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FEMA Compliance

What we offer?
  • Advise on FEMA Compliances
  • Advise on Liberalised Remittance Scheme

FEMA Compliance and Liberalized Remittance Scheme

The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under this act, all transactions involving foreign exchange have been classified either as capital or current account transactions. All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.

In terms of Section 5 of the FEMA, persons resident in India are free to buy or sell foreign exchange for any current account transaction except for those transactions for which withdrawal of foreign exchange has been prohibited by Central Government, such as remittance out of lottery winnings, remittance of income from racing/riding, remittance for purchase of lottery tickets, banned magazines, football pools, sweepstakes, etc.

  1. Who is an Authorized Dealer?

    An Authorised Dealer is any person specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities.

  2. What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?

    Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility within the limit of USD 2,50,000 only. In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian.

  3. Can a resident individual make a rupee loan to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?

    A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual by way of crossed cheque/ electronic transfer subject to the following conditions:

    • • The loan is free of interest and the minimum maturity of the loan is one year.
    • • The loan amount should be within the overall limit under the Liberalised Remittance Scheme of USD 2,50,000, per financial year, available to the resident individual.
    • • The loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes in India.
    • • The loan shall not be utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited like the business of chit fund, orNidhi Company ,oragricultural or plantation activities or in real estate business, or construction of farmhouses, ortrading in Transferable Development Rights (TDRs).
    • • The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c.
    • • The loan amount shall not be remitted outside India.
    • • Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary NRO/NRE /FCNR account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
  4. Can a resident individual make a rupee gift to a NRI/PIO who is a close relative of resident individual, by of crossed cheque/ electronic transfer?

    A resident individual can make a rupee gift to a NRI/PIO who is a close relative of the resident individual by way of crossed cheque /electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO. The gift amount would be within the overall limit of USD 250,000 per financial year as permitted under the LRS for a resident individual.

  5. Can the loans of Non-resident be repaid by resident close relatives?

    Where an authorised dealer in India has granted loan to a non-resident Indian, such loans may also be repaid by resident close relative of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.

  6. Can an individual, who has availed of a loan abroad while as a non-resident Indian repay the same on return to India, under this Scheme as a resident?

    Yes, this is permissible.

  7. Is it mandatory for resident individuals to have PAN number for sending outward remittances under the Scheme?

    Yes, it is mandatory to have PAN number to make remittances under the Scheme. However, PAN card need not be insisted upon for remittance made towards permissible current account transactions up to USD 25,000.

  8. Who is permitted to hold International Credit Card (ICC)/Debit card for undertaking foreign exchange transactions?

    Banks authorised to deal in foreign exchange are permitted to issue International Debit Cards (IDCs) which can be used by a resident for drawing cash or making payment to a merchant establishment overseas during his visit abroad. IDCs can be used only for permissible current account transactions and the usage of IDCs shall be within the LRS limit.

    Resident individuals maintaining a foreign currency account with an authorised dealer in India or a bank abroad, as permissible under extant Foreign Exchange Regulations, are free to obtain International Credit Cards (ICCs) issued by overseas banks and other reputed agencies. The LRS limit shall not apply to the use of ICC for making payment by a person towards meeting expenses while such person is on a visit outside India.

  9. Is it required to follow complete export procedure when a gift is sent outside India?

    A person resident in India is free to send outside India (export) any gift article of value not exceeding Rs.5,00,000.

  10. Can a resident open a foreign currency denominated account in India?

    Persons resident in India are permitted to maintain foreign currency accounts in India under the following three Schemes:

    • Exchange Earners Foreign Currency Accounts:-

      All categories of resident foreign exchange earners can credit up to 100 per cent of their foreign exchange earnings, to their EEFC Account with an Authorised Dealer in India. The 100 per cent credit is however, subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Funds held in EEFC account can be utilised for all permissible current account transactions and also for approved capital account transactions as specified by the extant Regulations issued by the Government/RBI. The account is maintained in the form of a non-interest bearing current account.

    • Diamond Dollar Account (DDA):-

      Under the scheme of Government of India, firms and companies dealing in purchase / sale of rough or cut and polished diamonds / precious metal jewellery plain, minakari and / or studded with / without diamond and / or other stones, with a track record of at least 2 years in import / export of diamonds / colored gemstones / diamond and colored gemstones studded jewellery / plain gold jewellery and having an average annual turnover of Rs. 3 crores or above during the preceding three licensing years (licensing year is from April to March) are permitted to transact their business through Diamond Dollar Accounts. It may be noted that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Such firms and companies may be allowed to open not more than five Diamond Dollar Accounts with their banks.

    • Resident Foreign Currency Accounts : -

      A person resident in India may open, hold and maintain with an Authorised Dealer in India a Resident Foreign Currency (RFC) Account to keep their foreign currency assets which were held outside India at the time of return can be credited to such accounts. The foreign exchange received as pension of any other superannuation or other monetary benefits from the employer outside India, received or acquired as gift, received as the proceeds of life insurance policy claims/maturity/ surrender values settled in foreign currency from an insurance company in India. RFC account can be maintained in the form of current or savings or term deposit accounts. The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India.

    • Resident Foreign Currency (Domestic) Account:-

      A resident Individual may open, hold and maintain with an Authorized Dealer in India, a Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, Bank notes and travellers cheques, from any of the sources like, payment for services rendered abroad, as honorarium, gift, services rendered or in settlement of any lawful obligation from any person not resident in India. The account may also be credited with/opened out of foreign exchange earned abroad like proceeds of export of goods and/or services, royalty, honorarium, etc., and/or gifts received from close relatives and repatriated to India through normal banking channels. The account shall be maintained in the form of Current Account and shall not bear any interest. There is no ceiling on the balances in the account. The account may be debited for payments made towards permissible current and capital account transactions. It may be noted that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

  11. Can a person resident in India hold assets outside India?

    As per FEMA a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

    Further, a resident individual can also acquire property and other assets overseas under the Liberalised Remittance Scheme.