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Final - FEMA presentation-Harshal Bhuta_Deposit and Accounts FEMA

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Final - FEMA presentation-Harshal Bhuta_Deposit and Accounts FEMA

  1. 1. Deposits and Accounts by Non-Residents + Foreign Currency Accounts by Indian Residents Harshal Bhuta M.Com., F.C.A., A.D.I.T., LL.M. (Hons.) in International Tax Law [WU] Chamber of Tax Consultants – Basic Intensive Study Course on FEMA
  2. 2. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 2 Deposits and Accounts by Non-Residents
  3. 3. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 3 Deposits and Accounts by Non-Residents  NRE Account vs. FCNR(B) Account vs. NRO Account  SNRR Account  Escrow Account  Deposit from NRI/PIO on repatriation basis  Deposit from NRI/PIO on non-repatriation basis  Deposit from NR towards Directorship  Other Accounts / Deposits  AD / branch  Foreign Shipping / Airline Company  UJV of foreign entity(ies) with Indian entity(ies)
  4. 4. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 4 NRE Account vs. FCNR(B) Account vs. NRO Account Particulars NRE Account FCNR(B) Account NRO Account Who can open an account • NRIs and PIOs (Individual of Pakistan & Bangladesh require prior approval of RBI) • NRIs and PIOs (Individual of Pakistan & Bangladesh require prior approval of RBI) • Any person resident outside India (including NRI/PIO) (Individual/Entities of Pakistan & Bangladesh require prior approval of RBI) Who is authorized to open • Authorised Dealer • Authorised Banks (including co-op bank other than AD) • Authorised Dealer • Regional Rural Bank • Authorised Dealer • Authorised Banks (including co-op bank other than AD) Currency • INR • Forex (Any foreign currency which is freely convertible) • INR Type of Account • Savings • Current • Recurring/Fixed Deposit • Term Deposit only • Savings • Current • Recurring/Fixed Deposit Period for fixed deposits • From 1 to 3 years (However, banks are allowed to accept NRE deposits > 3 years from their AL point of view) • Between 1 to 5 years • As applicable to resident accounts (eg: even 6 months) Rate of Interest • As per guidelines issued by the Department of Banking Regulations
  5. 5. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 5 NRE Account vs. FCNR(B) Account vs. NRO Account Notf. No. FEMA. 5/2000-RB dt 03/05/2000 Vs. Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16 FED Master Direction No.14/2015-16 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.
  6. 6. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 6 NRE Account vs. FCNR(B) Account vs. NRO Account  NRE & FCNR (B) account  Permitted Credits a) Inward remittances from o/s India thru banking channels b) Personal cheques of FCA outside India / travellers cheques / bank drafts deposited by the account holder in person during his temporary visit to India c) Tender of foreign currency / bank notes during his temporary visit to India d) Transfers from other NRE/ FCNR(B) accounts e) Interest accruing on the funds held in the account f) Current income in India due to the account holder, subject to payment of applicable taxes in India (like rent, dividend, pension, interest) (no qualification of earlier investment account source i.e. original investment could have been made from either NRE or NRO a/c) g) Maturity or sale proceeds of any permissible investment in India which was originally made from NRE/FCNR(B) a/c or out of inward remittances from o/s India thru banking channels (FEMA Notf. 21/2000 - Sale of immovable property in India: Credit to NRE a/c restricted to 2 properties during lifetime and also restricted to investment amount from NRE a/c) h) Refund of share/ debenture subscriptions to new issues of Indian companies or portion thereof, if subscription amount was paid from NRE/ FCNR(B) a/c of the account holder or out of inward remittances from o/s India thru banking channels i) Refund of application / earnest money / purchase consideration made by the house building agencies / seller on account of non-allotment of flat / plot / cancellation of bookings / deals for purchase of residential / commercial property, together with interest, if any (net of income tax payable thereon), was paid from NRE / FCNR(B) a/c of the account holder or out of inward remittances from o/s India thru banking channels and AD is satisfied about the genuineness of the transaction
  7. 7. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 7 NRE Account vs. FCNR(B) Account vs. NRO Account  NRE & FCNR (B) account  Permitted Debits a) Local disbursements b) Remittances outside India c) Transfer to NRE/ FCNR(B) accounts of the account holder or any other person eligible to maintain such account d) Investment in shares/ securities/ commercial paper of an Indian company or for purchase of immovable property in India provided such investment/ purchase is covered by the regulations made, or the general/ special permission granted by RBI  FCNR(B): If inward remittance is in currency other than designated currency, currency conversion costs for conversion into designated currency to be borne by remitter. Fully covered swap is permitted in such cases.
  8. 8. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 8 NRE Account vs. FCNR(B) Account vs. NRO Account  NRO account  Permitted Credits a) Inward remittances from o/s India thru banking channels b) Tender of any permitted currency during his temporary visit to India c) Legitimate dues in India of the account holder d) Transfers from other NRO accounts e) Rupee gift / loan made by a resident to a NRI / PIO relative within the limits prescribed under LRS  Permitted Debits a) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by RBI b) Remittance outside India of current income in India of the account holder net of applicable taxes c) Transfers to other NRO accounts (whether of account holder or other eligible person?) d) Balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to conditions (Limit of $1 million over and above current income repatriation – FAQ 3 of Accounts in India by NR) (Undertaking from remitter for own funds) e) Funds can be transferred to NRE account within this USD 1 Million facility f) Settlement of charges on International Credit Cards issued by AD in India to NRIs or PIOs, upto USD 1 Million per financial year
  9. 9. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 9 Particulars NRE Account FCNR(B) Account NRO Account Repatriability • Repatriable • Repatriable • Not repatriable except for all current income. • Indvl*: Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 (one) million per financial year (April-March) along with their other eligible assets. • Entities: RBI permission Taxabilty • Exempt • Exempt • Taxable1 Joint account • Jointly with two or more NRIs/ PIOs • Jointly with resident relative on ‘former or survivor’ basis (relative as defined in Companies Act, 2013) • The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder. NRE Account vs. FCNR(B) Account vs. NRO Account 1NRO deposits constitute ‘Foreign Exchange Assets’ u/s 115C of Income Tax Act and therefore interest earned can benefit from 20% tax rate under Chapter XII-A of ITA – V Ravi Narayanan (2008) 168 Taxman 65 (AAR) *Where a/c is opened a foreign tourist visiting India, AD may convert INR to forex at the time of departure provided a/c < 6 months and not credited with any local funds, other than interest accrued thereon.
  10. 10. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 10 Particulars NRE Account FCNR(B) Account NRO Account Operations by resident POA holder Permitted • Withdrawal for local payments • Make investments in India • Remittance to account holder himself thru banking channels Prohibited • Remittance outside India to other than account holder himself • Make payment by gift to resident • Transfer funds to other NRE account Permitted • Withdrawal for local payments • Make investments in India • Remittance outside India of current income, net of taxes Prohibited • Remittance outside India to other than account holder himself • Make payment by gift to resident • Transfer funds to other NRO a/c Loans outside India (Secured) • AD may allow their branches/ correspondents o/s India to grant loans to NRI/PIO or to Third Parties for bona fide purpose against the security of funds held in the NRE/ FCNR (B) accounts in India, subject to usual margin requirements. • The term “loan” shall include all types of fund based / non-fund based facilities • Not permitted NRE Account vs. FCNR(B) Account vs. NRO Account
  11. 11. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 11 Particulars NRE Account FCNR(B) Account NRO Account Loans in India • AD can sanction loans in India to NRI/PIO/ third parties without any limit, subject to usual margin requirements. • These loans cannot be repatriated outside India • Should be used only for personal purposes or business purposes (excluding relending, carrying on agricultural/ plantation activities or investment in real estate business) • In case of loans sanctioned to a third party, there should be no direct/indirect forex consideration for NRI/PIO agreeing to pledge his deposits to enable the resident individual/firm/company to obtain such facilities • In case of the loan sanctioned to the account holder, it can be repaid either by adjusting the deposits or through inward remittances from o/s India thru banking channels or out of self NRO a/c • The facility for premature withdrawal of deposits not be available in such cases • The term “loan” includes all types of fund based/non-fund based facilities • Loans against the deposits can be granted in India to the account holder or third party subject to usual norms and margin requirement. The loan amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate business. • The term “loan” includes all types of fund based/ non-fund based facilities NRE Account vs. FCNR(B) Account vs. NRO Account
  12. 12. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 12 Particulars NRE Account FCNR(B) Account NRO Account Change in residential status from Non-resident to resident • NRE accounts should be designated as resident accounts or • Funds held in these accounts may be transferred to the RFC accounts immediately upon change of residential status • FCNR (B) deposits allowed to continue till maturity at the contracted rate of interest • AD should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account • From PROI to PRI: Immediately designated as resident accounts • From PRI to PROI*: Immediately designated as NRO account NRE Account vs. FCNR(B) Account vs. NRO Account * For Foreign nationals leaving India after employment: • AD can re-designate their resident account in India as NRO account on leaving India to enable them to receive their pending bona fide dues • The funds credited to the NRO account to be repatriated abroad immediately, after payment of applicable taxes. Amount repatriated abroad should not exceed USD one million per financial year • Debit to account should be only for the purpose of repatriation to the account holder’s account maintained abroad. • Account should be closed immediately after all dues have been received and repatriated as per the declaration made by the account holder when the account was designated as an NRO account
  13. 13. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 13 SNRR Account Particulars SNRR A/c Who can open the account PROI having a business interest in India can open SNRR a/c with AD (Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior approval of RBI) Currency & Type INR | Current Tenure Concurrent with tenure of the contract/ period of operation/ the business of the account holder but < 7 years Permissible Credits / Debits • The debits/ credits and the balances in the account shall be incidental and commensurate with the business operations of the account holder • Transfers from any NRO account to the SNRR account are prohibited • ADs to ensure that all operations in the SNRR account are FEMA compliant Repatriability Balances in SNRR a/c are eligible for repatriation after payment of applicable taxes Change of residential status SNRR a/c to be designated as resident rupee account on the account holder becoming a resident Payment of funds to NR Nominee Amount due/ payable to non-resident nominee from the account of a deceased account holder, will be credited to NRO account of the nominee with an authorised dealer/ authorised bank in India  SNRR vs. NRO: SNRR a/c is Repatriable but non-interest bearing.  Also to consider taxability u/s 5(2)(a) of ITA for receipts in SNRR a/c
  14. 14. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 14 Escrow Account Particulars Escrow A/c Who can open the account Resident or non-resident corporate/ acquirers may open Escrow account in INR with an authorized dealer in India as an Escrow agent Purpose • The purpose is to receive money and make payments as required under Open offers/delisting/exit offers; • To facilitate acquisition / transfer of shares Currency INR Type of account Non-interest bearing Tenure • Completion in accordance with SEBI (SAST) Regulations 2011 • Otherwise max 6 months • Deferred payment upto 25% consideration – 18 months Permissible Credits / Debits • Foreign inward remittance • As per SEBI (SAST) Regulations 2011 • Receipt of consideration / remittance of consideration / remittance for refund of consideration Repatriability At the prevailing exchange rate
  15. 15. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 15  A Indian company including NBFC registered with the Reserve Bank cannot accept fresh deposits on repatriation basis. It can, however, renew the deposits it had accepted in accordance with terms and conditions mentioned in Schedule 6 of Foreign Exchange Management (Deposit) Regulations), 2016. Deposit from NRI/PIO on repatriation basis  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 Reserve Bank. 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. Deposit from NR towards Directorship
  16. 16. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 16 Deposit from NRI/PIO on non-repatriation basis Particulars Deposit on non-repatriation basis Who can accept the deposit Proprietorship concern, firm, Indian company (including NBFC) Mode Private arrangement or public deposit scheme Credit rating If NBFC, then credit rating is required Maturity < 3 years Interest Max 12.5% Investment Debit to NRO a/c only. Inward remittance and transfer from NRE/FCNR(B) a/c prohibited. End use restriction Amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate or investment in any other entity engaged in above Repatriability Not allowed • Indian companies can also accept deposits from NRIs or PIOs by issue of a commercial paper subject to conditions • Contrast with FEMA Notf 4/2000: Borrowing in Rs. by Indian Cos. – NCD Public offer
  17. 17. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 17  AD / Branch:  Deposit made by an Authorised Dealer with its branch, head office or correspondent outside India,  Deposit made by a branch or correspondent outside India of an Authorised Dealer, and held in its books in India.  Foreign shipping / airline company:  Permitted Credits: Only freight or passage fare collections in India or by inward remittances through banking channels from its office outside India  Permitted Debits: Meeting the local expenses in India of such airline or shipping company  UJV of foreign entity(ies) with Indian entity(ies):  Purpose: Unincorporated joint ventures (UJV) of foreign companies/entities, with Indian entities, executing a contract in India for the purpose of undertaking transactions in the ordinary course of its business. (Opening of such accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior approval of RBI.)  Type: Non-interest bearing foreign currency account.  Permitted credits/debits: The debits and credits in these accounts should be incidental to the business requirement of the UJV.  Tenure: The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV. Other Accounts / Deposits
  18. 18. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 18 Foreign Currency Accounts by Indian Residents
  19. 19. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 19 Foreign Currency Accounts by Indian Residents  FCA in India  EEFC Account vs. RFC(D) Account vs. RFC Account  DDA Scheme  Other Accounts by:  Indian agent of foreign shipping / airline company  Ship-manning / crew managing Indian agency  Project Office in India  Organiser of International Seminar / Conferences / Conventions in India  Exporter for Project Exports and Service Exports  FDI Investee Company  SEZ Unit
  20. 20. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 20 EEFC Account vs. RFC(D) Account vs. RFC Account Particulars Exchange Earners Foreign Currency (EEFC) Account Resident Foreign Currency (Domestic) [RFC(D)] Account Resident Foreign Currency (RFC) Account Who can open the account • Exchange Earners (including individuals, companies, etc.) • Individuals • Individuals Joint account • Jointly with eligible persons; or With resident relative(s) on former or survivor’ basis • Jointly with eligible persons • Same as EEFC Type of Account • Current only • Current only • Current • Savings • Term deposits Interest • Non-interest earning • Non-interest earning • De-regulated (As decided by the AD bank) A. P. (DIR Series) Circular No. 124 dated 10th May 2012: The facility of EEFC scheme is intended to enable exchange earners to save on conversion/transaction costs while undertaking forex transactions in future. This facility is not intended to enable exchange earners to maintain assets in foreign currency, as India is still not fully convertible on Capital Account.
  21. 21. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 21 Particulars Exchange Earners Foreign Currency (EEFC) Account Resident Foreign Currency (Domestic) [RFC(D)] Account Resident Foreign Currency (RFC) Account Permitted Credits • 100% of forex recd on account of export transactions • Advance remittance towards export of goods or services • Repayment of loans given to foreign importers • Professional earnings like director’s/ consultancy/ lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity • Re-credit of unutilised foreign currency earlier withdrawn from the account • Foreign exchange received as payment for services/ gift/ honorarium while on visit abroad or from a non-resident who is on a visit to India • Unspent amount of foreign exchange acquired from AD for travel abroad • Gift from close relative • Earning through export of goods/ services, royalty, honorarium • Disinvestment proceed on conversion of shares into ADR/ GDR • Foreign exchange received by him as pension/ superannuation/ other monetary benefits from overseas employer • Foreign exchange realised on conversion of the assets referred to in Sec 6(4) of FEMA • Gift/ inheritance received from a person referred to in Sec 6(4) of FEMA • Foreign exchange acquired before the July 8, 1947 or any income arising on it held outside India with RBI permission EEFC Account vs. RFC(D) Account vs. RFC Account
  22. 22. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 22 Particulars Exchange Earners Foreign Currency (EEFC) Account Resident Foreign Currency (Domestic) [RFC(D)] Account Resident Foreign Currency (RFC) Account Permitted Credits • Disinvestment proceeds on conversion of ADR/ GDR • Interest earned on the funds held in the account • Payments recd in forex by 100% EOU / unit in EPZ/STP/EHTP • Payment recd in forex by DTA unit from SEZ unit • Payment recd by exporter for purpose of counter trade • Payments received in forex by an Indian startup arising out of sales / export made by the startup or its overseas subsidiaries • Foreign exchange received as proceeds of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company • Foreign exchange received as proceeds of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company • Balances in NRE/ FCNR(B) accounts on change in residential status EEFC Account vs. RFC(D) Account vs. RFC Account
  23. 23. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 23 Particulars EEFC Account RFC(D) Account RFC Account Permitted Debits • Any permissible current / capital account transaction • Payment for Cost of goods purchased in forex from 100% EOU / unit in EPZ/STP/EHTP • Payment of Customs duty • Giving Trade related loans & advances to account holder’s importer customer (Reg 5(4) of FEMA Notf 3) • Payment in forex to PRI for airfare/hotel expd booking • Any permissible current / capital account transaction • No restrictions on utilization in / outside India Tenure Balance to be converted into INR by end of succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments (A. P. (DIR Series) Circular No. 12 dt. 31st July 2012) No time limitation Change of Residential Status Balances of EEFC a/c and RFC(D) a/c can be credited to NRE/FCNR(B) a/c Balance from NRE/FCNR(B) a/c can be credited to RFC A/c EEFC Account vs. RFC(D) Account vs. RFC Account RFC vs. RFC(D): RFC by returning Indian who was NRI/PIO earlier whereas RFC(D) by resident individual even if not NRI/PIO previously
  24. 24. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 24 DDA Scheme Particulars DDA Scheme Who can open the account • 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, and • Having a track record of at least 2 years in import/export of diamonds/coloured gemstones/diamond and coloured gemstones studded jewellery/plain gold jewellery, and • Having an average annual turnover of Rs 3 crore or above during preceding three licensing years. • Exporter firms and companies maintaining foreign currency accounts, excluding EEFC accounts, with banks in India or abroad, are not eligible to open Diamond Dollar Accounts. • Not more than 5 DDAs by an exporter form/company Currency USD Type of account Current Permissible Credits Realisation of export proceeds and local sales (in USD) of rough, cut, polished diamonds; and pre and post shipment finance availed in USD Permissible Debits Payments for purchase of rough, cut and polished diamonds; and transfer to rupee account of the exporter. Intra-transfer between DDAs not permitted. Tenure Balance to be converted into INR by end of succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments
  25. 25. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 25  Permitted Credits: Only freight or passage fare collections in India or by inward remittances from principal outside India  Permitted Debits: Meeting the local expenses in India of overseas company Accounts by Indian agent of foreign shipping / airline company  Type of Account: Non-interest bearing FCA  Permitted Credits: Only by way of inward remittances through normal banking channels from the overseas principal  Permitted Debits: Towards various expenses in connection with the management of the ships/ crew in the ordinary course of its business  Tenure: Validity of Agreement  No EEFC facility to be allowed in respect of the remittances received in the account Accounts by Ship-manning / crew managing Indian agency
  26. 26. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 26 Account by Project Office in India Particulars Account by Project Office in India Who can open the account • Project Offices of foreign companies can open non-interest bearing one or more foreign currency accounts in India for the project to be executed in India; • Only if the contract under which the project has been sanctioned, specifically provides for payment in foreign currency • Project office in India has requisite approval from the concerned Project Sanctioning Authority • Each Project can have only one Foreign Currency Account • In case of disputes between the Project Office and the project sanctioning authority or other Government/ Non-Government agencies etc., the balance shall be converted into INR and credited to a special account which shall be dealt with as per the settlement of the dispute Type of account Current Permissible Credits • Foreign currency receipts from the Project Sanctioning Authority • Remittances from parent/ Group Company abroad or bilateral/ multilateral international financing agency Permissible Debits • Payment of project related expenditure • Inter-project transfer of funds will be permitted with the prior permission of the Regional Office of the Reserve Bank Tenure Till completion of Project
  27. 27. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 27 Account by Organiser of International Seminar / Conferences / Conventions in India Particulars Account by Organisers Who can open the account Organisers of international Seminars, Conferences, Conventions, etc Permissible Credits All inward remittances in foreign currency towards registration fees payable by overseas delegates, grant, sponsorship fees and donations, received from abroad, in connection with the conference, convention, etc Permissible Debits • Payment to foreign/ special invitees attending the conference, etc., on the specific invitation of the organisers, towards travel, hotel charges, etc., and honorarium to foreign guest speakers; • Remittance towards refund of registration fees to foreign delegates and unutilised sponsorship/grant amount; • Bank charges; • Conversion of funds into rupees. Tenure Till completion of conference/event
  28. 28. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 28  An Indian company receiving foreign investment under FDI route (viz Sch 1. to FEMA Notf 20/2000) can open and maintain such foreign currency account with an Authorized Dealer in India provided the Indian investee company has impending foreign currency expenditure and the account is closed immediately after the requirements are completed or within six months from the date of opening of such account, whichever is earlier. Account by FDI Investee Company  An exporter who has undertaken a construction contract or a turnkey project outside India or who is exporting services or engineering goods from India on deferred payment terms (viz. Project Exports and Service Exports) can open, hold and maintain such Foreign Currency Account in India, provided that:  approval as required under the Foreign Exchange Management (Export of goods and services) Regulations, 2015, as amended from time to time has been obtained for undertaking the contract/ project/ export of goods or services,  the terms and conditions stipulated in the letter of approval have been duly complied with. Account by Exporter for Project Exports and Service Exports
  29. 29. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 29  Permitted Credits / Debits:  All foreign exchange funds received by the unit can be credited to this account  This account to be used for bona fide trade transactions between the unit and a person resident in/ outside India  Foreign exchange purchased in India against rupees cannot be credited to the account without prior permission from the Reserve Bank  The balances in the accounts are exempt from the restrictions imposed under Rule 5, of Foreign Exchange Management (Current Account Transaction) Rules, except for the use of the balances for gift etc. (For eg: USD 1 million overseas consultancy payment restriction will not apply)  The funds held in these accounts cannot be lent or made available to any person or entity resident in India not being a unit in Special Economic Zones.  SEZ Units cannot open EEFC a/c Account by SEZ Unit
  30. 30. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 30 Foreign Currency Accounts by Indian Residents  FCA o/s India  Accounts by:  AD and its branch  Indian shipping / airline company  Insurance / reinsurance companies  Indian entity having foreign office / branch / representative abroad  Exporter for Project Exports and Service Exports  Student gone abroad for studies  PRI on visit to foreign country  PRI participating in exhibition / trade fair abroad  Resident Individual under LRS  Employees of Foreign entity / Indian entity for Salary payments  Indian entity raising ECB / funds through ADR/GDR  Indian party for Outbound Investment  Indian Startup
  31. 31. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 31  FCA outside India by AD with its branch/head office/correspondent outside India for purpose of transaction foreign exchange business and other matters incidental thereto.  FCA outside India by branch outside India of an Indian bank with a bank outside India for purpose of carrying on normal banking business outside India. Account by AD and its Branch  Purpose of undertaking transactions in ordinary course of business Account by Indian Shipping / Airline Company  Permitted credit: Insurance / reinsurance premia received by them outside India  Permitted debit: Meeting expenditure incidental to the insurance /reinsurance companies Account by Insurance / reinsurance companies
  32. 32. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 32  A firm or a company or a body corporate registered or incorporated in India can open, hold and maintain in the name of its office (trading or non-trading) or its branch set up outside India or its representative posted outside India, FCA with a bank outside India for the purpose of normal business operations of the office/ branch or representative.  The overseas branch/ office should be set-up or representative posted overseas for conducting normal business activities of the Indian entity.  Remittance limits from India:  Initial expenses of the branch or office or representative: 15% of the average annual sales/ income or turnover of the Indian entity during the last 2 FYs or up to 25% of the net worth, whichever is higher;  Recurring expenses of the branch or office or representative: 10% of such average annual sales/ income or turnover during the last financial year.  Above limits not applicable when remittance made out of EEFC a/c or overseas branch/ office should be set-up or representative posted overseas by 100% EOU/unit in EPZ/STP/EHTP within 2 years of its establishment Account by Indian entity having foreign office / branch / representative abroad
  33. 33. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 33  Overseas branch/office/representative shall not enter in any contract or agreement in contravention of FEMA: Since status of such Overseas branch/office/representative still considered as PRI  Closure of FCA:  If the overseas branch/ office is not set up within six months of opening the account or where no representative is posted for six months: Immediately  On closure of overseas branch/office: Within one month  Purchase or acquisition of office equipment and other assets required for normal business operations of the overseas branch/ office/ representative will not be deemed as a capital account transaction. (Deeming provision since otherwise they would constitute assets outside India of PRI)  Acquisition of immovable property outside India is permissible for business purpose as well as residential purposes of its staff (FEMA Notf 7(R)/2015) Account by Indian entity having foreign office / branch / representative abroad
  34. 34. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 34  An exporter who has undertaken a construction contract or a turnkey project outside India or who is exporting services or engineering goods from India on deferred payment terms (viz. Project Exports and Service Exports) can open, hold and maintain such Foreign Currency Account o/s India, provided that:  approval as required under the Foreign Exchange Management (Export of goods and services) Regulations, 2015, as amended from time to time has been obtained for undertaking the contract/ project/ export of goods or services,  the terms and conditions stipulated in the letter of approval have been duly complied with. Account by Exporter for Project Exports and Service Exports  A person resident in India who has gone abroad for studies can open, hold and maintain a FCA with a bank outside India during his stay outside India. (Also refer A.P.(DIR Series) Circular No. 45 dated 8th Dec 2003).  All credits from India into the account shall be made in accordance with FEMA Regulations  On his return to India, after completion of studies, such FCA will deemed to have been opened under LRS Account by Student gone abroad for studies
  35. 35. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 35  A person resident in India who is on a visit to a foreign country can open, hold and maintain FCA with a bank outside India during his stay outside India  On his return to India, the balance in the account has to be repatriated to India. Account by PRI on visit to foreign country  A person resident in India who has gone out of India to participate in an exhibition/ trade fair outside India can open, hold and maintain FCA with a bank o/s India for crediting the sale proceeds of goods on display in the exhibition/ trade fair  The balance in the account is to be repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/ trade fair Account by PRI participating in exhibition / trade fair abroad  Resident individuals can open, maintain and hold FCA with a bank outside India for making remittances under LRS. Such FCA can be used for putting through all transactions connected with or arising from remittances eligible under this Scheme Account by Resident Individual under LRS
  36. 36. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 36  The following persons can open a foreign currency account outside India for remitting/receiving their entire salary payable to him in India.  A foreign citizen resident in India, being an employee of a foreign company, on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India;  An Indian citizen, being an employee of a foreign company, on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India  A foreign citizen resident in India employed with an Indian company or LLP  Also to consider TDS implication u/s 192 - Eli Lilly & Co. (India) (P.) Ltd. [2009] 312 ITR 225 (SC) Account by Employees of Foreign entity / Indian entity for Salary payments  Subject to compliance with the conditions in regard to raising of ECB or raising of resources through ADRs or GDRs, the funds so raised may, pending their utilisation or repatriation to India, be held in deposits in foreign currency accounts with a bank outside India Account by Indian entity raising ECB / funds through ADR/GDR
  37. 37. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 37  An Indian party can open, hold and maintain FCA abroad for the purpose of making ODI subject to the following terms and conditions:  The Indian party is eligible for making ODI under Outbound Regulations (FEMA Notf 120/2004)  The host country regulations stipulate that the investment into the country is required to be routed through a designated account  The account shall be opened, held and maintained as per the regulation of the host country  The remittances sent to the account by the Indian party should be utilized only for making ODI into the Joint Venture/ Wholly Owned Subsidiary (JV/ WOS) abroad.  Any amount received in the account by way of dividend and/ or other entitlements from the subsidiary shall be repatriated to India within 30 days from the date of credit  The Indian party should submit the details of debits and credits in the account on yearly basis to the designated AD bank with a certificate from the Statutory Auditors of the Indian party certifying that the account was maintained as per the host country laws and the extant FEMA regulations / provisions as applicable  The account so opened shall be closed immediately or within 30 days from the date of disinvestment from JV/ WOS or cessation thereof Account by Indian party for Outbound Investment
  38. 38. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 38  An Indian Pvt Ltd Co. / Partnership Firm / LLP shall be considered as a start-up:  Upto 5 years from date of its incorporation; and  Turnover for any FY < 25 crores; and  It is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by tech or IP.  Such Indian Start-up with the overseas subsidiary is permitted to open FCA abroad to pool the forex earnings out of the exports/sales made by the concerned start-up;  The overseas subsidiary of the 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  The balances in the said 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)  An appropriate contractual arrangement between the start-up, its overseas subsidiary and the customers concerned should be in place  This account is more beneficial than EEFC a/c Account by Indian Startup
  39. 39. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 39 Case Study 1 – EEFC a/c
  40. 40. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 40 Case Study 1  Mr. Patel runs software business in India having exports to USA  He would like to know which transactions can be undertaken through his $ EEFC a/c in the month of October 2016 and till time period can he hold the balance:  Kindly advise Mr. Patel about appropriate usage of EEFC a/c without committing violation of FEMA Regulations. USA Customer 1 export receipt $ 25,000 Advance remittance received towards export of services to USA Customer 2 $ 50,000 Share application money received from USA investor $ 1,00,000 Outbound Investment in USA JV in Nov 2016 $ 25,000 Withdrawal for Business tour to USA in Nov 2016 $ 5,000
  41. 41. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 41 Case Study 1  Use of EEFC a/c: USA Customer 1 export receipt $ 25,000 Permissible Credit Advance remittance received towards export of services to USA Customer 2 $ 50,000 Permissible Credit Share application money received from USA investor $ 1,00,000 Prohibited Credit Outbound Investment in USA JV in Nov 2016 $ 25,000 Permissible Debit Withdrawal for Business tour to USA in Nov 2016 $ 5,000 Permissible Debit Balance @ 30th Nov 2016 to be converted into INR = $ 45,000
  42. 42. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 42 Case Study 2 - PRI to PROI
  43. 43. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 43 Case Study 2  Mr. Patel takes up employment in USA  He currently operates the following Bank Accounts / Deposits jointly held with close relatives:  Kindly advise Mr. Patel about transition on change in residential status: Fixed Deposits First name Rs. 25,00,000 Current a/c First name Rs. 1,50,000 RFC(D) a/c First name Rs. 5,00,000 Savings a/c Second name Rs. 10,00,000 Fixed Deposits First name Convert to NRO a/c Thereafter can continue a/c with resident relative on “former or survivor basis”. Can also give POA to them for operating the account. Current a/c First name RFC(D) a/c First name Can be converted to NRE/FCNR(B) Savings a/c Second name Para 3 of RBI Master Direction 19/2015-16: Can continue as resident a/c on “either or survivor basis”. Other conditions applicable.
  44. 44. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 44 Case Study 3 - PROI to PRI
  45. 45. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 45 Case Study 3  Mr. Patel returns to India from USA after 10 years  He currently owns the following Bank Accounts / Deposits:  Kindly advise Mr. Patel about transition on change in residential status: FCNR(B) a/c $ 2,00,000 NRE FD a/c Rs. 27,50,000 NRE Savings a/c Rs. 3,00,000 NRO a/c Rs. 2,50,000 Wells Fargo Bank Savings a/c $ 25,000 FCNR(B) a/c Can continue upto maturity. Thereafter, convert to Resident a/c or RFC a/c. NRE FD a/c Convert into Resident a/c or RFC a/c immediately NRE Savings a/c NRO a/c Convert to Resident a/c immediately Wells Fargo Bank Savings a/c Can continue as per Sec 6(4) of FEMA, 1999
  46. 46. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 46 Thank you Disclaimer : The opinions and views expressed in this presentation are for informational purposes only. The information is not intended to be a substitute for professional opinion. A fact-based professional opinion should always be sought before advising the client.
  47. 47. P.R. Bhuta & Co. CAs 14-Oct-2016Chamber of Tax Consultants – Basic Intensive Study Course on FEMA 47 Harshal Bhuta M.Com., F.C.A., A.D.I.T., LL.M. (Hons.) in International Tax Law [WU (Vienna)] M/s. P. R. Bhuta & Co. Chartered Accountants Contact Information Address 2-I, Jeevan Sahakar, 2nd Floor, Sir P. M. Road, Fort, Mumbai – 400001, India. Telephone +91 22 22660010/3427; 43471727 Mobile +91 9930114418 Fax +91 22 22662793 E-mail harshal.bhuta@bhutaco.com Website www.bhutaco.com

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