The Foreign Exchange Management Act, 1999 – CA Final Law Study Material

The Foreign Exchange Management Act, 1999 – CA Final Law Study Material is designed strictly as per the latest syllabus and exam pattern.

The Foreign Exchange Management Act, 1999 – CA Final Law Study Material

Question 1.
Mr. Ram, citizen of India, left India for employment in U.S.A. on 1st June, 2019. Mr. Ram purchased a flat at New Delhi for ₹ 15 lakhs in September, 2020. His brother, Mr. Gopal employed in New Delhi, also purchased a flat in the same building in September, 2020 for ₹ 15 lakhs. Mr. Gopal’s flat was financed by a loan from a Housing Finance Company and the loan was guaranteed by Mr. Ram.
Examine with reference to the provisions of the Foreign Exchange Management Act, 1999 whether purchase of flat and guarantee by Mr. Ram are Capital Account transactions and whether these transactions are permissible. [RTP-Nov.181]
Answer:
Determination of Nature of Foreign Exchange Transactions:

As per Sec. 2(e) of FEMA Act, 1999 ‘capital account transactions’ means (a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of person’s resident in India (b) a transaction which alters assets or liabilities in India of persons resident outside India and includes transactions referred to in section 6(3).

As per Sec. 6(3), acquisition of immovable property in India, by a person resident outside India is a capital account transaction. Guarantee will be considered as a capital account transaction in the following cases:

Guarantee in respect of any debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside India.
Guarantee in respect of any liability, debt or other obligation incurred by a person resident outside India.

Conclusion: Applying the provisions of Sections 2 (e) and 6(3), following conclusions may be drawn:

Purchase of Flat by Mr. Ram in India is a capital account transaction.

Guarantee given by Mr. Ram cannot be considered as a capital account transaction within the meaning of Section 2(e), particularly because it is a contingent liability. A transaction which alters the contingent liability will be considered as capital account transaction in the case of person resident in India, but it is not so in the case of person resident outside India.

Permissibility of Transactions:
All capital account transactions are prohibited unless specifically permitted. Permissible capital account transactions by persons resident outside India are given in Schedule II to the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. As per the said regulations both the purchase of Flat by Mr. Ram and guarantee by Mr. Ram are permissible.

Question 2.
Enumerate the given situations in the light of the term defined as Current Account Transaction under FEMA.
(a) An Indian resident imports machinery from a vendor in UK for installing in his factory.
(b) An Indian resident imports machinery from a vendor in UK for installing in his factory on a credit period of 3 months.
(c) An Indian resident transfers US$ 1,000 to his NRI brother in New York as “gift”. The funds are sent from resident’s Indian bank account to the NRI brother’s bank account in New York. [RTP-May 20]
Or
Under the auspicious of the Foreign Exchange Management Act, 1999, (the Act) examine whether the given situations fall under “Current Account Transactions” or not as defined in the Act?

(i) Mr. S, a resident in India, imports machinery from a vendor in UK for installing in his factory.
(ii) An Indian resident imports machinery from a vendor in US for installing in his factory on a credit period of 3 months.
(iii) An Indian resident transfers US$ 1,000 to his NRI brother in New York as “gift”. The funds are sent from resident’s Indian Bank account to the NRI brother’s Bank account in New York. [Nov. 20 – New Syllabus (3 Marks)]
Answer:
Determination of Nature of Foreign Exchange Transactions:

(a) Machinery in general is a “capital expenditure”. However, under the provisions of FEMA, 1999, it does not alter (create) an asset in India for the UK vendor. It does not create any liability to a UK vendor for the Indian importer. Once the payment is made, the Indian resident or the UK vendor neither owns nor owes anything in the other country. Hence, the said transaction, is a Current Account Transaction.

(b) As per provisions of Sec. 2 (j)(i) of FEMA, 1999 “short-term banking and credit facilities in the ordinary course of business” are considered as a Current Account Transaction. Hence import of machinery on credit terms is Current Account Transaction.

(c) Under the provisions of FEMA, 1999, once the gift is accepted by the NRI, no one owns or owes anything to anyone in India or USA. The transaction is over. Hence it is a Current Account Transaction.

Question 3.
A Company incorporated in United Kingdom established a branch at Chennai. What is the residential status of the Chennai branch? The Chennai branch proposes the purchase of some immovable property at Chennai for the purpose of its business. Is it a ‘Capital Account Transaction’ within the meaning of Section 2 (e) of the Foreign Exchange Management Act, 1999? Are there any restrictions under the Foreign Exchange Management Act, 1999 in respect of such acquisition?
Answer:
Determination of Resident status of a Indian branch of a foreign company:

As per Sec. 2(u), the term ‘person’ includes any agency, office or branch owned or controlled by such person. The term such person appears to refer to a person who is included in clause (i) to (vii) defined under the section.

As per Sec. 2(v) an office, branch or agency in India is considered to be “resident in India” even though these units are owned or controlled by a person resident outside India,
In the instant case, a company incorporated in United Kingdom established a branch at Chennai.

Conclusion: Company being incorporated in United Kingdom would be a person resident outside India. However, branch established in Chennai would be a ‘person resident in India’.

Capital account transaction.

As per Sec. 2(e) of FEMA Act, 1999 ‘capital account transactions’ means

(a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of person’s resident in India

(b) a transaction which alters assets or liabilities in India of persons resident outside India and includes transactions referred to in section 6(3).
The Chennai branch (resident in India) acquires immovable properly at Chennai.

Conclusion: This transaction is not a capital account transaction within the meaning of Sec. 2(e) of FEMA. Sec. 6(3) empowers RBI to restrict or regulate the acquisition of immovable property in India by a person resident outside India. Hence there is no restriction in acquisition of immovable property in India by Chennai branch.

Question 4.
Examine whether the following branches can be considered as a ‘Person resident in India’ under Foreign Exchange Management Act, 1999:
(i) ABC Limited, a company incorporated in India established a branch at London on 1st Jan., 2021.
(ii) M/s XYZ, a foreign company, established a branch at New Delhi on 1st January, 2021. The branch at New Delhi controls a branch at Colombo.
Answer:
Determination of resident status of a person:
(i) foreign Branch of an Indian company

As per Sec. 2 (u) of FEMA, 1999, the term person includes a company. As per Sec. 2 (v), any person or body corporate registered or incorporated in India is a resident in India. Also, an office, branch or agency outside India owned or controlled by a person resident in India is a person resident in India.

In the instant case, ABC Limited, a company incorporated in India established a branch at London on 1st Jan., 2021.
Conclusion: In view of the provisions as stated above, it can be concluded that London branch established by ABC Ltd., a company incorporated in India, is a ‘person resident in India’.

(ii) Indian branch of a foreign company:

As per Sec. 2(v) of FEMA, 1999 an office, branch or agency in India owned or controlled by a person resident outside India is a ‘person resident in India’.

Only a body corporate registered or incorporated in India is a ‘person resident in India’. Hence, XYZ Ltd. is a ‘person resident outside India’, being a foreign company. However, branch of XYZ Ltd. in Delhi is a ‘resident in India’. Colombo Branch though not owned, but is controlled by XYZ unit in Delhi which is a person resident in India. Hence prima facie, it may be possible to hold a view that the Colombo Branch is a person resident in India.

Question 5.
Toy Ltd. is a Japanese company having several business units all over the world. It has a robotic unit with its head quarter in Mumbai and has a branch in Singapore. Headquarter at Mumbai controls the branch of robotic unit. What would be the residential status of robotic unit in Mumbai and that of the Singapore branch? [MTP-Oct. 19, May 20]
Answer:
Determination of resident status of a person:

As per Sec. 2 (v), an office, branch or agency in India is considered to be “resident in India” even though these units are owned or controlled by a person resident outside India.

In the instant case, Toy Ltd. is a Japanese company having several business units all over the world. It has a robotic unit with its head quarter in Mumbai and has a branch in Singapore. Headquarter at Mumbai controls the branch of robotic unit.

Conclusion: Toy Ltd. being a Japanese company would be a person resident outside India. Robotic unit in Mumbai would be a ‘person resident in India’. Singapore branch though not owned, but is controlled by Robotic unit in Mumbai, which is a person resident in India. Hence prima facie, it may be possible to hold a view that the Singapore Branch is a person resident in India.

Question 6.
‘Printex Computer’ is a Singapore based company having several business units all over the world. It has a unit for manufacturing computer printers with its Headquarters in Pune. It has a Branch in Dubai which is controlled by the Headquarters in Pune. What would be the residential status under the FEMA, 1999 of printer units in Pune and that of Dubai branch?
Or
Pamtop is a London based Company having several business units all over the world. It has manufacturing unit called Laptop with headquarters in Bengaluru. It has a branch in Seoul, South Korea which is controlled by the headquarters in Bengaluru. What would be the residential status under the FEMA, 1999 of Laptop in Bengaluru and that of Seoul branch?
Answer:
Determination of resident status of a person:

As per Sec. 2(v), an office, branch or agency in India is considered to be “resident in India” even though these units are owned or controlled by a person resident outside India.

In the instant case, ‘Printex Computer’ is a Singapore based company having several business units all over the world. It has a unit for manufacturing computer printers with its Headquarters in Pune. It has a Branch in Dubai which is controlled by the Headquarters in Pune.

Conclusion: Printex Computer being a Singapore based company would be person resident outside India. Printex unit in Pune would be a ‘person resident in India’. However, Dubai Branch though not owned, but is controlled by Printex unit in Pune which is a person resident in India. Hence prima facie, it may be possible to hold a view that the Dubai Branch is a person resident in India.

Question 7.
How will you determine whether a particular business unit like a factory or office is a ‘person resident in India’ under the Foreign Exchange Management Act, 1999?
Answer:
Person resident in India
As per Sec. 2 (v) of FEMA, 1999, an office, branch or agency in India is considered to be “resident in India” even though these units are owned or controlled by a person resident outside India.

Also, an office, branch or agency outside India will be considered as resident in India provided these units are owned or controlled by a person resident in India.

Question 8.
Mr. A had resided in India during the financial year 2019-2020 for less than 183 days. He had come to India on April 1,2020 for employment. What would be his residential status during the financial year 2020-2021?
Answer:
Determination of resident Status of a person:
As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India. However, a person who has s gone out of India or who stays outside India, in either case

(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
is not considered as resident in India.
Residential status is not for a year. It is from a particular date that a person will be a resident or a non-resident.

It implies that if a person arrives in India during a year for the purpose of employment, business or vocation or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period will be considered as resident in India from the date of arrival in India, irrespective of his stay in India during the preceding financial year.

In the present case, Mr. A had resided in India during the financial year 2019-2020 for less than 183 days. He had come to India on April 1, 2020 for employment.

Conclusion: Mr. A has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2020-2021. But as he arrives in India on 01.04.2020 for the purpose of employment, he will be considered as resident in India w.e.f. April 1, 2020.

Question 9.
Mr. X had resided in India during the financial year 2018-2019 for less than 183 days. He had come to India on April 1,2019 for business. He intends to leave the business on April 30,2020 and leave India on June 30,2020. What would be his residential status during the financial year 2019-2020 and during 2020-2021 up to the date of his departure?
Answer:
Determination of resident Status of a person:
As per Sec. 2(y) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India.

However, a person who has gone out of India or who stays outside India, in either case
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; is not considered as resident in India.

Further, a person who has come to or stays in India, in either case, otherwise than:
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
is not considered as resident in India.
Residential status is not for a year. It is from a particular date that a person will be a resident or a non-resident.

In the present case, Mr. X had resided in India during the financial year 2018-2019 for less than 183 days. He had come to India on April 1, 2019 for business. He intends to leave the business on April 30, 2020 and leave India on June 30, 2020.

Conclusion: Mr. X has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2019-2020. But as he arrives in India on 01.04.2019 for the purpose of business, he will be considered as resident in India w.e.f. April 1, 2019.

For financial year 2020-2021, Mr. X will be ‘resident in India’ as he resides in India in the preceding financial year (2019-2020) for a period exceeding 1(32 days. However,-he would cease to be person resident in India from the date of his departure, as he is having an intention to leave the business in India and leave India which indicates his intention to stay outside India for an uncertain period.

Question 10.
Mr. Z had resided in India during the financial year 2018-2019. He left India on 1st August, 2018 for United States for pursuing higher studies for 3 years. What would be his residential status during financial year 2019-2020 and during 2020-2021?
Answer:
Determination of resident Status of a person:
As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India. However, a person who has gone out of India or who stays outside India, in either case

In the present case, Mr. Z had resided in India during the financial year 2018-2019. He left India on 1st August, 2019 for United States for pursuing higher studies for 3 years. It means that, he has not gone out of, or stayed outside India for or on taking up employment, or for carrying a business or any other purpose, in not circumstances as would indicate his intention to stay outside India for an uncertain period.

Conclusion: For financial year 2019-20, Mr. Z would be ‘person resident in India’ as he resides in India during the preceding Financial year (2018-19) for a period more than 182 days. For the financial year 2020-2021, he would not be person resident in India’ as he does not reside in India in the preceding financial year (2019-2020) for period exceeding 182 days.

Note: RBI has however clarified in its Circular No. 45 dated 2nd Dec. 2003, that students will be considered as non-residents, this is because usually students start working outside India to take care of their stay and cost of studies.

Question 11.
Miss Alia is an airhostess with the British Airways. She flies for 12 days in a month and thereafter takes a break for 18 days. During the break, she is accommodated of ‘base’, which is normally the city where the airways arc headquartered. However, for security considerations, she was based on Mumbai. During the financial year, she was accommodated at Mumbai for more than 182 days. What would be her residential status under FEMA?
Answer:
Determination of resident Status of a person:
As per Sec 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India. However, a person who has come to or stays in India, in either case, otherwise than:

(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for
an uncertain period; „
is not considered as resident in India.

In the present case, Miss Alia is an airhostess with the British Airways. She flies for 12 days in a month and thereafter takes a break for 18 days. During the break, she is accommodated of ‘base’, which is normally the city where the airways are headquartered. However, for security considerations, she was based on Mumbai. During the financial year, she was accommodated at Mumbai for more than 182 days. She is however employed in UK. She has not come to India for employment, business or circumstances which indicate her intention to stay for uncertain period.

Conclusion: Considering the provisions of Sec. 2 (v) (B) as stated above, Miss Alia cannot be considered to be an Indian resident, even if her stay exceeds 182 days in the preceding year. If however she has been employed in Mumbai branch of British Airways, then she will be considered as Indian resident.

Question 12.
Mr. Ram had resided in India during the Financial Year 2019-2020 for less than 183 days. He again came to India on 1st May, 2020 for higher studies and business and stayed upto 15th July, 2020.
State under the Foreign Exchange Management Act, 1999.
(i) Weather Mr. Ram can be considered ‘person Resident in India’ during the Financial year 20202021 and
(ii) Is citizenship relevant for determining such a status?
Answer:
Determination of resident Status of a person:
As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India.
However, a person who has come to or stays in India, in either case, otherwise than:

(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
is not considered as resident in India.

Residential status is not for a year. It is from a particular date that a person will be a resident or a non-resident.

In the present case, Mr. Ram had resided in India during the Financial Year 2019-2020 for less than 183 days. He again came to India on 1st May, 2020 for higher studies and business and stayed upto 15th July, 2021.

Conclusion:

(i) Mr. Ram has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2020-2021. But as he arrives in India on 01.05.2020 for the purpose of business, he will be considered as resident in India w.e.f. May 1, 2020.
(ii) Citizenship is not relevant for determining the status.

Question 13.
Mr. Ruchir resided for a period of 170 days in India during the financial year 2019-20 and thereafter went abroad. He came back to India on 1st April, 2020 as an employee of a business organization. What would be his residential status during financial year 2020-21 under the Foreign Exchange Management Act, 1999?
Answer:
Determination of resident Status of a person:
As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days duringthe course of the preceding financial year is considered as person resident in India.

However, a person who has come to or stays in India, in either case, otherwise than:
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
is not considered as resident in India.
Residential status is not for a year. It is from a particular date that a person will be a resident or a non-resident.

In the instant case, Mr. Ruchir resided in India for less than 183 days in the financial year 2019-20.
Conclusion: Mr. Ruchir has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2020-2021. But as he arrives in India on 01.04.2020 for the purpose of employment, he will be considered as resident in India w.e.f, April 1, 2020.

Question 14.
During the financial year 2019-20 Mr. Bhattacharyya resided in India for a period of 180 days and thereafter went abroad. On 1st April, 2020 Mr. Bhattacharyya came back to India as an employee of a business organization. Decide the residential status of Mr. Bhattacharyya during the financial year 2019-20 under the provisions of the Foreign Exchange Management Act, 1999. [May 11 (4 Marks)]
Answer:
Determination of resident Status of a person:
As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India.

In the given case, Mr. Bhattacharyya has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2020-2021. But as he arrives in India on 01.04.2020 for the purpose of employment, he will be considered as resident in India w.e.f. April 1, 2020.

Conclusion: Residential status for 2019-2020 cannot be ascertained as his stay in India during the previous year 2018-2019 is not known.

Question 15.
Mr. Kishore resided in India during the Financial Year 2018-2019 for less than 182 days. He came to India on 1st April, 2019 for business. He closed down his business on 30th April, 2020 and left India on 30th June, 2020 for the purpose of employment outside India. Decide the residential status of Mr. Kishore during the Financial Years 2019-2020 and 2020-2021 under the provisions of the Foreign Exchange Management Act, 1999. [May 13 (4 Marks)]
Answer:
Determination of resident Status of a person:
As per Sec. 2(y) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India.

Residential status is not for a year. It is from a particular date that a person will be a resident or a non-resident.

Conclusion:
Mr. Kishore has not fulfilled the condition of staying in India for more than 182 days in preceding financial year, hence he cannot be considered as person resident in India during the financial year 2019-2020. But as he arrives in India on 01.04.2019 for the purpose of business, he will be considered as resident in India w.e.f. April 1, 2019.

For financial year 2020-2021, Mr. X will be ‘resident in India’ as he resides in India in the preceding financial year (2019-2020) for a period exceeding 182 days. However, he would cease to be person resident in India from the date of his departure, as he is having an intention to leave the business in India and leave India which indicates his intention to stay outside India for an uncertain period.

Question 16.
Explain the meaning of the term “Current Account Transaction” and the right of a citizen to obtain Foreign Exchange under the Foreign Exchange Management Act, 1999. [MTP-Oct.18]
Answer:
Current Account Transaction:
Sec. 2(j) of FEMA, 1999 defines the term “current account transaction” as a transaction other than a capital account transaction and includes:

payments due in connection with foreign trade, other current business, services, and short – term banking and credit facilities in the ordinary course of business.
payments due as interest on loans and as net income from investments.
remittances for living expenses of parents, spouse and children residing abroad and
expenses in connection with foreign travel education and medical care of parents, spouse and children.

Rights of a Citizen to obtain foreign exchange:

As per Sec. 5 of FEMA, 1999 any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. Provided that the C.G. may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

As per Sec. 6 of FEMA, 1999, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction subject to the conditions.

Question 17.
Mr. Ramesh of Nagpur wants to travel to Nepal and for this purpose proposes to draw Foreign Exchange. Specify
(i) Can Mr. Ramesh draw any Foreign Exchange for his journey?
(ii) What are the purposes for which Foreign Exchange drawal is not allowed for Current Account Transaction?
Answer:
Drawal of Foreign Exchange:

(i) Drawal for Visit to Nepal: As per Rules issued by C.G., drawal of foreign exchange is not allowed for travel to Nepal or Bhutan.
(ii) Purposes for which Foreign Exchange drawal is not allowed for Current Account Transaction:

Remittance out of lottery winnings.
Remittance of income from racing/riding, etc., or any other hobby.
Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc.
Payment of commission on exports made towards equity investment in Joint Ventures/ Wholly Owned Subsidiaries abroad of Indian companies.
Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco.
Payment related to “Call Back Services” of telephones.
Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c.

Question 18.
Mr. Sane, an Indian National desires to obtain Foreign Exchange for the following purposes:
(i) Remittance of US Dollar 50,000 out of winnings on a lottery ticket.
(ii) US Dollar 1,00,000 for sending a cultural troupe on a tour of U.S.A.
Advise him whether he can get Foreign Exchange and if so, under what conditions?
Or
Mr. P has won a big lottery and wants to remit US Dollar 20,000 out of his winnings to his son who is in USA. Advise whether such remittance is possible under the Foreign Exchange Management Act, 1999. [Nov. 14 (2 Marks)]
Answer:
Current Account Transactions:
Section 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management [Current Account Transactions) Rules, 2000 set out the provisions as to permissible, prohibited and restricted transaction on current account. Accordingly,

(i) Remittance out of lottery winnings, is prohibited and the same is included in First Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Hence, Mr. Sane cannot withdraw Foreign Exchange for this purpose.

(ii) Foreign Exchange for meeting expenses of cultural tour can be withdrawn by any person after obtaining permission from Government of India, Ministry of HRD, (Department of Education and Culture) as prescribed in Second Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.

In all the cases, where remittance of Foreign Exchange is allowed, either by general or specific permission, the remitter has to obtain the Foreign Exchange from an Authorised Person.

Question 19.
State which kind of approval is required for the following transactions under the Foreign Exchange Management Act, 1999:

(i) X, a Film Star, wants to perform along with associates in New York on the occasion of Diwali for Indians residing at New York. Foreign Exchange drawal to the extent of US dollars 20,000 is required for this purpose.
(ii) R wants to get his heart surgery done at United Kingdom. Up to what limit Foreign Exchange can be drawn by him and what are the approvals required?
Or
State the kind of approval required for the following transaction under the Foreign Exchange Management Act, 1999: L, a famous playback singer of India wants to perform a musical night in Paris for Indians residing there. Foreign exchange to the extent of USD 20,000 is required for this purpose.
Or
Mr. Z is unwell and would like to have a kidney transplant done in USA. He would like to know the formalities required and the amount that can be drawn as foreign exchange for the medical treatment abroad. [Nov. 14 (2 Marks)]
Answer:
Approval required for Current Account Transactions:
(i) Cultural Tours: Foreign Exchange drawls for cultural tours require approval of the Ministry of HRD, (Department of Education and Culture) as prescribed in Second Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 irrespective of the amount of foreign exchange required.

(ii) Medical Treatments: Individuals can avail of foreign exchange facility within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the expenses in connection with medical treatment abroad, shall require prior approval of the RBI.

Question 20.
Referring to the provisions of the Foreign Exchange Management Act, 1999, state the kind of approval required for the following transactions:
(i) M requires U.S. $ 5,000 for remittance towards hire charges of transponders.
(ii) P requires U.S. $ 2,000 for payment related to call back services of telephones.
Answer:
Approval required for Current Account Transactions:

Section 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Current Account Transactions] Rules, 2000 set out the provisions as to permissible, prohibited and restricted transaction on current account. Accordingly,

(i) Remittance towards hire charges of transponders requires approval of the Central Government. In case of remittance of hiring charges of transponders by TV Channels requires approval from Ministry of Information and Broadcasting, whereas in case of remittance of hiring charges of transponders by Internet Service Providers, approval from Ministry of Communication and IT will be required.

(ii) Payment related to Call Back Services of Telephones: Withdrawal of foreign exchange for payment related to call back services of telephone is a prohibited transaction.

Question 21.
Mr. Suresh resided in India during the Financial Year 2018-19. He left India on 15th July, 2019 for Switzerland for pursuing higher studies in Biotechnology for 2 years. What would be his residential status under the Foreign Exchange Management Act, 1999 during the Financial Years 2019-20 and 2020-217

Mr. Suresh requires every year USD 25,000 towards tuition fees and USD 30,000 for incidental and stay expenses for studying abroad. Is it possible for Mr. Suresh to get the required Foreign Exchange and, if so, under what conditions? [MTP-April 19]
Answer:
Determination of Resident Status of a person:

As per Sec. 2(v) of FEMA, 1999, a person residing in India for more than 182 days during the course of the preceding financial year is considered as person resident in India. However, a person who has gone out of India or who stays outside India, in either case
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
is not considered as resident in India.

In this case, Mr. Suresh who resided in India during the financial year 2018-19 left on 15.7.2019 for Switzerland for pursuing higher studies in Biotechnology for 2 years, he will be resident for 2019-20, as he has gone to stay outside India for a ‘certain period’. However, if he goes abroad with intention to stay outside India for an ‘uncertain period’ he will not be resident with effect from 15-7-2019.
For financial year 2020-21, Mr. Suresh will not be resident as he did not stay in India during the relevant previous financial year i.e. 2019-20 for a period exceeding 182 days.

Drawal of Foreign Exchange for studies abroad:
Individuals can avail of foreign exchange facility for the studies abroad within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require prior approval of the RBI. It is also provided that individual may be allowed remittances (without seeking prior approval of the RBI) exceeding USD 2,50,000 based on the estimate received from the institution abroad.

In this case the foreign exchange required is only USD 55,000 per academic year and hence approval of RBI is not required.

Question 22.
Mr. G., an Indian national desire to obtain Foreign Exchange on current account transactions for the following purposes:
(i) Payment of commission on exports made towards equity investment In wholly owned subsidiary abroad of an Indian Company.
(ii) Remittance of hiring charges of transponder by TV channels
Advise G whether he can obtain Foreign Exchange and, if so, under what conditions?
Answer:
Current Account Transactions:
Section 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management
(Current account Transactions) Rules, 2000 set out the provisions as to permissible, prohibited
and restricted transaction on current account. Accordingly,

(i) Payment of Commission on exports made towards equity investment in wholly owned subsidiary abroad of an Indian company is prohibited.

(ii) Drawal of foreign exchange for remittance of hiring charges of transponder by TV Channels, can be made with the prior approval of the Central Government (Ministry of Information and Broadcasting). However, approval will not be required if the payment is made out of funds held in Resident Foreign Currency (RFC) ccount or Exchange Earner’s Foreign Currency (EEFC) Account of the remitter.

Question 23.
Examine under the Foreign Exchange Management Act, 1999 whether Payment of remuneration to foreign technicians0 is a permissible transaction under the provisions of the said Act
Answer:
Payment of remuneration to foreign technicians:
Salary payable to a foreign technician is a current account transaction. As per Sec. 5 of the FEMA, 1999 any person can sell or draw foreign exchange to or from authorized person if such sale or
drawal is a current account transaction.

Reasonable restrictions on current account transactions can be imposed by the C.C. No restriction is being imposed by C.C. on hiring of foreign nations as technicians.

Conclusion: Salary to Foreign technician can be remitted abroad after tax deductions, contribution to provident fund and other deductions at source.

Question 24.
Mr F, an Indian National desire to obtain foreign exchange for the following purposes:
(i) Payment of US $10,000 as commission on exports under Rupee State Credit Route.
(ii) US $30,000 for a business trip to U.K.
(iii) Remittance of US $ 2,00,000 for payment as prize money to the winning team in a Hockey Tournament to be held in Australia.
Advise him, If he can get the Foreign Exchange and under what condition.
Answer:
Drawal of foreign exchange for current account transactions:
Sec. 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Current AccountTransactions) Rules. 2000 set out the provisions as to permissible, prohibited and restricted transaction on current account. Accordingly,

(i) Payment of Commission on exports: Payment of commission on exports under Rupee State Credit Route, is prohibited.

(ii) Business Trips: Foreign Exchange for business trip upto US$ 2,50,000 can be obtained by any individual. If a person wants to exceed this limit, then prior permission of RBI is required. As the amount required is less than US $ 2,50,000, Mr. F can obtain the foreign exchange without obtaining the permission of RBI.

(iii) Remittance for payment as prize money: Remittance of prize money exceeding US$ 1,00,000 for sports activity abroad other than International, National or State level body will require the prior permission of the C.G. (Ministry of HRD – Department of Youth Affairs and Sports). As the amount involved is more than US$ 1,00,000 and Mr. F is not an International, National or State level body, he has to obtain the permission of the C.G. before remitting the prize money of US$ 2,00,000.

In all the cases, where remittance of Foreign Exchange is allowed, either by general or specific permission, the remitter has to obtain the Foreign Exchange from an Authorised Person.

Question 25.
M/s A Ltd., an Indian company desire to obtain Foreign Exchange for the following purposes:
(а) Remittance of US Dollar 10,000 for payment for goods purchased from a party situated in Nepal. ”
(b) US Dollar 10,000 for remitting as commission to its agent in U.S.A. for sale of commercial plot situated near Bangalore, consideration in respect of which was received by A Ltd. by way of foreign currency inward remittance amounting to US Dollar 1,00,000.
Advise whether company can get the Foreign Exchange and under what conditions.
Answer:
Drawal of foreign exchange for current account transactions:
Sec. 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Current Account Transactions) Rules, 2 000 set out the provisions as to permissible, prohibited and restricted transaction on current account. Accordingly,

(a) Remittance to Nepal is a prohibited transaction. Hence A Ltd. cannot withdraw Foreign Exchange for this purpose.
(b) Commission to agent abroad for sale of commercial plots in India in excess of USD 25,000 or 5% of inward remittance whichever is more, by persons other than individual requires prior approval of RBI.

In this case, the amount of inward remittance is USD 1,00,000. Hence the permitted amount of commission is higher of USD 25,000 or 5% of USD 1,00,000, i.e. USD 25,000. Foreign exchange to be remitted is USD 10,000 which is lower than USD 25,000 hence, payment is permitted and no approval is required.

Question 26.
Examine with reference to the Provisions of the Foreign Exchange Management Act, 1999 and the rules made thereunder whether foreign exchange can be drawn for the following purposes:
(i) Mr. Gopai, a cine artist in India proposes to organize a cultural programme at Dubai and requires to draw foreign exchange US $ 1,00,000 for this purpose.
(ii) Mr. Shah proposes to visit United States on a business tour and for this purpose he wants to draw foreign exchange US$ 40,000 for meeting expenses. [Nov. 13 (4 Marks)]
Answer:
Drawal of foreign exchange for current account transactions:
Sec. 5 of Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Current Account Transactions) Rules, 2000 set out the provisions as to permissible, prohibited and restricted transaction on current account. Accordingly,

(i) Cultural Tours: Foreign Exchange drawls for cultural tours require approval of the Ministry of HRD, (Department of Education and Culture) as prescribed in Second Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 irrespective of the amount of foreign exchange required.

(ii) Business Trips: Foreign Exchange for business trip upto US$ 2,50,000 can be obtained by any individual. If a person wants to exceed this limit, then prior permission of RBI is required. As the amount required is less than US $ 2,50,000, Mr. Shah can obtain the foreign exchange without obtaining the permission of RBI.

Question 27.
Mr. Rohan, an Indian Resident individual desires to obtain Foreign Exchange for the following purposes:
A. US$ 1,20,000 for studies abroad on the basis of estimates given by the foreign university.
B. Gift Remittance amounting US$ 10,000.
Advise him whether he can get Foreign Exchange and if so, under what condition(s)? [May 15 (4 Marks), MTP-Oct.18]
Answer:
Remittances on current account transactions:

(A) Remittance of Foreign Exchange for studies abroad: Individuals can avail of foreign exchange facility for the studies abroad within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require prior approval of the RBI. It is also provided that individual may be allowed remittances (without seeking prior approval of the RBI) exceedingUS$ 2,50,000 based on the estimate received from the institution abroad. In this case since US $ 1,20,000 is the drawal of foreign exchange, so permission of the RBI is not required.

(B) Gift remittance exceeding US$ 10,000: Gift remittance exceeding US$ 2,50,000 can be made after obtaining prior approval of the RBI. In the present case, since the amount to be gifted by an individual, Mr. Rohan is USD 10,000, so there is no need for any permission from the RBI.

Question 28.
Lifesys Limited, a billion dollar, Indian company wishes to create a chair in a reputed university in the U.S. This chair is for the department of computer science. The company wishes to obtain your advise in regard to the following with reference to the FEMA, 1999.
(i) Is such “chair” creation permissible?
(ii) What is the maximum amount that can be denoted for such chair?
(iii) Any formalities to be complied with? [Nov. 16 (4 Marks)]
Answer:
Provisions as to Transactions relating to donation for creation of chair:

As per Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, read with Sec. 5 of the FEMA, 1999 donations exceeding 1% of their foreign exchange earnings during the previous 3 financial years or USD 50,00,000, whichever is less, can be remitted by persons other than individuals for creation of Chairs in reputed educational institutes with the prior approval of the RBI.

Conclusions: Considering the above-mentioned provisions, following conclusions may be drawn:
(i) “Chair” creation for the department of computer science in reputed university in the U.S. is permissible.
(ii) Maximum amount that can be donated for such chair will be 1% of their foreign exchange earnings during the previous 3 financial years or USD 50,00,000, whichever is less without prior approval of the RBI.
(iii) In case where donations exceeds 1% of their foreign exchange earnings during the previous 3 financial years or USD 50,00,000, whichever is less, it shall require prior approval of Reserve Bank of India.

Question 29.
Mr. T. Raghava has secured admission in a reputed and recognized university in Germany, for the study of higher and technical education, outside India. After arrival in Germany, he has gone ill and wants medical treatment facility in a reputed German hospital.

He desires to apply to the Government of India for availing the additional remittance beyond the limit approved for foreign currency exchange facility. He has already enjoyed the permitted facility of foreign exchange for studies abroad, for the said financial year. Decide the following as to the facts given in the question . as per the provisions of the Foreign Exchange Management Act, 1999:

(i) As an individual, to what extent Mr. T. Raghava may avail foreign exchange facilities for higher and technical study in Germany.
(ii) Can Mr. T. Raghava avail the facility of additional remittance in foreign exchange, beyond the limit, for the medical treatment. [Nov. 17 (4 Marks))
Answer:
Remittances on current account transactions:

(i) Remittance of Foreign Exchange for studies abroad: Individuals can avail of foreign exchange
facility for the studies abroad within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require prior approval of the RBI. It is also provided that individual may be allowed remittances (without seeking prior approval of the RBI) exceeding US $ 2,50,000 based on the estimate received from the institution abroad.

(ii) Remittance for Medical Treatment: Remittance of foreign exchange for medical treatment abroad requires prior permission or approval of RBI where the individual requires withdrawal of foreign exchange exceeding USD 2,50,000. It is also provided that for the purpose of expenses in connection with medical treatment, individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalized Remittance Scheme, if so required by a medical institute offering treatment.

Question 30.
Mr. Manthan, is deputed to India by his company to develop a software programme for a period of 3 years from 1st January, 2018. He is paid salary to his Indian bank account. On 1st May, 2020 he wants to remit his entire salaries ended till 30th April, 2020 to his home country USA. State in the light of relevant provision, the way the remittance of the salary may be done as per the Foreign Exchange of Management Act, 1999. [MTP-Aug.18]
Answer:
Remittance of Salary outside India by a person who is resident but not permanently resident in India:
As per Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, a person who is resident but not permanently resident in India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary, after deduction of taxes, contribution to provident fund and other deductions.

For this purpose, a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed 3 years, is a resident but not permanently resident.
Conclusion: Mr. Manthan can remit his net salary, after deduction of taxes, contribution to provident fund and other deductions.

Question 31.
ABC Limited hired the services of Mr. Taylor, a technician from Germany for the installation of a machinery. The comp SD 40,000 for the services rendered by Mr. Taylor. Examine of the Foreign Exchange Management Act, 1999, whether payment of remuneration to foreign technician Mr. Taylor is a permissible transaction under the provisions of the said Act. [Nov. 19 – Old Syllabus (3 Marks)]
Answer:
Payment of remuneration to foreign technicians:

Salary payable to a foreign technician is a current account transaction. As per Sec. 5 of the FEMA, 1999 any person can sell or draw foreign exchange to or from authorized person if such sale or drawal is a current account transaction.

Reasonable restrictions on current account transactions can be imposed by the C.G. No restriction is being imposed by C.G. on hiring of foreign nations as technicians.
Conclusion: Payment of remuneration to Foreign technician is a permissible transaction.

Question 32.
Milap Limited, a company incorporated in India, has obtained consultancy services from an entity based in France for settingup the software programme in their company. The consideration for such services is required to be paid in foreign currency. The compliance officer of Milap Limited requires your advice regarding threshold limit of remittance that can be made without prior approval of RBI. You as a qualified Chartered Accountant are required to advise the compliance officer considering the provisions of Foreign Exchange Management Act, 1999 and regulations thereunder. [MTP-Oct. 20]
Answer:
Remittance on Current Account Transactions:

As per Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 read with Schedule III thereunder, in case of persons other than individuals, prior approval of RBI will be required for drawl of foreign exchange for remittances exceeding USD 10,00,000 per project for consultancy services in respect of projects other than infrastructure projects procured from outside India.

In the given case, Milap Limited obtaining such service from outside India. The consideration for such services is required to be paid in foreign currency.
Conclusion: If the remittance exceeds USD 10,00,000, Milap Limited will be required to seek prior approval of RBI for drawl of such foreign exchange.

Question 33.
Explain the meaning of “Capital Account Transactions” under the Foreign Exchange Management Act, 1999. Examine whether an Investment by person resident in India in Foreign Securities is permissible or not under the above Act as Capital Account transactions. [MTP-March 18]
Answer:
Capital Account Transactions:

As per Sec. 2(e) of FEMA Act, 1999 ‘capital account transactions’ means
(a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of person’s resident in India
(b) a transaction which alters assets or liabilities in India of persons resident outside India and includes transactions referred to in section 6(3).

The Reserve Bank of India has formed the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. As per these regulations, capital account transactions may be classified under the following heads.

Permissible capital account transaction of persons resident in India (Schedule I)
Permissible Capital transactions of persons resident outside India (Schedule II).
Prohibited capital account transactions.

As per Schedule I of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, a person resident in India is permitted to make investment in Foreign Securities.

Question 34.
Explain the meaning of “Capital Account Transactions” under the Foreign Exchange Management Act, 1999. State its categories and also examine whether the following transactions are permissible or not under the above Act as Capital Account transactions:
(i) investment by person resident in India in Foreign Securities.
(ii) Foreign currency loans raised in India and abroad by a person resident in India.
(iii) Export, import and holding of currency/currency notes.
(iv) Investment in a Nidhi Company.
(v) Trading in transferable development rights.
Answer:
Capital Account Transactions:

As per Sec. 2(e) of FEMA Act, 1999 ‘capital account transactions means
(a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of person’s resident in India
(b) a transaction which alters assets or liabilities in India of persons resident outside India and includes transactions referred to in section 6(3).

Permissible capital account transaction of persons resident in India (Schedule I)
Permissible Capital transactions of persons resident outside India (Schedule II).
Prohibited capital account transactions.

In accordance with the provisions mentioned above, following transactions are permitted transactions:

Investment by person resident in India in Foreign Securities.
Foreign currency loans raised in India arid abroad by a person resident in India.
Export, import and holding of currency/currency notes.

Prohibited transactions are:

Investment in a Nidhi Company.
Trading in transferable development rights.

Question 35.
Examine with reference to the provisions of the Foreign Exchange Management Act, 1999 whether there are any restrictions in respect of the following:

(i) Drawal of Foreign Exchange for payments due on account of Amortization of loans in the ordinary course of business.
(ii) A person, who is resident of U.S.A. for several years, is planning to return to India permanently. Can he continue to hold the investment made by him in the securities issued by the companies in U.S.A.?
(iii) A person resident outside India proposes to invest in the shares of an Indian company engaged in plantation activities.
Answer:
Capital Account Transactions:

(i) Amortization of Loan: As per provisions of Sec. 6(2), the Reserve bank or the C.G. shall not impose any restriction on the drawal of foreign exchange for payment due on account of amortization of loans in the ordinary course of business. Hence this transaction is permissible without any restrictions.

(ii) Person resident in USA returning permanently to India: When the person returns to India permanently, he becomes a resident in India. Sec. 6(4) provides that a person resident in India may hold, own, transfer or invest in foreign currency, foreign security, etc. 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. Hence, the person who returned to India permanently can continue to hold the foreign security acquired by him whenhewasresidentinU.SA.

(iii) Investment in shares of Indian company by non-resident: Reserve Bank issued Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. In accordance with these regulations a person resident outside India is prohibited from making investment in India, in any form, in any Company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage in agricultural or plantation activities. Hence, it is not possible for a person resident outside India to invest in the shares of a plantation company as such investment is prohibited.

Question 36.
Referring to the provisions of the Foreign Exchange Management Act, 1999, examine whether V, an exporter is bound to make declaration on gift exported from India to United Kingdom a jewellery valued at ₹ 20,000 to his friend in Australia.
Answer:
Declaration of Gift exported from India:

Sec. 7 of FEMA, 1999, imposes obligation on an exporter to make appropriate declaration of the value of the goods being exported and he is also required to repatriate the foreign exchange due to India in respect of such exports to India in the manner within the time as may be prescribed.

However, certain exemption has been provided under the Regulation 4 of the Foreign Exchange Management (Export of Goods & Services) Regulations, 2 015. According to the regulation, export of goods may be made without furnishing the declaration to RBI if export of goods by way of gift shall be accompanied by a declaration by the exporter that they are not more than ₹ 5 lakh in value.

Conclusion: Since the value of gift of jewellery to V’s friend in Australia is less than ₹ 5 lac in value, the gift does not need any declaration to be furnished by exporter to the RBI. However, Goods exported shall be accompanied by a declaration by the exporter that they are not more than ₹ 5 lakh in value.

Question 37.
Indian Software Ltd. seeks to export software to its client in Indonesia. In this regard
(a) Explain the procedure to be adopted for export of software under the Foreign Exchange Management Act, 1999 and also state the period within which export value is to he realised.
(b) Explain the position in case of delay in receipt of payment from its client. [May 16 (4 Marks)]
Answer:
(a) Procedure for the export of the software under the FEMA, 1999:
Procedure for the export of the goods and services are contained in the Foreign Exchange Management
(Export of Goods and Services) Regulations, 2015. Steps involved as per Regulation 3 will be:

1. Furnishing of declaration- In case of exports taking place through Customs manual ports, every exporter of goods or software in physical form or through any other form, either directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish to the specified authority, a declaration in one of the forms set out in the Schedule and supported by such evidence as may be specified, containing true and correct material particulars including the amount representing the full export value of the goods or software; or

2. Execution of declaration: Declarations shall be executed in sets of such number as specified.

3. Export of services without furnishing any declaration: In respect of export of services to which none of the Forms specified in these Regulations apply, the exporter may export such services without furnishing any declaration, but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of such export, and to repatriate the same to India in accordance with the provisions of the Act, and these Regulations, as also other rules and regulations made under the Act.

4. Realization of export proceeds: Realization of export proceeds in respect of export of goods / software from third party should be duly declared by the exporter in the appropriate declaration form.

Period within which export value of goods/software to be realised (Regulation 9):

(1) The amount representing the full export value of goods/software/services exported shall be realised and repatriated to India within 9 months or within such period as may be specified by RBI in consultation with Government, from time to time from the date of export, provided

(a) that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen months or within such period as may be specified by RBI in consultation with Government, from time to time from the date of shipment of goods;

(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the said period.

(2) Where the export of goods/softwafb/services has been made by Units in Special Economic Zones (SEZ)/Status Holder exporter/Export Oriented Units (EOUs) and units in Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) as defined in the Foreign Trade Policy in force, then notwithstanding anything contained in sub-regulation (1), the amount representing the full export value of goods or software shall be realised and repatriated to India within nine months from the date of export.

However, the RBI, or subject to the directions issued by the Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the said period.

(b) Delay in Receipt of Payment (Regulation 14):
Where in relation to goods or software export of which is required to be declared on the specified form and export of services, in respect of which no declaration forms has been made applicable, the specified period has expired and the payment therefor has not been made as aforesaid, the Reserve Bank may give to any person who has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such directions as appear to it to be expedient, for the purpose of securing,

(a) the payment therefor if the goods or software has been sold and
(b) the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof into India as the circumstances permit, within such period as the Reserve Bank may specify in this behalf.

Question 38.
Ms. Ashima daughter of Mr. Mittal (an exporter), is residing in Australia since long. She wants to buy a flat in Australia. Since she is unmarried, she wants to make her father Mr. Mittal a joint holder in that flat, for which entire proceeds are to be paid by her.
(i) What are the provisions of FEMA governing such type of transaction?
(ii) Can Mr. Mittal join her daughter in acquiring such a flat in Australia?
Mr. Mittal, wants to receive advance payments against his exports from a buyer outside India. What are the relevant provisions? [May 17 (4 Marks), RTP-May 18]
Answer:
(i) Provisions regarding acquisition and transfer of immovable property outside India:

(1) A person resident in India may acquire immovable property outside India:

(a) by way of gift or inheritance from a person referred to in Sec. 6(4) of the FEMA or from a person resident in India who acquired property on or before 8th July, 1947 and continued to be held by him with the permission of Reserve Bank.

(b) by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015.

(2) A person resident in India may acquire immovable property outside India, by way of Inheritance or gift from a person resident in India who has acquired such property in accordance with the foreign exchange provision in force at the time of such acquisition.

(3) A Company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, in accordance with the direction issued by the Reserve Bank of India from time to time.

(ii) Mr. Mittal, a resident in India, can join his daughter who is a resident outside India, in acquiring
a Flat at Australia.

(iii) Advance payment against export: Provisions governing the advance payments against exports are provided by Regulation 15 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015. Accordingly, where an exporter receives advance payments (with or without interest) from a buyer/third party named in the export declaration made by the Exporter, outside India, the exporter shall be under the obligation to ensure that:

(a) The shipment of goods is made within one year from the date of receipt of advance payment.
(b) The rate of interest, if any, payable on the advance payment does not exceed the rate of interest London Inter-Bank Offered Rate (LIBOR) + 100 basis points and
(c) The documents covering the shipment are routed through the authorised dealer through whom advance payment is received.

Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment or towards, no remittance towards refund of un-utilised portions of advance payment or towards payment of interest, shall be made after the expiry of the period of one year, without the prior approval of the Reserve bank of India.

Question 39.
Bharat Computer Hardware Ltd. received an advance payment for export of high-tech hardware to a business concern in Singapore by entering into an export agreement to supply the hardware within 6 months from the date of receipt of advance payment. The shipment of hardware was made after 9 months and the documents covering the shipment were routed through an authorized dealer through whom the advance payment was received.

Examine whether Bharat Computer Hardware Ltd. has discharged its obligation in accordance with the provisions of The Foreign Exchange Management Act, 1999?

Is it possible to receive advance payment where the export agreement provides for shipment of goods within 15 months from the date of receipt of advance payment? Also identify the maximum rate of interest payable on the advance payment under the said Act. [Nov. 18 – New Syllabus (6 Marks)]
Answer:
Advance payment against export:
Provisions governing the advance payments against exports are provided by Regulation 15 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015. Accordingly, where an exporter receives advance payments (with or without interest) from a buyer/ third party named in the export declaration made by the Exporter, outside India, the exporter shall be under the obligation to ensure that:

(a) The shipment of goods is made within one year from the date of receipt of advance payment, and
(b) The documents covering the shipment are routed through the authorised dealer through whom advance payment is received.

Conclusion: Bharat Computer Hardware Ltd. has discharged its obligation as shipment is made within one year from the date of receipt of advance payment and documents covering the shipment are routed through the authorised dealer through whom advance payment was received.

Provisions as to shipment beyond a period of one year: An exporter may receive advance payment where the export agreement itself duly provides for shipment of goods extending beyond the period of 1 year from the date of receipt of advance payment.

Maximum rate of interest payable in advance payment: The rate of interest, if any, payable on the advance payment does not exceed the rate of interest London Inter-Bank Offered Rate (LIBOR) + 100 basis points.

Question 40.
Sunita Garments Limited is engaged in the business of exporting leather garments. The company is neither located in a Special Economic Zone, nor has availed any special status like Status Holder Exporter, Export Oriented Unit or a unit under Bio – Technology Park.

The company seeks your advice regarding the time limit within which the company is required to realise and import into India the foreign exchange arising out of export of goods by them. Referring to the provisions of the Foreign Exchange Management Act, 1999 advise the company.
[May 19 – Old Syllabus (4 Marks)]
Answer:
Period within which export value of goods/software to be realised (Regulation 9):
As per Regulation 9 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, the amount representing the full export value of goods/software/services exported shall be realised and repatriated to India within 9 months from the date of export, provided

(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months or fifteen months, as the case may be.

Question 41.
Mr. Ramesh is an exporter of goods and services. Explain briefly his duties under Foreign Exchange Management Act, 1999 with regard to the following:
(a) Furnishing of information relating to such exports.
(b) Realisation and repatriation of foreign exchange on such exports.
Answer:
(a) Furnishing of Information relating to Exports:
Sec. 7 of FEMA deals with the provisions relating to furnishing of information w.r.t. exports to RBI. Accordingly,

Every exporter of goods is required to furnish to RBI or other prescribed authority, a declaration containing true and correct material particulars, including the amount representing full export value. If full exportable value is not ascertainable at the time of export due to prevailing market conditions, the exporter shall indicate the amount he expects to receive on sale of goods in a market outside India.

The exporter of goods shall also furnish to RBI such other information as may be required by RBI for the purpose of ensuring realization of export proceeds by such exporter.
RBI can direct any exporter to comply with prescribed requirements to ensure that full export value of the goods or such reduced value of the goods as RBI determines, is received without delay.
Every exporter of services shall furnish to RBI or other prescribed authority a declaration containing true and correct material particulars in relation to payment of such services.

(b) Realisation and Repatriation of foreign exchange:
Sec. 8 of FEMA, 1999 provides that where any amount of foreign exchange is due or has accrued to any resident in India, such person shall take all reasonable steps to realize and repatriate to India the foreign exchange within such period and in such manner as may be specified by RBI.

Question 42.
According to Foreign Exchange Management Act, 1999, a person resident in India shall take all reasonable steps to repatriate to India any amount of foreign exchange earned and accrued to him. What is meant by the expression ‘Repatriate to India’? State the cases where foreign exchange can be held or need not be repatriated to India by a resident in India.
Answer:
Meaning of Repatriate to India:
As per Sec. 2(y) of FEMA, 1999, the term ‘repatriate to India’ means bringing into India the realised foreign exchange and

the selling of such foreign exchange to an authorised person in India in exchange for rupees, or
the holding of realised amount in an account with an authorised person in India to the extent notified by the RBI.

It includes use of the realised amount for discharge of a debt or liability denominated in foreign
exchange and the expression “repatriation” shall be construed accordingly

Cases where foreign exchange need not be repatriated to India:
As per Sec. 9 of FEMA, 1999, foreign exchange can be held or need not be repatriated to India by a
resident in India in the following cases:

(a) possession of foreign currency or foreign coins by any person up to such limit as the Reserve Bank may specify;

(b) foreign currency account held or operated by such person or class of persons and the limit up to which the Reserve Bank may specify;

(c) foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or accruing there on which is held outside India by any person in pursuance of a general or special permission granted by the Reserve Bank;

(d) foreign exchange held by a person resident in India up to such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause (c), including any income arising there from;

(e) foreign exchange acquired from employment, business, trade, vocation, service, honorarium, gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify; and

(f) such other receipts in foreign exchange as the Reserve Bank may specify.

Question 43.
Mr. Raman is a software engineer of Armtek Ltd. The company sent him to Japan to develop a software programme there on deputation for 2 years. He earned a sum of US $ 3,000 as a honorarium there. On his return to India he wants to hold this foreign currency with him. Whether Mr. Raman will be allowed to keep the foreign currency with him. [MTP-April 18]
Answer:
Holding foreign currency by a person resident in India:

As per Sec. 8 of the FEMA Act, 1999 where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by Reserve Bank of India.

As per Sec. 9(e) of the FEMA, 1999, provisions of Sec. 8 shall not apply to foreign exchange acquired from employment, business trade, vocation, service honorarium, gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank of India may specify.

The Reserve Bank of India has specified the following persons with the limits for possession and retention of foreign currency by a person resident in India:

(a) Any person may possess foreign coins without any restriction to the amount.
(b) Any person resident in India is permitted to retain in aggregate foreign currency not exceeding USD 2,000 or its equivalent in the form of currency notes/bank notes or travellers cheques acquired by him;
(c) Any person resident in India but not permanently resident therein is permitted to hold the foreign currency without limit, if the foreign currency was acquired when he was resident outside India and was brought into India and declared to the custom authorities.

Conclusion: Mr. Raman earned a sum of US$ 3000 as a honorarium when he was in employment in Japan. Considering the provisions as stated above, it can be concluded that he can retain foreign exchange up to US$ 2000 only and not more than that.

Question 44.
The RBI issued certain directions to Dream Construction Limited, an authorised person under the Foreign Exchange Management Act, 1999 to file certain returns. The Company failed to file the said returns. Decide, as to what penal provisions are applicable against the said authorised person under the said Act. [May 10 (3 MaTks)]
Answer:
Penalty provisions against authorised person:

As per Sec. 11 of FEMA, 1999, the Reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made thereunder, give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security.

Where any authorised person contravenes any direction given by the Reserve Bank under this Act or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable opportunity of being heard, impose on the authorised person a penalty which may extend to ₹ 10,000 and in the case of continuing contravention with an additional penalty which may extend to ₹ 2,000 for every day during which such contravention continues.

Question 45.
The Reserve Bank of India receives a complaint that an authorized person has submitted incorrect statements and information to the Reserve Bank of India in respect of receipt and utilization of Foreign Exchange. Explain the powers of the Reserve Bank of India with regard to inspection of records of the above authorized person in respect of the above complaint.
Referring to the provisions of Foreign Exchange Management Act, 1999, state the duties of the above authorized person.
Answer:
Power of Reserve Bank to inspect authorised person:
As per Sec. 12 of FEMA, 1999, RBI may, at anytime, cause an inspection to be made by any officer of the RBI specially authorised in writing by the RBI in this behalf, of the business of any authorised person as may appear to it to be necessary or expedient for the purpose of:

(a) verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;
(b) obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so;
(c) securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder.

Duties of Authorised person:
It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be,

to produce to any officer making an inspection such books, accounts and other documents in his custody or power and
to famish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct.

Question 46.
Explainthenieaningoftheterm”AdjudicatingAuthority”under Foreign Exchange Management Act, 1999, the powers available with the said authority to pass orders imposing penalty and enforce the same in relation to violation of any provision of FEMA by Mr. Dubious, a resident in India.
Answer:
Adjudicating authority:
As per Sec. 2(a) of FEMA, 1999, ‘Adjudicating Authority’ means an officer authorised u/s 16.

Power of adjudicating authority (Sec. 16 and Sec. 13):

An adjudicating authority appointed by the C.G. can impose any penalty for violation of any provision of FEMA or contravention of any rule, regulation, directions or orders issued under the powers conferred by the Act. The Adjudicating Authority can hold inquiry only on receiving a complaint from an authorised officer.

The adjudicating authority should endeavour to dispose off the complaint within one year from the date of receipt of the complaint.

The adjudicating authority can impose penalty upto thrice the sum involved in such contravention where the amount is quantifiable. If the amount is not quantifiable, penalty upto ₹ 2 lakhs can be imposed. If contravention is of continuing nature, further penalty upto ₹ 5,000 per day during which the default continues can be imposed.

Enforcement of orders of adjudicating authority (Sec. 14):

Person on whom penalty is imposed is required to make payment within 90 days of receipt of notice. If such payment is not made, he is liable to civil imprisonment.
Such civil imprisonment can be upto 6 months, if demand is for less than ₹ 1 crore. If demand exceeds ₹ 1 crore, civil imprisonment can be upto 3 years. If he pays the amount, he shall be released.

Order for arrest and detention cannot be made unless a show cause notice is issued to the defaulter. However, arrest can be made without show cause notice, if adjudicating authority is satisfied

(a) that the defaulter has dishonesty transferred, concealed or removed his property or he is refusing or neglecting to pay even if he has means to pay and
(b) he is likely to abscond the local limits.

If a person to whom show cause notice is issued does not appear before Adjudicating authority, warrant of arrest can be issued.

Question 47.
Mr. X, an Indian national has failed to realise and repatriate foreign exchange worth more than ₹ 2 crores. Mr. X having realised that he had committed a contravention of the provisions of the Foreign Exchange Management Act, 1999, desires to compound the said offence. Advise Mr. X.
Answer:
Compounding of Offence related to failure to realise and repatriate foreign exchange:

Failure to realise and repatriate foreign exchange, is a contravention of the provisions of Sec. 8 of FEMA and hence a penalty will be imposed u/s 13, followed by adjudication proceedings.

As per Sec. 15 of FEMA, 1999, any contravention u/s 13 may, on an application made by the person committing such contravention, be compounded within 180 days from the date of receipt of application by the Director of Enforcement or such other officers of the Directorate of Enforcement and Officers of the RBI as may be authorised in this behalf by the C.G. in such manner as may be prescribed.

Where a contravention has been compounded, no proceeding or further proceeding, as the case may be, shall be initiated or continued, as the case may be, against the person committing such contravention under that section, in respect of the contravention so compounded.

Question 48.
Mr. D has been arrested at the Chennai Airport in connection with certain offences under the Foreign Exchange Management Act, 1999. The Adjudicating Authority (AA) imposed a fine of ₹ 5 lakhs on him. In order to secure the penalty, AA directs the officials to confiscate the deposit of ₹ 10 lakhs lying in the account of D maintained at a nationalized Bank in New Delhi. Comment upon the validity of the confiscation proposal of the Adjudicating Authority for the levy of penalty under the relevant provisions of FEMA, 1999. [Nov. 20 – Old Syllabus (3 Marks)]
Answer:
Confiscation of currency, security, or property

As per Sec. 13(2) of FEMA, 1999, any Adjudicating Authority adjudging any contravention u/s 13, may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the C.G.

In the present case, Mr. D has been arrested at the Chennai Airport in connection with certain offences under the Foreign Exchange Management Act, 1999. The Adjudicating Authority (AA) imposed a fine of ₹ 5 lakhs on him. In order to secure the penalty, AA directs the officials to confiscate the deposit of ₹ 10 lakhs lying in the account of D maintained at a nationalized Bank in New Delhi.

Conclusion: Adjudicating Authority can direct confiscation of any currency, security or any other money or property.

Question 49.
A person aggrieved by an order made by the Special Director (Appeals) desires to file an appeal against the said order to the Appellate Tribunal but the period of limitation of 45 days as prescribed in Section 19(2) of the Foreign Exchange Management Act, 1999 has expired. Advise.
Answer:
Appeal to Appellate Tribunal:

As per Sec. 19, appeal against the order of Adjudicating Authority being senior to Assistant Director of Enforcement or Deputy Director of Enforcement or against the order of Special Director (Appeals) can be made to the Appellate Tribunal within 45 days from the date on which the copy of the order was made by such Adjudicating Authority or Special Director (Appeals) is received by the aggrieved person. The delay can be condoned by the Appellate Tribunal.

In case of an appeal against the order imposing penalty, the applicant has to deposit the amount of such penalty with the authority prescribed by the C.G. However, the Appellate Tribunal may waive such deposit to mitigate the likely hardship that may be caused to the appellant. After hearing of the appeal, the Appellate Tribunal shall pass the order.

Conclusion: Appellate Tribunal may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within that period.

Question 50.
India Exports Limited engaged in the export of software products to U.S. One party in U.S. to whom the company exported certain products failed to pay the amount due for these exports resulting into non-repatriation of amount to India. The Adjudicating Authority on coming to know about this, levied a penalty on India Exports Limited under the provisions of the Foreign Exchange Management Act, 1999. The company seeks your advice as to which authority, to whom it can make an appeal against the decision of Adjudicating Authority. State also, the time limit within which the appeal can be lodged. [Nov. 15 (4 Marks)]
Answer:
Authority to whom appeal can be made:

Provisions related to appeal are covered in Sections 17 & 19 of the Foreign Exchange Management Act, 1999. In case, the Adjudicating Authority is Assistant Director of the Enforcement or Deputy Director of Enforcement, appeal will lie to Special Director (Appeals).

Further appeal shall lie with Appellate Tribunal against the order of Adjudicating Authority and the Special Director (Appeals). However, if the Adjudicating Authority is senior to the Assistant Director of Enforcement or Deputy Director of Enforcement, then the appeal shall lie directly to the Appellate Tribunal.

(a) Appeal to Special Director (Appeals):
As per Sec. 17, appeal against order of Assistant Director of Enforcement or Deputy Director of Enforcement can be filed with Special Director (Appeals) within 45 days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person.

The Special Director (Appeals) can condone the delay in filing the appeal if he is satisfied that there was sufficient cause for not filing the appeal within the stipulated time.
Special Director (Appeals) will hear the parties and then pass the order. Copy of the order shall be sent to the concerned parties and the Adjudicating Authority.

(b) Appeal to Appellate Tribunal:

Question 51.
Mr. Bandha, a software engineer, Indian Origin took employment in USA. He is a resident of USA for a long time. He desires.
(i) To acquire a farm house in Munar (Kerala)
(ii) To make investment in KLJ (Nidhi) Ltd., registered as Nidhi Company.
(iii) To make investment in Rose Real Estate Ltd., an Indian company formed for the development of township.
Mr. Unsatisfactory, brother of Mr. Bandha residing at Chennai is aggrieved by an order made by Appellate Tribunal established under Foreign Exchange Management Act, 1999, desires to file further appeal.

With references to the provisions of Foreign Exchange Management Act, 1999, analyse whether there are any restrictions in respect of the transactions desired by Mr. Bandha. Also determine the appeal procedure to Mr. Unsatisfactory on the order of appellate tribunal under the said Act. [May 18 – New Syllabus (6 Marks)]
Answer:
Restrictions of Capital transactions:
Section 6 of FEMA, 1999 read with Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 provides the following:

(a) A person resident outside India who is a citizen of India may acquire immovable property in India other than an agricultural property, plantation, or a farm house.

(b) The person resident outside India is prohibited from making investments in India in any form, in any company, or partnership firm or proprietary concern or any entity whether incorporated or not which is engaged or proposes to engage:

In the business of chit fund;
As Nidhi company;
In agricultural or plantation activities;
In real estate business, or construction of farm houses or
In trading in Transferable Development Rights (TDRs)

Explanation: In “real estate business” the term shall not include development of townships, construction of residential/commercial premises, roads or bridges.

Conclusion:

Mr. Bandha cannot acquire Farm House.
Investment in a Nidhi company is prohibited transaction; hence Mr. Bandha cannot invest.
Investment in Rose Real Estate Ltd., an Indian company is allowed as it is formed for the development of township which is excluded from the definition of real estate business.

Procedure for filing appeal against the order of Appellate Tribunal:

Section 35 of FEMA, 1999 provides that any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within 60 days from the date of com-munication of the decision or order of the Appellate Tribunal on any question of law arising out of such order.

High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding 60 days.

Question 52.
A French Manufacturing Company desirous of setting up its branch office at Pune seeks your advice on the objects for which the company may be allowed to set up the desired branch office. Advise the company about the procedure as required under the Foreign Exchange Management Act, 1999 to be followed in this regard.
Answer:
Setting up a branch office at Pune by a French company – Objects and the procedure under the FEMA, 1999:

Since setting up a branch office by a foreign company in India involves foreign exchange, permission of RBI is required. Following are the objects for which RBI permits companies engaged in manufacturing and trading activities abroad to set up Branch Office in India:

To represent the parent company/other foreign companies in various matters in India e.g. acting as buying/selling agents in India.
To conduct research work in the area in which the parent company is engaged.
To undertake export and import trading activities.
To promote possible technical and financial collaborations between the Indian companies and overseas companies.
Rendering professional or consultancy services.
Rendering services in information technology and development of software in India.
Rendering technical support to the products supplied by the partner/group companies.

Steps/procedure:

1. Foreign company can set up Branch Offices in India after obtaining approval from RBI.

2. The office can act as a channel of communication-between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad.

3. Permission to set up such office is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up.

4. The representative office will have to file an annual activity certificate etc. from a Chartered Accountant to the concerned Regional Office of the RBI.

5. Application is required to be made in Form FNC-1.

The Foreign Exchange Management Act, 1999 – CA Final Law Study Material

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