2018. This would amount to an additional limit of about ₹ 500 billion by March 2018.

The existing requirement of investments being made in G-sec (including SDLs) with a minimum residual maturity of three years will continue to apply to all categories of FPIs.

Aggregate FPI investments in any Central Government security would be capped at 20% of the outstanding stock of the security. Investments at existing levels in the securities over this limit may continue but not get replenished through fresh purchases by FPIs till these fall below 20%.


Inbound Investments

Investment by Foreign Portfolio Investors (FPI) in Government Securities (cont..)

Limits for investment by FPIs in Central Government Securities and State Development Loans are increased as under:

Enhancement of limit for investment by FPIs in Government Securities in two tranches from October 12, 2015 and January 1, 2016

respectively as under:

Enhancement of limit for investment by FPIs in Government Securities in two tranches from April 4, 2016 and July 5, 2016 respectively as

under:


Inbound Investments

Investment by Foreign Portfolio Investors (FPI) in Government Securities (cont..)

(A.P. (DIR Series) Circular No. 4 dated 30th September 2016)

The limits for investment by FPIs in Central Government Securities and SDL for the next half year are proposed to be increased in two

tranches from October 3, 2016 and January 2, 2017 respectively as below:


Inbound Investments

Investment by Foreign Portfolio Investors (FPI) in Corporate Bonds

(A.P. (DIR Series) Circular No. 31 dated 26th November 2015)

FPI permitted to acquire NCDs/bonds, which are under default, either fully or partly, in the repayment of principal

on maturity or principal installment in the case of amortising bond.

The revised maturity period of such NCDs/bonds, restructured based on negotiations with the issuing Indian

company, should be three years or more

FPI which propose to acquire such NCDs/bonds under default should disclose to the Debenture Trustees the terms of

their offer to the existing debenture holders / beneficial owners from whom they are acquiring

Investment should be within the overall limit prescribed for corporate debt from time to time (currently Rs. 2443.23

billion).


Inbound Investments

Issue of shares under Employees Stock Options Scheme and/or sweat equity shares to persons resident outside India

(A.P. (DIR Series) Circular No. 4 dated 16th July 2015) / (Notification No. FEMA 344/2015 RB dated 11th June 2015)

Hitherto Indian company can issue ESOPs (or by whatever name called) to its employees or employees of its

overseas JV/WOS who are resident outside India, directly or through a Trust, scheme is as per SEBI regulations and FV

of shares to be allotted under the scheme to NR employees does not exceed 5 per cent of the paid up capital of

the issuing company.

Change 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. Provided:

a) Scheme drawn in terms of SEBI regulations or the Companies (Share Capital and Debentures) Rules, 2014 under the Companies Act 2013

b) Issue is in compliance with the sectoral cap applicable to the said Indian company

c) Issue for companies falling under FDI under approval route requires prior approval of FIPB

d) Issue to an employee/director who is a citizen of Bangladesh/Pakistan requires prior approval of FIPB


Inbound Investments

Foreign Direct Investment – Reporting under FDI Scheme on the e-Biz platform

(A.P. (DIR Series) Circular No. 9 dated 21st August 2015) / (A.P. (DIR Series) Circular No. 40 dated 1st February 2016)

Online filing of the Foreign Currency Transfer of Shares (FCTRS) returns enabled

Steps involved in Online filing on e-Biz portal:

Customer to login into e-Biz portal, download form FCTRS, complete the form and then upload it on the portal

Digital signature to be used

AD Banks to download the completed forms from the portal, verify it, call for additional information if necessary and

then upload the same to RBI

RBI to allot Unique Identification Number (UIN)

Vide Circular No. 40 dated 1st February 2016 Online filing of Advance Remittance Form (ARF), Form FCGPR

and Form FCTRS enabled

Beginning February 8, 2016 the physical filing of forms ARF, FCGPR and FC-TRS discontinued


Inbound Investments

Subscription to National Pension System by Non-Resident Indians (NRIs)

(A.P. (DIR Series) Circular No. 24 dated 29th October 2015) / (Notification No. 353/2015 RB dated 6th October 2015)

NRIs may subscribe to the NPS governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act.

Subscription amounts shall be paid by the NRIs either by inward remittance through normal banking channels or out of funds held in their NRE/FCNR/NRO account.

No restriction on repatriation of the annuity/ accumulated savings.

Annual Return on Foreign Liabilities and Assets (FLA Return) – Reporting by Limited Liability Partnerships

(A.P. (DIR Series) Circular No. 22 dated 21st October 2015) / (Notification No. 351/2015 RB dated 30th September 2015)

All LLPs that have made ODI and/or received FDI in the previous year(s) as well as in the current year, shall submit the FLA return to RBI by July 15 every year

Since LLPs do not have CIN, to enter ‘A99999AA9999LLP999999’ against CIN in the FLA Return.


Inbound Investments

Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations

(A.P. (DIR Series) Circular No. 63 dated 21st April 2016) (Notification No. FEMA 355/2015 RB dated 16th November 2015)

Foreign investment permitted in the units of Investment Vehicles registered and regulated by SEBI or any other competent authority

Currently, Investment Vehicles include:

Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014

Infrastructure Investment Trusts (InvITs) registered and regulated under the SEBI (InvITs) Regulations, 2014

Alternative Investment Funds (AIFs) registered and regulated under the SEBI (AIFs) Regulations 2012

Unit means beneficial interest of an investor in the Investment Vehicle and includes shares or partnership interests

Features of regime:

A person resident outside India (incl. Registered Foreign Portfolio Investor (RFPI) / Non-Resident Indian (NRI)) may invest in units of Investment Vehicles.

Payment for units of Investment Vehicle acquired by a person resident or registered / incorporated outside India by inward remittance through the normal banking channel including by debit to an NRE or an FCNR account


Inbound Investments

Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations (cont..)

A person resident outside India may sell or transfer or redeem the units as per SEBI or RBI regulations

Downstream investment by an Investment Vehicle shall be regarded as foreign investment if either the Sponsor or the Manager or the Investment Manager is not Indian ‘owned and controlled’. If sponsors or managers or investment managers are organized in a form other than companies or LLPs, SEBI shall determine whether the sponsor or manager or investment manager is foreign owned and controlled

The extent of foreign investment in the corpus of the Investment Vehicle will not be a factor to determine as to whether downstream investment of the Investment Vehicle concerned is foreign investment or not.

Downstream investment by an Investment Vehicle that is reckoned as foreign investment shall have to fulfil sectoral caps and conditions / restrictions as per FDI Policy or Schedule 1 of the Notification 20/2000.

Downstream investment in an LLP by an Investment Vehicle to conform to the provisions of Schedule 9 of the Notification 20/2000 or FDI Policy

Alternative Investment Fund Category III with foreign investment shall make portfolio investment in only those securities or instruments in which a RFPI is allowed to invest

Investment Vehicle receiving foreign investment to undertake regular reporting to RBI or SEBI as prescribed by them from time to time

Clarification Foreign investment in units of REITs registered and regulated under the SEBI (REITs) Regulations, 2014 will not constitute “real estate business”


Inbound Investments

Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India)

Regulations, 2000

Notification No.FEMA.368/2016-RB dated 20th May 2016

RBI has issued notification to permit transfer of shares on a deferred basis, subject to compliance with following conditions:

Maximum 25% of the total consideration can be paid by the buyer on a deferred basis

Total consideration paid for shares must be compliant with applicable pricing guidelines

Parties can enter into an escrow arrangement for the consideration payable on deferred basis

If the total consideration is paid, the seller can furnish an indemnity for the amount of consideration payable on deferred basis

The consideration payable on deferred basis should be paid within a period of 18 months from date of transfer agreement. Also, the escrow arrangement / period of indemnity cannot exceed 18 months.

The above conditions need to be complied with for transfer of shares on a deferred basis between a resident buyer and a non-resident seller, or vice versa.

The relaxation will simplify transactions in the secondary space which commercially require part consideration to be deferred.


Inbound Investments

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016

Notification No.FEMA.361/2016-RB dated 20th May 2016

Definition of NRI amended : Non-Resident Indian (NRI) means an individual resident outside India who is

citizen of India or is an ‘Overseas Citizen of India’ cardholder within the meaning of section 7 (A) of the

Citizenship Act, 1955

Schedule 3 Amended :

Non repatriable inbound investment under this schedule no longer permitted

Schedule amended to include convertible preference shares, warrants and units of any investment

vehicles

Inbound investments under schedule 3 shall be subject to sectoral caps of FDI Policy and schedule 1

Reporting of investments under schedule 3 by AD banks to RBI amended

Concept of NRO(PIS) Account removed. All NRO(PIS) Accounts to be re-designated as NRO Account


Inbound Investments

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016 (cont..)

Schedule 4 Amended :

Permission to purchase: Company, trust or partnership firm incorporated outside India and owned and

controlled by NRI now permitted to invest under non – repatriable basis under schedule 4

Schedule amended to include convertible preference shares and units of any investment vehicles

Investments under schedule 4 will be deemed to be domestic investment at par with investments by residents

Without loss of generality, schedule 4 states that:

An NRI may acquire, on non-repatriation basis, any security issued by a company without any limit either on the stock exchange or outside it.

An NRI may invest, on non-repartition basis, in units issued by an investment vehicle without any limit, either on the

stock exchange or outside it.

An NRI may contribute, on non-repatriation basis, to the capital of a partnership firm, a proprietary firm or a Limited Liability Partnership without any limit.


Inbound Investments

Review of FDI Policy

(Press Note 11 (2015 Series) dated 1st October 2015)

Sector Insertion

NBFCs – White labeled

ATM Operations

100% FDI under automatic route

NBFC should have minimum net worth of Rs 100 Cr to be maintained at all times

If the NBFC also undertaking any of the other permitted activities, cap norms of

that activity to apply

(Press Note 12 (2015 Series) dated 24th November 2015)

Sector Amendment

Manufacturing Definition of Manufacture inserted

manufacturer permitted to undertake wholesale and/or retail including through

e-commerce without government approval


Inbound Investments

Review of FDI Policy (Press Note 12 (2015 Series) dated 24th November 2015)

Particulars Amendment

FDI in LLP 100% FDI in LLPs permitted under automatic route in LLPs operating in sectors/activities where 100%

FDI is allowed through automatic route and there are no FDI linked performance conditions

Definition of control and ownership in reference to LLPs defined

Downstream investments by LLPs in another company or LLP is permitted in sectors/activities where

100% FDI is allowed through automatic route and there are no FDI linked performance conditions

Other conditions relating to downstream investment by companies to similarly apply

Companies

not having

operations

Infusion of foreign investment in an India Co that does not have any operations and also does not

have any downstream investment would not require government approval for undertaking

activities where 100% FDI is allowed through automatic route and there are no FDI linked

performance conditions

Swap of

shares

No government approval is required for swap of shares in sectors under automatic route


Inbound Investments


Particulars Amendment

Company / Trust /

Firm incorporated

outside India by

NRI

A company, trust and partnership firm incorporated outside India and owned and

controlled by NRI shall be considered as par to NRI Therefore, any foreign investment where NRIs are permitted to invest, such entity

owned and controlled by them shall also be permitted

Threshold limit for

approval by FIPB

Earlier FIPB < Rs 3000 Cr and CCEA > Rs 3000 Cr

Amendment Limit for FIPB enhanced to Rs 5000 Cr

Plantation Sector Foreign Investment opened in – coffee, rubber, cardamom, palm oil tree and olive oil

tree plantations

Foreign investment in above sectors including tea tree plantations sector shall be

under 100% automatic route

Other conditions to continue to apply


Inbound Investments


Sector Amendment

Defence FDI upto 49% under automatic route

Portfolio investment and investment by FVCIs allowed upto 49% automation route

Proposals in excess of 49% to be considered by FIPB

Fresh infusion of foreign investment resulting in change of ownership to foreign

investor will require government approval

Regional Air

Transport Services

FDI upto 49% under automatic route permitted

100% permitted for NRIs

Non scheduled air

transport / Ground

handling services /

Satellites / CIC

Enhancement of FDI from 74% to 100% under automatic route


Inbound Investments


Sector Amendment

Construction

Development

Sector

Area restriction & Minimum capitalisation conditions removed

Each phase of construction development considered as separate project for FDI

Foreign Investor permitted to exit and repatriate investment before completion of project

provided lock-in-period of 3 years has been completed (tranche wise)

Transfer of stake from NR to NR (without any repatriation) permitted without lock-in period

Exit on completion of project or trunk infrastructure permitted before lock-in-period

FDI not permitted in Real Estate Business

Lock-in-period not applicable to Hotel & tourist resort, Hospital, SEZ, Educations Institutions, Old

Age Homes and Investments by NRIs

Meaning of Transfer given

SBRT /

Wholesale

Cash and

Carry

Same entity can undertake SBRT and Wholesale C&C provided conditions of FDI policy as

complied with by both the business arms separately


Inbound Investments


Sector Amendment

Single Brand

Retail Trading

Sourcing requirements in case of “state of art” and “cutting edge technology” relaxed subject to

government approval

Entities undertaking SBRT permitted to undertake e-commerce activities to sell their goods

Duty Free

Shops

100% FDI now permitted under automatic route in Duty Free Shops located and operated in

Customs bonded areas


Inbound Investments


(Press Note 1 (2016 Series) dated 23rd March 2016)

Sector Amendment

Insurance

Sector

Enhance limit of foreign investment in insurance sector from 26 to 49 percent under the automatic

route subject to terms and conditions

Other conditions remain same

(Press Note 2 (2016 Series) dated 23rd March 2016)

Sector Amendment

Pension

Sector

49% FDI under automatic route

Investment in Pension Sector to be allowed as per Pension Fund Regulatory and Development

Authority (PFRDA) Act 2013

Entities bringing the FDI to obtain necessary registration and compliances with PFRDA

Any change/shift in control or ownership to foreign investor shall require government approval

Onus of compliances on investee Indian pension fund company


Inbound Investments

Guidelines for Foreign Direct Investment on E-commerce

(Press Note 3 (2016 Series) dated 29th March 2016)

As per the extant FDI Policy,

FDI up to 100% under the automatic route is permitted in B2B e-commerce

No FDI is permitted in B2C e-commerce. Except in following circumstances:

i. Manufacturer is permitted to sell its products manufactured in India through e-commerce

ii. SBRT entity operating through brick and mortar stores is permitted to sell through e-commerce

iii. Indian manufacturer can sell its own single brand products through e-commerce. Subject to conditions

Revised guidelines for FDI in e-commerce sector:

FDI up to 100% under automatic route now permitted in ‘marketplace’ model

FDI not permitted in ‘inventory-based’ model

FDI up to 100% under automatic route also applies to entities engaged in sale of services through e-commerce (see definition)


Inbound Investments

Guidelines for Foreign Direct Investment on E-commerce (cont..)


Definitions:

E-commerce: E-commerce means buying and selling of goods and services including digital products over digital & electronic network

E-commerce entity: E-commerce entity has been defined to mean “a company incorporated under the

Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2(42) of the

Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of the Foreign

Exchange Management Act, 1999, owned or controlled by a person resident outside India and conducting

the e-commerce business

Inventory Based Model of E-commerce: This model has been defined to mean “an e-commerce activity

where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly”

Marketplace Based Model of E-commerce: This model defined as “providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer

and seller.”


Inbound Investments



Conditions:

i. Digital & electronic network includes networks of computers, television channels and any other internal application used

in automated manner such as web pages, extranets, mobiles etc.

ii. Marketplace e-commerce entity will be permitted to enter into transaction with seller registered on its platform on B2B basis

iii. Marketplace e-commerce entity may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.

iv. E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

v. An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

vi. In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.


Inbound Investments



Conditions:

vii. In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

viii. In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.

ix. E-commerce entites providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

x. Guidelines on cash and carry wholesale trading as given in para 6.2.16.1.2 of the FDI Policy will apply on B2B e-commerce


Inbound Investments


(Press Note 4 (2016 Series) dated 6th May 2016)

Sector Amendment

Asset Reconstruction

Companies

Earlier Position

FDI was permitted upto 100% but 49% under automatic route and beyond under

government approval route

No sponsor was allowed to hold more than 50% in ARC by way of FDI or through

FII/FPI

FII/ FPI were permitted to invest upto 74% of each trance of scheme of Security

Receipts

Change

FDI was permitted upto 100% under automatic route

Investment limit of sponsor to be governed by SARFAESI Act

FII/ FPI were permitted to invest upto 100% of each trance of scheme of Security

Receipts


Inbound Investments


(Press Note 5 (2016 Series) dated 24th June 2016)

Entry Conditions on Investment:

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of RBI would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted

Sector Amendment

Agriculture and Animal

Husbandry The requirement of “controlled conditions” under Animal Husbandry (including breeding of

dogs), Pisciculture, Aquaculture and Apiculture has been done away with

Manufacturing A manufactured is permitted to sell its products manufactured in India through wholesale / retail including e-commerce without government approval

100% FDI under government approval route is allowed for trading, including through e-commerece for food products manufactured in India. Application to be made to DIPP

Defence FDI beyond 49% has now been permitted through government approval route wherever it is likely to result in access to modern technology or for other reasons to be recorded

FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959


Inbound Investments

Review of FDI Policy (cont..) (Press Note 5 (2016 Series) dated 24th June 2016)

Sector Amendment

Broadcasting Carriage Services

100 % under automatic route permitted for this sector Infusion of fresh foreign investment, beyond 49% in a company not seeking

license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval

Civil Aviation Sector Earlier FDI policy on Airports permitted 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route.

Now 100% FDI under automatic route been permitted in Brownfield Airport projects.

As per the earlier FDI policy, FDI up to 49% was allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service.

Now raised to 100%, with FDI upto 49% permitted under automatic route and FDI beyond 49% through Government approval

For NRIs, 100% FDI will continue to be allowed under automatic route.


Inbound Investments


Sector Amendment

Private Security Agencies Earlier policy permitted 49% FDI under government approval route in Private Security Agencies

Since Private Security Agencies are already required to get license under PSAR Act 2005, the requirement of putting them through another line of Government approvals through FIPB has now been done away with for FDI up to 49%. Accordingly, FDI up to 49% is now permitted under automatic route in this sector.

FDI beyond 49% and upto 74% is permitted through Government approval route

Single Brand Retail Trading Local sourcing norms have been relaxed up to three years, with prior Government approval,

for entities undertaking Single Brand Retail Trading of products having ‘state of art’ and ‘cutting edge’ technology

For such entities, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and

where local sourcing is not possible. Thereafter, sourcing norms would be applicable


Inbound Investments


Sector Amendment

Pharmaceutical Earlier FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield pharma and FDI up to 100% under government approval in brownfield pharma.

With the objective of promoting the development of this sector, 74% FDI under automatic route has been permitted in brownfield pharmaceuticals. FDI beyond 74% would be permitted through Government approval route.


Inbound Investments

Amendment to Schedule 1 to Notification No. FEMA. 20/2000-RB dated 3rd May 2000 (A.P. (DIR Series) Circular No. 8 dated 20th October 2016) (Notification No.FEMA.375/2016-RB dated 9th September 2016)

Sector Amendment

Other Financial Services Erstwhile 13 activities of NFBCs allowed under automatic route stands withdrawn

Now, FDI in financial Services activities regulated by any financial sector regulators, eg, RBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India permitted under 100% automatic route

RDI in this sector shall be subject to conditionalities, including minimum capitalization norms, as specified by the concerned Regulator/Government Agency

Where there is doubt regarding the regulatory oversight or where only part of the financial

services activity is regulated, foreign investment up to 100% will be allowed under Government approval route subject to conditions including minimum capitalization requirement, as may be decided by the Government

FDI to be limited in activities if specifically regulated by an Act which lays limits of FDI Downstream investments by any of these entities will be subject to the extant sectoral

regulations and provisions of Inbound Investments

External Commercial Borrowings (ECBs) & Trade Credits


External Commercial Borrowings (ECBs)

Trade Credit Policy - Rupee (INR) Denominated trade credit


Resident importer can raise trade credit in Rupees (INR) within the following framework after entering into a loan agreement with the overseas lender:

Trade credit can be raised for import of all items (except gold) permissible under FTP

Trade credit period for import of non-capital goods can be upto one year from the date of shipment or upto the operating cycle whichever is lower

Trade credit period for import of capital goods can be upto five years from the date of shipment

No roll-over / extension can be permitted by the AD bank beyond the permissible period

AD banks can permit trade credit upto USD 20 mn equivalent per import transaction

AD banks are permitted to give guarantee, Letter of Undertaking or Letter of Comfort in respect of trade credit for a maximum period of three years from the date of shipment

All-in-cost of such Rupee (INR) denominated trade credit should be commensurate with prevailing market conditions

All other guidelines for trade credit will be applicable for such Rupee (INR) denominated trade credits

Overseas lenders of Rupee (INR) denominated trade credits will be eligible to hedge their exposure in Rupees through permitted derivative products in the on-shore market with an AD bank in India



External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas

(A.P. (DIR Series) Circular No. 17 dated 29th September 2015) / (A.P. (DIR Series) Circular No. 60 dated 13th April

2016)

Framework for issuance of Rupee denominated overseas bonds:

Eligible borrowers : i)Any corporate or body corporate. ii)REITs and InvITs (registered under SEBI).

Type of Instrument: Only plain vanilla bonds issued in FATF compliant financial centres – placed privately or

listed on exchanges as per host country regulations

Recognised investors: Any investor from a FATF compliant jurisdiction. Banks incorporated in India will not

have access to these bonds. Indian banks, however, can act as arranger and underwriter. In case of

underwriting, holding of Indian banks cannot be more than 5 per cent of the issue size after 6 months of

issue.

Maturity: Minimum maturity period of 5 years. The call and put option, if any, shall not be exercisable prior to completion of minimum maturity

All-in-cost: The all-in-cost of such borrowings should be commensurate with prevailing market conditions



External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas (cont..)

End Uses: The proceeds can be used for all purposes except for the following:

i. Real estate activities other than for development of integrated township / affordable housing projects

ii. Investing in capital market and using the proceeds for equity investment domestically

iii. Activities prohibited as per the foreign direct investment (FDI) guidelines

iv. On-lending to other entities for any of the above objectives

v. Purchase of land

Amount: Under the automatic route the amount will be equivalent of USD 750 million per annum. Cases beyond this limit will require prior approval of the Reserve Bank

Conversion Rate: The foreign currency - Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds

Hedging: Overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative products with AD banks in India or through branches / subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence

Leverage: The leverage ratio for the borrowing by financial institutions will be as per the prudential norms



External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas

Further amendment to Framework for issuance of Rupee denominated overseas bonds vide A.P. (DIR Series) Circular No. 60 dated 13th April 2016

After the Fourth Bi-Monthly Monetary Policy Statement, 2015-16 issued on September 29, 2015, the limit of investment by FPIs in debt securities was to be fixed in rupee terms (rather than earlier USD terms). Also, issuance of Rupee denominated bonds overseas will be within the aggregate limit of foreign investment permitted in corporate debt

So, issuance of such bonds under automatic route will be within maximum annual limit of Rs. 50 billion. (Earlier USD 750 million per annum). Cases beyond this limit will require prior approval of the Reserve Bank

Eligibility of investors: Rupee denominated bonds can only be issued in a country and can only be subscribed by a resident of a country viz i) member of FATF or FATF Styled Regional Body, ii) whose securities market regulator is a signatory to IOSCO’s Multilateral MOU or a signatory to bilateral MOU with SEBI for information sharing arrangements, iii) not be a country identified in the public statement of the FATF

Maturity: Reduced to 3 years

Borrowers issuing Rupee denominated bonds overseas should incorporate clause in the agreement / offer document so as to enable them to obtain the list of primary bond holders and provide the same to the regulatory authorities in India



External Commercial Borrowings (ECB) Policy – Revised framework


Key parameters of the Revised ECB Framework :

Track I Track II Track III

Forms of ECB

i. Bank loans;

ii. Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally

convertible or partially convertible preference shares / debentures);

iii. Buyers’ credit;

iv. Suppliers’ credit;

v. Foreign Currency Convertible Bonds (FCCBs);

vi. Financial Lease;

vii. Foreign Currency Exchangeable Bonds (FCEBs)

Track I : Medium term foreign currency denominated ECB with MAM of 3/5 years.

Track II : Long term foreign currency denominated ECB with MAM of 10 years.

Track III : Indian Rupee denominated ECB with MAM of 3/5 years.



External Commercial Borrowings (ECB) Policy – Revised framework Key parameters of the Revised ECB Framework :


Minimum Average Maturity (MAM) Period

i. 3 years for ECB upto USD 50

million or its equivalent.

ii. 5 years for ECB beyond USD

50 million or its equivalent

10 years irrespective of the

amount

Same as under Track I

Eligible Borrowers

i. Companies in

- Manufacturing

- Software Development

- Shipping and Airline Cos.

ii. SIDBI

iii. Units of SEZs

iv. EXIM (approval route)

i. All entities listed in Track I

ii. Companies in Infra sector

iii. Holding Cos.

iv. Core Investment Cos. (CIC)

v. REITs & INVITs registered

under SEBI

i. All entities in Track II

ii. All NBFCs

iii. Entities engaged in micro-finance activities

iv. Companies engaged in R&D, training (other

than educational institutes), companies

supporting infrastructure, logistics services

v. Developers of SEZ & NMIZ





Recognised Lenders/ Investors

i. International banks

ii. International capital markets

iii. Multilateral financial institutions

iv. Export credit agencies

v. Suppliers of equipment

vi. Foreign equity holders

vii. Overseas long term investors such as:

- prudentially regulated financial entities

- Pension funds

- Insurance companies

- Sovereign wealth funds

- Financial institutions in IFSC

viii. Overseas branches / subsidiaries of Indian

banks

All entities listed

under Track I

except for

overseas

branches /

subsidiaries of

Indian banks

i. All entities listed under Track I except for

overseas branches / subsidiaries of Indian

banks

ii. In case of NBFCs-MFIs, other eligible MFIs,

not for profit companies and NGOs, ECB

can also be availed from overseas

organizations and individuals satisfying

prescribed conditions





All – in – Cost

i. MAM 3 to 5 years – 300

bps over 6m LIBOR

ii. More than 5 years – 450

bps over 6m LIBOR

iii. Penal interest should not

be more than 2%

i. The maximum spread over the

bench mark will be 500 basis

points per annum

ii. Remaining conditions will be

as given under Track I

i. The all-in-cost should be in line with the

market conditions

Definition of all – in – cost now includes guarantee fees whether paid in FCY or INR





Permitted End Uses

i. ECB proceeds can be utilised for capital

expenditure in the form of:

- Import of capital goods

- Local sourcing of capital goods

- New project

- Modernisation /expansion of existing units

- ODI in JV/WOS

- Acquisition of shares of PSU

- Refinancing of existing trade credit raised for

import of capital goods

- Payment of capital goods already shipped /

imported but unpaid

- Refinancing of existing ECB provided the

residual maturity is not reduced

i. ECB proceeds can be used

for all purposes excluding the

following:

- Real estate activities

- Investing in capital market

- Using the proceeds for

equity investment

domestically;

- On-lending to other entities

with any of the above

objectives;

- Purchase of land

i. Developers of SEZs/ NMIZs

can raise ECB only for

providing infrastructure

facilities within SEZ/ NMIZ





Permitted End Uses

ii. SIDBI can raise ECB only for the purpose of

on lending to the borrowers in MSME

sector

iii. Units of SEZs can raise ECB only for their

own requirements

iv. Shipping and airlines companies can raise

ECB only for import of vessels and aircrafts

respectively

v. ECB proceeds can be used for general

corporate purpose (including working

capital) provided the ECB is raised from

the direct / indirect equity holder or from a

group company for a minimum average

maturity of 5 years

ii. Holding companies can

also use ECB proceeds

for providing loans to

their infrastructure SPVs

ii. Developers of SEZs/ NMIZs can

raise ECB only for providing

infrastructure facilities within SEZ/

NMIZ

iii. Micro finance entities can raise

ECB only for on-lending to self-

help groups or for micro-credit or

for bonafide micro finance

activity including capacity

building





Permitted End Uses

vi. ECBs for the following purposes will be

considered under the approval route:

- Import of second hand goods as per

the Director General of Foreign Trade

(DGFT) guidelines;

- On-lending by Exim Bank

iv. For other eligible entities under

this track, the ECB proceeds can

be used for all purposes

excluding the following:

- Real estate activities

- Investing in capital market

- Using the proceeds for equity

investment domestically;

- On-lending to other entities

with any of the above

objectives;

- Purchase of land



External Commercial Borrowings (ECB) Policy – Revised framework

(A.P. (DIR Series) Circular No. 56 dated 30th March 2016)

Changes in ECB framework:

Companies in infrastructure sector, Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs) – Eligible under Track I with MAM of 5 years subject to 100% hedging

“Exploration, Mining and Refinery” sectors which are not included in the Harmonised list of infrastructure sector but were eligible to take ECB under the previous ECB framework will be deemed to be included in infrastructure sector, and can access ECB as applicable to infrastructure sector

Companies in infrastructure sector shall utilize the ECB proceeds raised under Track I for the end uses permitted in Track I. NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure

Holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure Special Purpose Vehicles (SPVs)

Individual limit of borrowing under the automatic route for aforesaid companies shall be as applicable to the companies in the infrastructure sector (currently USD 750 million)

Companies in infrastructure sector, Holding Companies and CICs will continue to have the facility of raising ECB under Track II of the ECB framework



External Commercial Borrowings (ECB) Policy – Revised framework (cont..)

Clarifications to the ECB framework:

The designated AD banks may allow refinancing of ECBs raised under the previous ECB framework,

provided the refinancing is at lower all-in-cost, the borrower is eligible to raise ECB under the extant ECB

framework and residual maturity is not reduced (i.e. it is either maintained or elongated)

ECB framework is not applicable in respect of the investment in NCDs in India made by Registered Foreign

Portfolio Investors (RFPIs)

Minimum average maturity of FCCBs / FCEBs is 5 years irrespective of the amount of borrowing. Further, the

call and put option, if any, for FCCBs shall not be exercisable prior to 5 years

Only those NBFCs which are coming under the regulatory purview of RBI are permitted to raise ECB. Further,

under Track III, the NBFCs may raise ECBs for on-lending for any activities including infrastructure as

permitted by the concerned regulatory department of RBI.

In the forms of ECB, the term “Bank loans” shall be read as “loans” as foreign equity holders / institutions

other than banks, also provide ECB as recognized lenders



External Commercial Borrowings (ECB) Policy – Extension and conversion

(A.P. (DIR Series) Circular No. 10 dated 20th October 2016)

Extant guidelines, AD banks were permitted to approve requests from borrowers for changes in repayment

schedule during tenure of ECB

Now, AD banks permitted to approve requests from borrowers for extension of matured but unpaid ECBs,

subject to:

No additional cost is incurred

Lenders consent is available

Reporting requirements are fulfilled

AD banks also permitted to approve cases of matured but unpaid ECBs for conversion to equity subject to

same above conditions

Export / Import of Goods and Services


Export of Goods and Services

Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export Declaration Form (EDF) formality

(A.P. (DIR Series) Circular No. 1 dated 2nd July 2015)

For Unsold rough diamonds : when re-exported from the SNZ (being an area within the Customs) without entering

the Domestic Tariff Area (DTA), do not require any EDF formality.

Entry of consignment containing different lots of rough diamonds into the SNZ should be accompanied by a

declaration of notional value by way of an invoice and a packing list indicating the free cost nature of the

consignment. Under no circumstance, entry of such rough diamonds is permitted into DTA.

For rough diamonds sold after display or auction at SNZ: For the lot/ lots cleared at the Precious Cargo Customs

Clearance Centre, Mumbai, Bill of Entry shall be filed by the buyer. AD bank may permit such import payments after

being satisfied with the bona-fides of the transaction. Further, AD bank shall also maintain a record of such

transactions.



Export factoring on non-recourse basis

(A.P. (DIR Series) Circular No. 5 dated 16th July 2015)

Hitherto AD Banks were permitted to provide export factoring services to exporters on ‘with recourse’ basis without prior approval.

Amendment AD banks now permitted to provide export factoring services to exporters on non-recourse basis subject to conditions:

AD banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.

If export financing not done by the Export Factor, the Export Factor may pass on the net value to the financing bank/ Institution after realising the export proceeds.

AD bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation & collection of payment.

Notation should be made on the invoice that importer has to make payment to the Import Factor.

After factoring, the Export Factor may close the export bills and report the same in the Export Data Processing and Monitoring System (EDPMS) of the Reserve Bank of India.

In case of single factor, not involving Import Factor overseas, the Export Factor may obtain credit evaluation details from the correspondent bank abroad.

KYC and due diligence on the exporter shall be ensured by the Export Factor.



Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers


Revised consolidated guidelines relating to export and import payments applicable to AD banks for arrangements with OPGSPs:

AD banks to report details of each arrangements with OPGSPs with the FED, Central Office, Mumbai.

For each OPGSP, AD banks to i) due diligence ii) separate export and import collection accounts iii) bonafide transactions iv) submit relevant information to RBI and v) conduct reconciliation and audit of collection a/c on quarterly basis

Foreign entities, desirous of operating as OPGSP, to open liaison office in India with the approval of RBI before operationalizing the arrangement with any AD bank. OPGSPs to ensure: i) adherence to Information Technology Act, 2000 and other laws in force ii) set up mechanism for resolution of disputes and redressal of complaints iii) create a Reserve Fund appropriate to its return and refund policy and iv) onboard sellers (Indian and foreign), after appropriate due diligence

Domestic entities functioning as intermediaries for electronic payment transactions in terms of the guidelines stipulated by our Department of Payment and Settlement Systems and intending to undertake cross border transactions shall maintain separate accounts for domestic and cross border transactions



Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (cont..)

Export Transactions:

Facility available only for export of goods and services (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 10,000 (US Dollar ten thousand) per transaction.

AD banks providing such facilities to open a NOSTRO collection account for receipt of the export related payments

Where the exporters are required to open notional accounts with the OPGSP, to ensure no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD bank

Balances in the NOSTRO collection account shall be repatriated to the Export Collection account in India and then credited to the respective exporter's account with a bank in India immediately on receipt of the confirmation from the importer within seven days from the date of credit to the NOSTRO collection account.

Permitted debits to the OPGSP Export Collection account maintained in India will be:

payment to the respective Indian exporters’ accounts;

payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and

charge back to the overseas importer where the Indian exporter has failed in discharging his obligations under the sale contract.

Only credit permitted in the same OPGSP Export Collection account will be repatriation from the NOSTRO collection accounts electronically


Import of Goods and Services

Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (cont..)

Import Transactions:

Facility available only for import of goods and software (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 2,000 (US Dollar Two Thousand)

Balances held in Import Collection account shall be remitted to the respective overseas exporter's account immediately on receipt of funds from the importer within two days from the date of credit to the collection account

AD bank will obtain a copy of invoice and airway bill from the OPGSP containing the name and address of the beneficiary as evidence of import and report the transaction in R-Return under the foreign currency payment head

Permitted credits in the OPGSP Import Collection account will be:

collection from Indian importers for online purchases from overseas exporters electronically through credit card, debit card and net banking

charge back from the overseas exporters

Permitted debits in the OPGSP Import Collection account will be:

payment to overseas exporters in permitted foreign currency

payment to Indian importers for returns and refunds

payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP

bank charges



Switching from Barter Trade to Normal Trade at the Indo-Myanmar Border


Hitherto Trade transactions at Indo-Myanmar border were to be settled through barter system

Amendment No more barter system of trade at the Indo-Myanmar border and complete switch over to

normal trade with effect from December 1, 2015

Software Export – Filing of bulk SOFTEX - further liberalisation


Hitherto Software exporter, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX

forms annually on an all India basis, is eligible to declare all the off-site software exports in bulk in the form of

a statement in excel format, to the competent authority for certification on monthly basis

Amendment Benefit extended to small exporters also.



Export of Goods and Services – Project Exports

(A.P. (DIR Series) Circular No. 39 dated 14th January 2015)

As amended by GOI,

‘OCCI’ has been renamed as ‘Project Export Promotion Council’ (PEPC)

Civil construction contracts may include turnkey engineering contracts, process and engineering consultancy services and Project construction items (excluding steel & Cement) along with civil construction contracts

Memorandum of Instructions on Project and Service Exports (PEM) also amended accordingly

Grant of EDF Waiver for Export of Goods Free of Cost

(A.P. (DIR Series) Circular No. 53 dated 3rd March 2016)

Hitherto Status Holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is higher

Amendment Status Holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is lower


Export / Import of Goods and Services

Settlement of Export/ Import transactions in currencies not having a direct exchange rate

(A.P. (DIR Series) Circular No. 42 dated 4th February 2016)

To facilitate settlement of export and import transactions where the invoicing is in a freely convertible currency and the settlement takes place in the currency of the beneficiary, which though convertible, does not have a direct exchange rate.

AD Banks to permit such transactions subject to:

Exporter/ Importer to be a customer of the AD Bank

Signed contract / invoice is in a freely convertible currency

The beneficiary is willing to receive the payment in the currency of beneficiary instead of the original (freely convertible) currency of the invoice/ contract/ Letter of Credit as full and final settlement

AD bank is satisfied with bonafides of the transactions

Counterparty to the exporter / importer of the AD bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures.



Important changes:

Exemption for declaration of goods/ software export < USD 25000 withdrawn from revised notification

Export on elongated credit terms removed from new notification

Export of goods on hire purchase, lease removed from revised notification under approval clause

Notf. No. FEMA. 23/2000-RB dt 03/05/2000

Vs. FEMA 23 (R) / 2015-RB dt January 12, 2016 through Circular No. 68 dated 12.05.2016



Import of Goods into India – Evidence of Import


Currently the evidence of import include: (a) the exchange control copy of the Bill of Entry for home consumption; (b) the exchange control copy of the Bill of Entry for warehousing, in the case of 100% Export Oriented Units (EOUs); or (c) Customs Assessment Certificate or Postal Appraisal Form as declared by the importer to the Customs Authorities

With establishment of Free Trade Warehousing Zones / SEZ Unit warehouses where imported goods can be stored for re-export / re-selling purposes: evidence of import shall be Ex-Bond Bill of Entry issued by Customs Authorities

In case of goods imported through courier, Courier Bill of Entry, as declared by the courier companies to the Customs Authorities to be accepted as evidence of import

Advance Remittance for Import of aircrafts /helicopters / other aviation related purchases


AD banks may allow advance remittance without bank guarantee or an unconditional, irrevocable standby letter of credit up to USD 50 million.

Only the requisite approval of DGCA for import of aircrafts/helicopters has been obtained by the company for operating Scheduled or Non-Scheduled Air Transport Services (including Air Taxi Services).



Import of Rough, Cut and Polished Diamonds

(A.P. (DIR Series) Circular No. 57 dated 31st March 2016)

AD banks can give Clean Credit i.e. credit given by a foreign supplier to its Indian customer / buyer, without any

Letter of Credit (Suppliers' Credit) / Letter of Undertaking (Buyers' Credit) / Fixed Deposits from any Indian financial

institution for import of Rough, Cut and Polished Diamonds, for a period not exceeding 180 days from the date of

shipment

RBI now permitted AD banks to give clean credit for period exceeding 180 days from the date of shipment.

Conditions:

AD banks satisfy genuineness and bonafides of transaction

AD banks to check that no payment of interest is involved for the additional period

Reasons for such extension are financial difficulties and/or quality disputes

Importer requesting for such extension is not under investigation/no investigation is pending against the importer

Importer seeking extension is not a frequent offender

AD banks may allow such extension of time up to a maximum period of 180 days beyond the prescribed period/due date, beyond which they may refer the cases to respective Regional Office of the Reserve Bank

LO / BO/ PO in India



No fresh permission/ renewal of permission to LOs of foreign law firms- Supreme Court’s directions

(A.P. (DIR Series) Circular No. 23 dated 29th October 2015)

Supreme Court - interim order - Bar Council of India vs A.K. Balaji & Ors.: Direction to RBI not to grant fresh permission nor grant renewal permission to foreign law firms for opening / extending LO in India till final disposal of matter by SC

Important changes:

RBI approval to establish office will be valid only for 6 month from date of approval letter (exceptions enabling grant of extension by 6 months by AD bank and over and above by RBI : force majeure)

Validity period of LO for Construction Development Cos. and NBFCs – only 2 years instead of 3 years earlier

Permission for establishing addtl LO/BO to be given by AD Bank now whereas Permission for undertaking addtl acitivites to be given still by RBI

Notf. No. FEMA. 22/2000-RB

dt 03/05/2000 Vs.

Notf. No. FEMA 22 (R) / RB-2016 dt 31/03/16 through A.P. (DIR

Series) Circular No.69 [(1)/22(R)] &

FED Master Direction No.10/2015-16



Important changes:

Submission of report to State DGP within 5 working days of establishment of LO/BO/PO no longer required. Also submission of such report annually by 30/09 done away with.

Instead, registration required for only applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau

Donation of furniture and fixtures to NGOs and other NPOs permitted

Transfer of assets to JV / WOS now mentioned formally but only on closure of LO/BO/PO in India

Existing PAN and bank accounts can be continued when an LO is permitted to upgrade into a BO

BO/LO/PO can change their existing AD bank subject to satisfaction of conditions

Change of name without change of ownership: No new permission required

Change of name with / as consequence of change of ownership: Fresh permission required

Change in the Top Management or CEO/MD/CMD etc. of the BO/LO – No prior permission from RBI


dt 03/05/2000 Vs.






Important changes:

Additional information in FNC 1 required for following:

Applicant from Pakistan

Applicant from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau wanting to set-up

LO/BO/PO in J&K, N/E region, Andaman and Nicobar Island

Applicant doing business in Defence, Telecom, Private Security and I&B

Applicant is NGO, NPO, Body/ Agency / Department of foreign government


dt 03/05/2000 Vs.




Start-ups


Start - Ups

DIPP Notification – Ministry of Commerce and Industry

(G.S.R. 180(E) dated 17th February 2016)

In relation to the Start Up India initiative of GOI, the definition of start-up is:

An entity shall be considered as a start-up-

Up to five years from the date of its incorporation/registration,

If its turnover for any of the financial years has not exceeded Rupees 25 crore, and

It is working towards innovation, development, deployment or commercializalion of new products, processes or services driven by technology or intellectual property

Entity not to be formed by splitting up or reconstruction of a existing business

In order to obtain tax benefit, startup is required to obtain a certificate from inter-ministerial board consisting of:

Joint Secretary, Department of Industrial Policy and Promotion

Representative of Department of Science and Technology

Representative of Department of Biotechnology.


Start - Ups

DIPP Notification – Ministry of Commerce and Industry

Entity to undertake Innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and

commercialise:

A new product or service or process, or

A significantly improved existing product or servise or process, that will create or add value for customers or

workflow

Mere act of developing without a potential to commercialse, or developing undifferentiated products or services or processes, or developing products services or processes with no or limited value for customers not to fall under above defition

Process for recognition as start-up to be done through app Detailed steps provided in notification


Start - Ups

Regulatory relaxations for start-ups- Clarifications relating to acceptance of payments


Issue Start-ups accepting payment on behalf of overseas subsidiaries

Clarification

Start-up in India with an overseas subsidiary is permitted to open foreign currency account abroad to pool

the foreign exchange earnings out of the exports/sales made by the start-up

Overseas subsidiary of start-up is also permitted to pool its receivables arising from the transactions with the

residents in India as well as the transactions with the non-residents abroad into the said foreign currency

account opened abroad in the name of the start-up

Balances in the foreign currency account as due to the Indian start-up should be repatriated to India within a

period as applicable to realisation of export proceeds (currently nine months)

Start-up is also permitted to avail of the facility of OPGSPs for value not exceeding USD 10,000 or up to such

limit as may be permitted by RBI

Appropriate contractual arrangement between the start-up, its overseas subsidiary and the customers

concerned should be in place


Start - Ups

Regulatory Relaxations for Startups- Clarifications relating to Issue of Shares


Issue issue of shares without cash payment by the investor through sweat equity or against any legitimate

payment owed by the company remittance of which does not require any permission under FEMA, 1999

Clarification

Issue of shares without cash payment through sweat equity: RBI has permitted the same vide Notification No.

FEMA.344/2015 RB dated June 11, 2015 (corresponding A.P. (DIR Series) Circular No.63 dt 16th July 2015)

Issue of shares against legitimate payment owed: RBI has permitted the same vide Notification No.

FEMA.315/2014-RB dated July 10, 2014 (corresponding A.P. (DIR Series) Circular No.31 dt 17th September 2014)

Compounding of Contraventions & Penalties



Foreign Exchange Management Act, 1999 (FEMA) Foreign Exchange (Compounding

Proceedings) Rules, 2000 (the Rules) - Compounding of Contraventions under FEMA,

1999

(A.P. (DIR Series) Circular No. 73 dated 26th May 2016)

Public disclosure of Compounding Orders

All compounding orders passed on or after June 1, 2016 to be hosted on RBI’s website

Data to be updated on a monthly intervals in the following format:

Public disclosure of guidelines on the amount imposed during compounding

Provisions of section 13 of FEMA: The amount imposed can be up to three times the amount involved in the

contravention. Amount imposed to be calculated on basis of guidance note.




Type of contravention Formula

1] Reporting Contraventions

A) FEMA 20 Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS (Reg.

10) and taking on record FCTRS (Reg. 4)

B) FEMA 3 Non submission of ECB statements

C) FEMA 120 Non reporting/delay in reporting of

acquisition/setup of subsidiaries/step down

subsidiaries /changes in the shareholding pattern

D) Any other reporting contraventions (except those in

Row 2 below)

Fixed amount : Rs10,000/- (applied once for each

contravention in a compounding application) +

Variable amount as under:

Upto 10 lakhs : 1,000 per year

Rs.10-40 lakhs : 2,500 per year

Rs.40-100 lakhs : 7,000 per year

Rs.1-10 crore : 50,000 per year

Rs.10 -100 Crore : 1,00,000 per year

Above Rs.100 Crore : 2,00,000 per year

E) Reporting contraventions by LO/BO/PO As above, subject to ceiling of Rs.2 lakhs. In case of

Project Office, the amount imposed shall be calculated

on 10% of total project cost.





2] AAC/ APR/ Share certificate delays In case of non-submission/ delayed submission of

APR/ share certificates (FEMA 120) or AAC (FEMA

22) or FCGPR (B) Returns (FEMA 20)

Rs.10,000/- per AAC/APR/FCGPR (B) Return delayed.

Delayed receipt of share certificate – Rs.10,000/- per year,

the total amount being subject to ceiling of 300% of the

amount invested

3]

A] Allotment/Refunds Para 8 of FEMA 20/2000-RB (non-allotment of

shares or allotment/ refund after the stipulated

180 days)

B] LO/BO/PO (Other than reporting contraventions)

Rs.30,000/- + given percentage:

1st year : 0.30%

1-2 years : 0.35%

2-3 years : 0.40%

3-4 years : 0.45%

4-5 years : 0.50%

>5 years : 0.75%

(For project offices the amount of contravention shall be

deemed to be 10% of the cost of project)





4] All other contraventions except Corporate Guarantees

Rs.50,000/- + given percentage:

1st year : 0.50%

1-2 years : 0.55%

2-3 years : 0.60%

3-4 years : 0.65%

4-5 years : 0.70%

> 5 years : 0.75%

5] Issue of Corporate Guarantees without UIN/ without

permission wherever required

/open ended guarantees or

any other contravention

related to issue of Corporate

Guarantees

Rs.5,00,000/- + given percentage:

1st year : 0.050%

1-2 years : 0.055%

2-3 years : 0.060%

3-4 years : 0.065%

4-5 years : 0.070%

>5 years : 0.075%

In case the contravention includes issue of guarantees for raising loans which

are invested back into India, the amount imposed may be trebled



Public disclosure of guidelines on the amount imposed during compounding.

Further points to be noted:

Maximum: Amount imposed should not exceed 300% of the amount of contravention

If amount of contravention is less than Rs. One lakh, the total amount imposed should not be more than

amount of simple interest @5% p.a. calculated on the amount of contravention and for the period of the

contravention in case of reporting contraventions and @10% p.a. in respect of all other contraventions

In case of paragraph 8 of Schedule I to FEMA 20/2000 RB contraventions, the amount imposed will be

further graded as under:

If the shares are allotted after 180 days without the prior approval of Reserve Bank, 1.25 times the amount calculated as per table above (subject to provisos at (i) & (ii) above)

If the shares are not allotted and the amount is refunded after 180 days with the Bank’s permission: 1.50 times the amount calculated as per table above (subject to provisos above)

If the shares are not allotted and the amount is refunded after 180 days without the Bank’s permission: 1.75 times the amount calculated as per table above (subject to provisos above)



Public disclosure of guidelines on the amount imposed during compounding.

Further points to be noted:

In cases where it is established that the contravenor has made undue gains, the amount thereof may be

neutralized to a reasonable extent by adding the same to the compounding amount calculated as per

chart

If a party who has been compounded earlier applies for compounding again for similar contravention, the

amount calculated as above may be enhanced by 50%

For calculating amount in respect of reporting contraventions under para I.1 above, the period of

contravention may be considered proportionately {(approx. rounded off to next higher month ÷ 12) X

amount for 1 year}. The total no. of days does not exclude Sundays/holidays

RBI has appended examples to this circular for further understanding

RBI has clarified that the above guidance is meant only for the purpose of broadly indicating the basis on which the amount to be imposed is derived by the RBI compounding authorities. The actual amount

imposed may sometimes vary, depending on the circumstances of the case taking into account the

various factors

Miscellaneous Amendments



Subject Area Earlier Notification Revised Notification Corresponding A.P.

(DIR Series) Circulars

Remarks

Post Office (Postal

Orders / Money

Orders)

Notf. No. 18/2000-RB dt

03/05/2000

Notf. No. 18(R)/RB-2015 dt

29/12/2015

A.P. (DIR Series)

Circular No.49/2015-16

[(1)/18(R)]

No

change

Definition of

Currency


03/05/2000


29/12/2015

A.P. (DIR Series)


[(1)/15(R)]

No

change

Manner of Receipt

and Payment


03/05/2000

+ Notf. No. 16/2000-RB dt

03/05/2000

+ Notf. No. 17/2000-RB dt

03/05/2000

Notf. No. 14(R)/2016-RB dt

02/05/2016

- No

change



Subject Area Earlier Notification Revised Notification Corresponding A.P.

(DIR Series) Circulars

Remarks

Possession and

Retention of

Foreign Currency


03/05/2000


29/12/2015

A.P. (DIR Series)


[(1)/11(R)]

No

change

Realisation,

repatriation and

surrender of forex


03/05/2000


29/12/2015

A.P. (DIR Series)


[(1)/9(R)]

No

change

Export and Import

of currency


03/05/2000


29/12/2015

A.P. (DIR Series)

Circular No. 45/2015-16

[(1)/6(R)]

No

change

Remittance of

Assets


03/05/2000


01/04/2016

A.P. (DIR Series)

Circular No. 64/2015-16

[(1)/13(R)]

No

change



Foreign Exchange Management (Permissible Capital Account Transactions) (Fourth

Amendment) Regulations, 2015

(Notification No. FEMA. 345/2015-RB)

Explanation to Regulation 4(b) in Foreign Exchange Management (Permissible Capital Account

Transactions) Regulations, 2000 (Notification No. FEMA 1/2000-RB dated 3rd May 2000), has been amended

to exclude development of townships, construction of residential /commercial premises, roads or bridges

and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014

from the definition of Real Estate Business



Opening of foreign currency accounts in India by ship-manning / crew-management agencies


Guidelines on operating such foreign currency a/c by foreign shipping or airline companies or their agents in India:

Credits only by way of freight or passage fare collections in India or inward remittances through normal banking channels from the overseas principal

Debits towards various local expenses in connection with the management of the ships / crew in the ordinary course of business

No credit facility (fund based or non-fund based) should be granted against security of funds held in such accounts

Bank should meet the prescribed ‘reserve requirements’ in respect of balances in such accounts

No EEFC facility allowed in respect of the remittances received in these accounts

These foreign currency accounts will be maintained only during the validity period of the agreement



Regularisation of assets held abroad by a person resident in India under Foreign Exchange Management Act, 1999

(A.P. (DIR Series) Circular No. 18 dated 30th September 2015)(Notification No. FEMA 348/2015-RB dated September 25, 2015)

In relation to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act)

Notification No. FEMA 348/2015-RB dated September 25, 2015 notified Foreign Exchange Management (Regularization of assets held abroad by a person resident in India) Regulations, 2015 to effectively deal with assets held abroad by persons resident in India in violation of the Foreign Exchange Management Act, 1999 (FEMA) for which declarations have been made and taxes and penalties have been paid under the provisions of the Black Money Act

Clarifications

No proceedings under FEMA, 1999 against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid

No permission under FEMA will be required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration

If declarant wishes to hold the asset so declared, she/ he may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application.



Compilation of R-Returns: Reporting under FETERS


Web based data submission by AD banks

In order to enhance level of security in data submission, reporting guidelines for AD banks to RBI has been

amended.

Revision of Form A2

Form A2 amended to introduce a check the box for LRS transactions

Revised Form A2 also includes ‘Application cum Declaration for purchase of foreign exchange under the

Liberalised Remittance Scheme of USD 250,000’ in order to reduce multiplicity of forms

Online submission of Form A2 by remitter to be enabled by AD banks offering internet banking facilities

Currently, limit for online Form A2 (excl. declaration) permitted for remittances with an upper limit of USD

25,000 for individuals and USD 100,000 for corporates



Compilation of R-Returns: Reporting under FETERS (cont..)

For the purpose of FETERS reporting, purpose codes relating to LRS have been broadened

New purpose codes are:



Acceptance of deposits by Indian companies from a person resident outside India for nomination as Director


Section 160 of the Companies Act, 2013, provides that a person who intends to nominate himself or any

other person as a director in an Indian company is required to place a deposit with the said company

There was ambiguity that such deposit would require RBI approval under Regulation 3 of the Foreign

Exchange Management (Deposit) Regulations, 2016 (Notification No. FEMA 5(R))

Clarifications

Keeping deposits with an Indian company by persons resident outside India, in accordance with section 160 of the Companies Act, 2013, is a current account (payment) transaction and, as such, does not require any approval from RBI.

All refunds of such deposits, arising in the event of selection of the person as director or getting more than twenty five

percent votes, shall be treated similarly.



Acquisition and Transfer of Immovable Property outside India - Important changes:

PRI can jointly own immovable property o/s India with relative if there is not outflow of funds from India

PRI can inherit or acquire by gift from PRI who has acquired property under LRS

Deposits and Accounts - Important changes:

Transfer from NRO to NRO a/c formally mentioned

PROI having business interest in India can open, hold and maintain Special Non-Resident Rupee Account (SNRR

a/c). SNRR a/c newly introduced. SNRR a/c conditions specified under Schedule 4.

Notf. No. FEMA. 5/2000-RB dt

03/05/2000 Vs.

Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16 through A.P. (DIR

Series) Circular No. 67/2015-16 [(1)/5(R)] &


Notf. No. FEMA. 7/2000-RB dt

03/05/2000 Vs.

Notf. No. FEMA 7 (R) / 2015-RB dt 21/01/16 through A.P. (DIR

Series) Circular No. 43/2015-16 [(1)/7(R)]




Deposits and Accounts - Important changes:

Notf. No. FEMA. 5/2000-RB dt 03/05/2000 Vs. Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16


Erstwhile definition of PIO New definition of PIO

PIO means a citizen of any country other than

Bangladesh or Pakistan, if

a) he at any time held Indian passport; or

b) he or either of his parents or any of his

grandparents was a citizen of India by virtue of

the Constitution of India or the Citizenship Act,

1955 (57 of 1955); or

c) the person is a spouse of an Indian citizen or a

person referred to in sub-clause (a) or (b).

PIO is a person resident outside India who is a citizen of any country other than

Bangladesh or Pakistan or such other country as may be specified by the Central

Government, satisfying the following conditions:

a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship

Act, 1955 (57 of 1955); or

b) Who belonged to a territory that became part of India after the 15th day of

August, 1947; or

c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a

person referred to in clause (a) or (b); or

d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin

of a person referred to in clause (a) or (b) or (c)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the

meaning of Section 7(A) of the Citizenship Act, 1955.



Foreign Currency Account by PRI - Important changes:

Foreign Currency Account in India now permitted for:

Organisers of international seminars, conferences, conventions etc. for holding such events in India for the receipt of

the delegate fees and payment towards expenses including payment to special invitees from abroad, etc

An Indian company receiving foreign investment under FDI route

Provided it has impending foreign currency expenditure; a/c to be closed immediately after the requirements

are completed; max 6 months duration of a/c

Foreign Currency Account outside India now permitted for:

LRS formally notified. Resident nominee to close a/c and bring back proceeds.

During visit to a foreign country. Closure upon return.

Notf. No. FEMA. 10/2000-RB dt 03/05/2000 Vs.

Notf. No. FEMA 10(R) / 2015-RB dt 21/01/16

through Circular No. 44 dt 04.02.2016




Guidelines on trading of Currency Futures and Exchange Traded Currency Options in Recognized Stock Exchanges – Introduction of Cross-Currency Futures and Exchange Traded Option Contracts

(A.P. (DIR Series) Circular No. 35 dated 10th December 2015)

Currently, residents and eligible non-resident market participants are permitted to trade in US Dollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Pound Sterling (GBP)-INR and Japanese Yen (JPY)-INR currency futures contracts and USD-INR currency option contract in recognized stock exchanges

To enable direct trading of exposures, RBI has now permitted recognized stock exchanges to offer cross-currency futures contracts and exchange traded option contracts in the currency pairs of EUR-USD, GBP-USD and USD-JPY.

Recognised stock exchanges are also permitted to offer exchange traded currency option contracts in EUR-INR, GBP-INR and JPY-INR (in addition to USD-INR option contract currently permitted)

Market Participants are allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure

Position Limits applicable to market participants remains unchanged

AD banks may also undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits.



Permitting writing of options against contracted exposures by Indian Residents

(A.P. (DIR Series) Circular No. 78 dated 23rd June 2016) (Notification FEMA 365 dated 1st June 2016)

To encourage participation in Over the Counter (OTC) currency options market and improve its liquidity,

RBI has permitted resident exporters and importers of goods and services to write (sell) standalone plain

vanilla European call and put option contracts against their contracted exposure, i.e. covered call and

covered put respectively, to any AD bank in India subject to operational guidelines, terms and conditions

Tanvi Vora M.Com., A.C.A.

M/s. P. R. Bhuta & Co. Chartered Accountants,

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