role of fema and repatriation of assets in india

8/10/2019 Role of FEMA and Repatriation of Assets in India

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M o h d Y a s i r K h a n

B . A L L . b ( H ) & t h S e m

F a c u l t y o f L a w

J a m i a M i l l i a I s l a m i a

1 1 / 1 0 / 2 0 1 4

Corporate Law

[Type the abstract of the document here. The abstract is

typically a short summary of the contents of the

document. Type the abstract of the document here. The

abstract is typically a short summary of the contents of

the document.]

Role of FEMA and

repatriation of

assets in India


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INDEX


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ACKNOWLEDGEMENT

All praise to the Al-Mighty who created the man and gave him the power of knowledge, and

He taught man what he knew not

I would like to extend my heartfelt gratitude to my teacher, Dr. Eqbal Hussain , without

whose able guidance and support this project would not have been possible. The resources of

my college library as well as the internet have been extremely contributory in the completion

of my project. I want to express my sincere thanks to my parents and friends for their love,

support, co-operation and help during the making of this project.


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I NTRODUCTION TO FEMA

When a business enterprise imports goods from other countries, exports its products to them

or makes investments abroad, it deals in foreign exchange. Foreign exchange means 'foreign

currency' and includes:-

(i ) deposits, credits and balances payable in any foreign currency;

(ii) draf ts, travell ers' cheques, letters of credit or bil ls of exchange, expressed or drawn

in I ndian cur rency but payable in any foreign curr ency; and

(ii i)Drafts, travell ers' cheques, letters of credit or bil ls of exchange drawn by banks,

instituti ons or persons outside India, but payable in I ndian curr ency.

In the light of economic reforms and the liberalised scenario, FERA was replaced by a new

Act called theForeign Exchange Management Act(FEMA),1999.The Act applies to all

branches, offices and agencies outside India, owned or controlled by a person resident in

India. FEMAemerged as an investor friendly legislation which is purely a civil legislation in

the sense that its violation implies only payment of monetary penalties and fines. However,

under it, a person will be liable to civil imprisonment only if he does not pay the prescribed

fine within 90 days from the date of notice but that too happens after formalities of show

cause notice and personal hearing. FEMA also provides for a two year sunset clause for

offences committed under FERAwhich may be taken as the transition period granted for

moving from one 'harsh' law to the other 'industry friendly' legislation.
http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942


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Broadly, the objectives ofFEMAare:

(i)

To facilitate external trade and payments;

(ii) To promote the orderly development and maintenance of foreign exchange market.

The Act has assigned an important role to theReserve Bank of India (RBI)in the

administration of FEMA. The rules, regulations and norms pertaining to several

sections of the Act are laid down by the Reserve Bank of India, in consultation with

the Central Government. The Act requires the Central Government to appoint as

many officers of the Central Government as Adjudicating Authorities for holding

inquiries pertaining to contravention of the Act. There is also a provision for

appointing one or more Special Directors (Appeals) to hear appeals against the order

of the Adjudicating authorities. The Central Government also establish an Appellate

Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating

Authorities and the Special Director (Appeals). The FEMA provides for the

establishment, by the Central Government, of a Director of Enforcement with a

Director and such other officers or class of officers as it thinks fit for taking up for

investigation of the contraventions under this Act.
http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://www.rbi.org.in/home.aspxhttp://www.rbi.org.in/home.aspxhttp://www.rbi.org.in/home.aspxhttp://www.rbi.org.in/home.aspxhttp://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942


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FEMApermits only authorised person to deal in foreign exchange or foreign security. Such

an authorised person, under the Act, means authorised dealer, money changer, off-shore

banking unit or any other person for the time being authorised by Reserve Bank. The Act thus

prohibits any person who:-

Deal in or transfer any foreign exchange or foreign security to any person not being

an authorized person;

Make any payment to or for the credit of any person resident outside India in any

manner;

Receive otherwise through an authorized person, any payment by order or on behalf

of any person resident outside India in any manner;

Enter into any financial transaction in India as consideration for or in association with

acquisition or creation or transfer of a right to acquire, any asset outside India by any

person is resident in India which acquire, hold, own, possess or transfer any foreign

exchange, foreign security or any immovable property situated outside India.
http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199942


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APPLI CABIL I TY OF FEMA

The Foreign Exchange Management Act 1999 was enacted to consolidate and amend the law

relating to foreign exchange with the objective of facilitating external trade and promoting

the orderly development and maintenance of foreign exchange market in India. FEMA

extends to the whole of India. The Act also applies to all the branches, offices, and agencies

outside India owned or controlled by a resident in India and also to any contravention

committed there under outside India by any person to whom this Act is applied.


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REPATRIATION OF ASSETS UNDER FEMA

NRIs remit their earnings to India from their savings abroad but would like to enjoy the

flexibility of repatriating the same in case of adversity. With this in view, the government of

India has provided for repatriation of funds from the non-resident's forex or rupee funds.

RBI directives with respect to repatriation of funds from India:

The government of India and the RBI has set up certain directives to facilitate NRI

repatriation to India.

1. Current I ncome Repatriation

All income either in the nature of interest, dividends, rent, MFund distribution from

any type of deposit, investment or properties is allowed for repatriation net of income

tax in India. This includes income earned from business in India by a NRI as

proprietor, partner or joint venture entity.

2. Immovable Property

The sale proceeds of the property is permitted for repatriation as under:

1. Exempted from RBI permission

1. Property held for more than 10 years:NRIs/PIOs are permitted to

repatriate the funds held in their NRO A/c up to US$ 100,000 a year

where sale proceeds of immovable property held by them for period ofnot less than 10 years is subject to payment of taxes.

I. The property was acquired by the seller in accordance with the

provisions of foreign exchange law in force at the time of

acquisition.


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II.

If the property is sold after 3 years of date of Purchase Deed or

final payment of Purchase consideration which ever is later.

However, the above lock in period of 3 years is not applicable

in case of such property sold by NRI/PIO on or after

19.08.2002

III.

Further exemption from RBI permission comes only up to the

value of purchase consideration paid in Foreign Exchange.

2. RBI permission essential

For NRI who had acquired immovable property in India, and who is not

eligible under clause I above. Sale proceeds of such immovable property can

be repatriated by obtaining special permission of the RBI on the ground of

adversity.

3. Inheritance, Legacy or Bequest

The sale proceeds or realization of assets can be allowed for repatriation only under

the following grounds.

I.

Exempted from RBI Permission:NRIs/PIOs will be able to remit up to US$100000 per calendar year

out of the assets in India acquired by them by way of

inheritance/legacies. This has been enhanced to an overall limit

(including remittances of proceeds of immovable property held for

more than 10 years, remittance for education and medical purposes) of

US$ 1 million.


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II. RBI permission essential:

Besides the clause I seeking exemption from RBI permission and for

any other assets, repatriation is allowed only after obtaining special

permission of the Reserve Bank India on specific reasons such as

adversity and subject to conditions as specified in the permission.

4. Other assets (Wi thout repatri ation Rights)

The sale proceeds or realization of NRI assets is permitted for repatriation as follows:

- Deposits with Banks/Firms/Companies.

- P.F/Superannuation Balance

- Life Insurance Maturity income/claims

- Sale proceeds from shares & securities

- Any other assets/Immovable Property

NRI repatriation is allowed only by obtaining special permission of the RBI on the

ground of adversity etc. and subject to conditions as specified in the permission.


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5. NRI s/PIOs are allowed to repatriate the funds held i n their NRO A/c for:

i. education of their children, where they can spend up to USD 30000 per academic

year.

ii. the medical expenses abroad of the account holder or his family members up to

USD 100000.

Although, this individual limit has been enhanced to an overall limit of US$ 1 million,

as effective from 13 January 2003 subject to further review by RBI. This can be

considered aggregate of remittances of proceeds of immovable property held for more

than 10 years, proceeds of inherited property, remittance for education and medical

purposes.


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Role of FEMA in Acquisition and Transfer of I mmovable Property in I ndia

by a person resident outside I ndia

Acquisition of immovable property in India by persons resident outside India (foreign

national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act

(FEMA), 1999 as well as by the regulations contained in theNotifi cation No. FEMA

21/2000-RB dated May 3, 2000,as amended from time to time. Section 2 (v) and Section 2

(w) of F EMA, 1999defines `person resident in India' and a `person resident outside India',

respectively. Person resident outside India is categorized as Non- Resident Indian (NRI) or a

foreign national of Indian Origin (PIO) or a foreign national of non-Indian origin. The

Reserve Bank does not determine the residential status. UnderFEMA, residential status is

determined by operation of law.

In terms of the provisions of Section 6(5) of FEMA 1999, a person resident outside India

can hold, own, transfer or invest in Indian currency, security or any immovable property

situated in India if such currency, security or property was acquired, held or owned by suchperson when he was a resident in India or inherited from a person who was a resident in

India.

The regulations under Notif ication No. FEMA 21/2000-RB dated May 3, 2000,as amended

from time to time, permit a NRI or a PIO to acquire immovable property in India, other than

agricultural land or, plantation property or farm house. Further, foreign companies who have

been permitted to open a Branch or Project Office in India are also allowed to acquire any

immovable property in India, which is necessary for or incidental to carrying on such activity.

Such dispensation is however not available to entities which are permitted to open liaison

offices in India.

The restrictions on acquiring immovable property in India by a person resident outside India

would not apply where the immovable property is proposed to be acquired by way of a lease

for a period not exceeding 5 years or where a person is deemed to be resident in India.
http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=175


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In order to be deemed to be a person resident in India, from FEMAangle, the person would

need to comply with the provisions of Section 2(v) of FEMA 1999.

role of fema and repatriation of assets in india

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