Guide to .. Tax Management ,Tax Planning and Tax Saving

 

 

RBI Regulations under FEMA (Foreign Exchange Management Act, 1999)

[ FEMA and NRIs — Preliminary Aspects Analysed ]

Section 47 of FEMA empowers the Reserve Bank of India to make regulations to carry out the provisions of the FEMA, and the rules made thereunder. In pursuance thereto, the RBI has made the following 21 regulations so far, dealing with different types of transactions involving foreign exchange, viz.—

  1. Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000

  2. Foreign Exchange Management (Issue of Security in India by a Branch, Office or Agency of a Person Resident Outside India) Regulations, 2000

  3. Foreign Exchange Management (Borrowings or Lending in Foreign Exchange) Regulations, 2000

  4. Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000

  5. Foreign Exchange Management (Deposit) Regulations, 2000

  6. Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2000

  7. Foreign Exchange Management (Guarantees) Regulations, 2000

  8. Foreign Exchange Management (Insurance) Regulations, 2000

  9. Foreign Exchange Management (Remittance of Assets) Regulations, 2000

  10. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000

  11. Foreign Exchange Management (Establishment in India or Branch or Office or other Place of Business) Regulations, 2000

  12. Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000

  13. Foreign Exchange Management (Export and Import of Currency) Regulations, 2000

  14. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2000

  15. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000

  16. Foreign Exchange Management (Export of Goods and Services) Regulations, 2000

  17. Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000

  18. Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000

  19. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000

  20. Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000

  21. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000

Some of the important Regulations of great relevance for NRIs in general have been already explained. The relevant Regulation number along with the Schedule and Annexure has also been given in the following chapters, wherever necessary.

NRI Tax Planning & Tax Saving

1. Basic Introduction of FEMA and NRIs

A Non-resident Indian, i.e. an NRI -investing in India or having any type of business connection in India and having any income in India has not only to know the salient aspects of the Income Tax Act, 1961 but has also to be conversant with the law relating to the regulation of foreign exchange in India. The latest law in this regard is known as Foreign Exchange Management Act, 1999, which has replaced the earlier law known as FERA, 1973. The new FEMA, 1999 came into force with effect from 1.6.2000. In this chapter we have discussed certain preliminary aspects of FEMA, like the main enactment and connected Rules, Regulations, Notifications and the Reserve sank Circulars, etc. along with salient aspects of FEMA in contradistinction to FERA. The detailed aspects of FEMA as relevant for the NRIs in relation to various matters like investment in immovable property in India, making various types of deposits in India, investment in shares, units and other securities and various other investments has been discussed. Please look for the latest up date in the Exchange Control Manual or Circulars issued by Reserve Bank of India.

2. Foreign Exchange Management Act, 1999 (FEMA) and FERA

The Foreign Exchange Management Act, 1999 (FEMA), as mentioned earlier, has been in force with effect from 1.6.2000, thus replacing the old FERA, 1973. There is a general misunderstanding among the NRIs that all restrictions and controls relating to foreign exchange transactions have been abolished and that foreign exchange dealings would be allowed to be freely made after the enactment of FEMA. This is not so. It is, of course, true that there is a great change in the outlook of FEMA in comparison with FERA but reasonable restrictions with regard to foreign exchange transactions with a view to facilitate them in a regulated manner find a place in FEMA, 1999 and connected rules and regulations. One of the special aspects of FEMA is that various notifications and provisions of the RBI Exchange Control Manual have been reframed in the form of separate regulations for different types of exchange transactions with a view to making them available easily to NRJs and other persons and also to provide transparency to the RBI rules and regulations. For example, the various types of accounts like NR(E) Account, FCNR account, NRO Account, etc. were regulated through Exchange Control Manual and Notifications in this regard. Now, the FEMA (Deposit) Regulations deal with the maintenance and operation of such accounts in a clear cut manner. Similar is the case with reference to other various aspects of foreign exchange. The main change that the FEMA has brought in is that FEMA is a civil law, whereas the FERA was a criminal law. Under the FEMA no prosecution would be launched for contravention of operating provisions, likewise, arrest and imprisonment would not be resorted to except in the solitary case where the person, alleged to have contravened the provisions of the FEMA, defiantly resolves not to pay the penalty imposed under Section 13 of the FEMA. In the same manner unrestrained enormous powers of Directorate of Enforcement have been slashed down to a considerable extent. Even the word “offence” is conspicuous by its absence in the substantive provisions of FEMA. There are 49 sections in all in FEMA. Of these, only seven sections, namely, Sections 3 to 9 deal with certain acts to be done or not to be done in connection with transactions involving foreign exchange, foreign security, etc. There are various sections from 16 to 35 relating only to adjudication and appeal. Further, one of the most important and distinguishing features of FEMA is that there is a provision for compounding of penalty as contained in Section 15 of FEMA. This could not have been imagined earlier under FERA. Thus, NRIs and residents will have much easier time under FEMA.

3. NRIs Under Income Tax Act And Persons Resident Outside India Under FEMA

The expression Non-resident Indian or an NRI is used both under the Income Tax Act and FEMA. However, there is a great difference between the meaning of both the expressions. Sometimes, a person may be NRI under the I.T. Act but he may not NRI under the FEMA or vice versa. This is because NRI, i.e., an Indian Resident outside India under FEMA is treated differently now than he used to be under FERA. As regards the definition of the expression “Non-resident” under the I.T. Act. The expression used under FEMA is “person resident outside India”. Thus, Section 2(w) of FEMA defines a “person resident outside India” as a person who is not a resident in India. Hence, it becomes very important for us to know the meaning of the expression “a person resident in India”. As per Section 2(v) of FEMA a person resident in India means —

  1. a person residing in India for more than one hundred and eighty- two days during the course of the preceding financial year but does not include—

  2. a person who has gone out of India or who stays outside India, in either case—

    1. for or on taking up employment outside India, or

    2. for carrying on outside India a business or vocation outside India, or

    3. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

  3. a person who has come to or stays in India, in either case, otherwise than —

    1. for or on taking up employment in India, or

    2. for carrying on in India a business or vocation in India, or

    3. for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

  4.  any person or body corporate registered or incorporated in India,

  5. an office, branch or agency in India owned or controlled by a person resident outside India,

  6. an office, branch or agency outside India owned or controlled by a person resident in India.

Thus, the residential status of a person under FEMA depends on his residential status in the preceding financial year. Thus, Section 2(v) (i) incorporates the text of a person having resided in India for more than 182 days during the preceding financial year. Hence, a person would be deemed to be a resident of India, if he goes abroad but without taking up the employment or without carrying on business or vocation outside India. Likewise, if a person who was resident in India, for more than 182 days in the preceding financial year goes abroad to stay with his relatives, he would continue to be a resident of India unless he obtains a “permanent resident visa or a citizenship of a foreign country”. For conclusive proof that a person is a resident outside India under FEMA, he should take up employment outside India or carry on outside India any person or profession or vocation. An Indian citizen who is a Nonresident as per the definition of Section 2(w), i.e. who does not come under the definition of “Person Resident in India” as per Section 2(v) of FEMA is an NRI and will also include a Non-resident person of Indian origin. Persons of Indian Origin (PlO) Card Scheme was launched on 31St March, 1999 for conferring advantage to an estimated 15 million PIOs. Persons of Indian Origin settled in countries other than Pakistan, and Bangladesh will be issued PlO cards that would exempt them from the requirement of a visa to visit India. This scheme treats them on par with other NRIs in respect of facilities under FEMA. A PIO Card is valid for a period of twenty years subject to validity of the passport of the applicant. The persons eligible for issuance of PIO Cards would include the persons who at any time held an Indian passport, or either of grand parents or great grand parents were born in and permanently resident in India or who is a spouse of a citizen of India or a PIO as mentioned earlier. Generally speaking, the expression NRI under the I.T. Act and Persons Outside India or NRI under the FEMA are used interchangeably but the distinction based on a number of days in the preceding year under the current year under the FEMA and the I.T. Act as explained earlier and above should be noted very carefully by every NRI.

4. Foreign Exchange Management Act, 1999 (FEMA) Rules

The Foreign Exchange Management Act, 1999 (FEMA) contains only the substantive and procedural aspects of Foreign Exchange Regulations. The detailed provisions in regard to various aspects connected with Foreign Exchange Regulations are found in Rules, Regulations and Notifications under FEMA issued or promulgated by the Government of India or RBI. Thus, the Government of India, in exercise of the powers conferred on it under Section 46 of FEMA, has made various sets of Rules, namely—

  1. Foreign Exchange Management (Current Transactions) Rules, 2000.

  2. Foreign Exchange (Compounding Proceedings) Rules, 2000.

  3. Foreign Exchange Management (Adjudication Proceedings and Appeal), Rules, 2000.

  4. Foreign Exchange (Authentication of Documents) Rules, 2000.

  5. Foreign Exchange Management (Encashment of Draft, Cheque Instrument and Payment of Interest) Rules, 2000.

FEMA came into force from 1.6.2000. Some of the most important Rules as given in detail in the different Regulations have been explained.

5. RBI Regulations under FEMA (Foreign Exchange Management Act, 1999)

Section 47 of FEMA empowers the Reserve Bank of India to make regulations to carry out the provisions of the FEMA, and the rules made thereunder. In pursuance thereto, the RBI has made the following 21 regulations so far, dealing with different types of transactions involving foreign exchange, viz.—

  1. Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000
  2. Foreign Exchange Management (Issue of Security in India by a Branch, Office or Agency of a Person Resident Outside India) Regulations, 2000
  3. Foreign Exchange Management (Borrowings or Lending in Foreign Exchange) Regulations, 2000
  4. Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000
  5. Foreign Exchange Management (Deposit) Regulations, 2000
  6. Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2000
  7. Foreign Exchange Management (Guarantees) Regulations, 2000
  8. Foreign Exchange Management (Insurance) Regulations, 2000
  9. Foreign Exchange Management (Remittance of Assets) Regulations, 2000
  10. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000
  11. Foreign Exchange Management (Establishment in India or Branch or Office or other Place of Business) Regulations, 2000
  12. Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000
  13. Foreign Exchange Management (Export and Import of Currency) Regulations, 2000
  14. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2000
  15. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
  16. Foreign Exchange Management (Export of Goods and Services) Regulations, 2000
  17. Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000
  18. Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000
  19. Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2000
  20. Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000
  21. Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000
Some of the important Regulations of great relevance for NRIs in general have been already explained. The relevant Regulation number along with the Schedule and Annexure has also been given in the following chapters, wherever necessary.

Related Topics ...

 

You may also like ...

 

TallyPrime Book @ Rs.600
Tally.ERP9 Book @ Rs.550

| About Us | Privacy Policy | Disclaimer | Sitemap |
© 2021 : IncomeTaxManagement.Com