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8/22/2019 FEMA-Compliances Seminar 06072013
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FEMA - Compliances
By CA G. Murali Krishna,
ACA, ACS and M.Com
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What is FEMA
FEMA stands for FOREIGN EXCHANGE
MANAGEMENT ACT
The act has been enacted by the Government
of India in the year 1999 in substitution of
existing law viz., Foreign Exchange Regulation
Act, 1973
The act has been implemented w.e.f.
01/06/2000
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Definition of Resident in India (2 (v))
13th August, 2012 3FEMA - Import and Export of Goods/ Services - by CA Gottipati MuraliKrishna; 9849992493; [email protected]
a person residing in India for more
than 182 days during the course ofthe preceding financial year
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;
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;
India But does
not include
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Definition of Resident in India . Contd
13th August, 2012 4FEMA - Import and Export of Goods/ Services - by CA Gottipati MuraliKrishna; 9849992493; [email protected]
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident
outside India,
(iv) an office, branch or agency outside India owned or controlled by a person
resident in India;
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Broad Segregation of the
Regulations
Capital Account Transactions
Current Account Transactions
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Current Account Transactions [2(j)]
means a transaction other than a capital account transaction includes,
i. payments due in connection with foreign trade, other
current business, services, and short-term banking and credit
facilities in the ordinary course of business, ii. payments due as interest on loans and as net income from
investments,
iii. remittances for living expenses of parents, spouse and
children residing abroad, and iv. expenses in connection with foreign travel, education and
medical care of parents, spouse and children;
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Capital Account Transactions [2(e)]
means a transaction which alters the assets or liabilities, including contingent liabilities,
and includes transactions referred to in sub-section (3) of
section 6;
6th July, 2013 FEMA - Compliances - by CA G.Murali Krishna - 9849992493
Location Person Resident
Outside India In India
In India Outside India
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Capital Account Transactions
a. transfer or issue of any foreign security by a person residentin India;
b. transfer or issue of any security by a person resident outside
India;
c. transfer or issue of any security or foreign security by anybranch, office or agency in India of a person resident outside
India;
d. any borrowing or lending in foreign exchange in whatever
form or by whatever name called;
e. any borrowing or lending in rupees in whatever form or by
whatever name called between a person resident in India and
a person resident outside India;
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Capital Account Transactions .. Contd. f. deposits between persons resident in India and persons
resident outside India; g. export, import or holding of currency or currency notes;
h. transfer of immovable property outside India, other than
a lease not exceeding five years, by a person resident in India;
i. acquisition or transfer of immovable property in India, otherthan a lease not exceeding five years, by a person resident
outside India;
j. giving of a guarantee or surety in respect of any debt,
obligation or other liability incurred, i. by a person resident in India and owed to a person resident outside
India; or
ii. by a person resident outside India.
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Regulations at glanceRegulatio
n No.
Regulation Title Commonly referred as
1/2000 FEM (Permissible Capital Account Transactions) Regulations, 2000Capital Account Transactions
2/2000
FEM (Issue of Security in India by a Branch, Office or Agency of a
person resident outside India) Regulations, 2000IDR Regulations
3/2000 FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000ECB Regulations
4/2000 FEM (Borrowing or Lending in Rupees) Regulations, 2000
Rupee Borrowing
Regulations
5/2000 FEM (Deposit) Regulations, 2000Deposit Regulations
6/2000 FEM (Export and Import of Currency) Regulations, 2000Currency Regulations
7/2000
FEM (Acuisition and Transfer of Immovable Property Outside India)
Regulations, 2000Foreign Assets Regulations
8/2000 FEM (Guarantees) Regulations, 2000Guarantee Regulations
9/2000FEM (Realisation, Repatriation and Surrender of Foreign Exchange)Regulations, 2000
Forex Realisation Regulations
10/2000
FEM (Foreign Currency Accounts by a person Resident in India)
Regulations, 2000
Foreign Currency accounts
Regulations
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All the above regulations are dated of 03/05/2000
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Regulations at glance.. Contd.Regulati
on No.
Regulation Title Commonly referred as
11/2000
FEM (Possession and Retention of Foreign Currency)
Regulations, 2000
Possession of Foreign CurrencyRegulations
12/2000 FEM (Insurance) Regulations, 2000Foreign Insurance Regulations
13/2000 FEM (Remittance of Assets) Regulations, 2000Remittance of Assets Regulations
14/2000 FEM (Manner of Receipt and Payment) Regulations, 2000Receipt and payment Regulations
20/2000FEM (Transfer or issue of security by a person resident outsideIndia) Regulations, 2000
FDI Regulations
21/2000
FEM (Acquisition and transfer of Immovable Property in India)
Regulations, 2000
Acquisition of Immovable
Properties In india
22/2000
FEM (Establishment in India of Branch or Office or other place of
business) Regulations, 2000Branch Office Regulations
23/2000 FEM (Export of Goods and Services) Regulations, 2000
Exports Regulations
24/2000
FEM (Investment in Firms or Proprietary concern in India)
Regulations, 2000
Investments into Firm or
Proprietory concerns
25/2000 FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000Derivatives Regulations
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All the above regulations are dated of 03/05/2000
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Regulations at glance contd.
6th July, 2013 FEMA - Compliances - by CA G.Murali Krishna - 9849992493
Regulati
on No.
Date of
Issue
Regulation Title Commonly
referred as
71/2002 07/09/2002
FEM (Off-shore Banking Units)
Regulations, 2002OBU Regulations
101/2003 03/10/2003
FEM (Withdrawal of General
Permission to Overseas Corporate
Bodies) Regulations, 2003
OCB Regulations
120/2004 07/07/2004
FEM (Transfer or Issue of Any
Foreign Security)Regulations, 2004ODI regulations
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FDI
What is FDI?
Why it is important in current economic
scenario
Why a CS is supposed to be abreast with the
FDI and related procedures
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What is FIPB
FIPB is a department under the administrative
control of Ministry of Finance
It is a collection of Secretaries of various
Departments / Ministries
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Types of FDI
FDI Routes
Automatic Route
Without RBI approval
For all NRs other thanErstwhile OCBs
With RBI approval
Ertstwhile OCBinvestment in sectors
under Automatic Route
(existing before 16-09-03)
Government Approval(FIPB/ SIA)
Sectors reserved forGovt approval
For issue of Partly paidShares & warrants
The sectoral caps arebreached pursuant to
the investment
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Types of FDI contd.
Types
FDI PIS
FIIs
10% /24%/(Sectoral Cap with
approval ofMembers)
Sub-Accounts of FII(5%)
NRI/ PIO
Repatriable 5% /10%/ (24% with
approval ofMembers)
Non Repatriable(without any limit)
QFI
5% / 10%/ (24%with approval of
Members)
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Entities permitted to invest in India
Non ResidentInvestors
Automatic route
Any Non Resident(Other than citizen ofPakistan or an entity
in Pakistan andetstwhile OCBs)
NRIs resident in Nepal andBhutan or their Citizens (by
way of FE remittance
through normal bankingchannels)
With Approval
GovernmentApproval
Citizen of
Bangladesh or an
entity inBangladesh
Citizen of Pakistan
or an entity inPakistan*
Etstwhile OCB
(existing before 16-09-03)
Issue of capital againstimport of capital goods/
preliminary exp or pre-op expenses
RBI Approval
Ertstwhile OCBinvestment in
sectors underAutomatic Route
(existing before 16-09-03)
6th July, 2013 FEMA - Compliances - by CA G.Murali Krishna - 9849992493
*other than defence, space and atomic energy and sectors/
activities prohibited for foreign investment
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Types of Instruments
Instruments
Capital
EquityCCPS (w.e.f
01-05-2007)ADR/GDR
Debt
CCD (w.e.f07-06-2007)
FCCB
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Investment in Firms/ Proprietory Concern/ AOP/BOI
NRI / PIO can invest on non-repatriation basisunder automatic route.
NRI / PIO can invest on repatriation basis withprior approval of RBI. RBI will decide theapplication in consultation with the GOI
Amount is invested by inward remittance or outof NRE/FCNR(B)/NRO account maintained withAD/ Authorized banks.
Other than NRI / PIO can invest with priorapproval of RBI. RBI will decide the application in
consultation with the GOI The entity should not engage any prohibited
activity
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Investment in LLP
FDI will be allowed, through the Government approval route
in sectors/activities where 100% FDI is allowed, through the
automatic route and there are no FDI-linked performanceconditions
Indian company making investment in LLP (both should be
eligible entities)
LLPs with FDI will not be eligible to make any downstreaminvestments
Only by way of cash consideration
Investment in LLPs by FIIs and FVCIs will not be permitted.
LLPs not be permitted to avail ECBs
Conversion of a company with FDI, into an LLP, with the prior
approval of FIPB/Government
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Foreign Investment Prohibited Sectors
Atomic Energy
Lottery Business including Government / private lottery, online lotteries
etc. Gambling and Betting including casinos etc.
Business of chit fund
Nidhi Company
Trading in Transferable Development Rights (TDRs)
Activities/sector not opened to private sector investment
Agriculture (excluding Floriculture, Horticulture, Development of seeds,
Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms
etc. under controlled conditions and services related to agro and allied
sectors) and Plantations (Other than Tea Plantations)
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Foreign InvestmentProhibited Sectors contd
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or
of tobacco or of tobacco substitutes.
Activities / sectors not opened to private sector investment includingAtomic Energy and Railway Transport (other than Mass Rapid Transport
Systems).
foreign investment in any form, foreign technology collaboration in any
form including licensing for franchise, trademark, brand name,
management contract is also completely prohibited for Lottery Businessand Gambling and Betting activities.
Foreign investment in Trusts other than investment by SEBI registered
FVCIs in domestic VCF
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Allotment of sharesFlow
Remittance
The investor remits the amount into the Company in eligible currency
Intimation toRBI
The company shall intimate RBI through AD within 30 days of remittance
The intimation to be made in Annexure II of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 5 toCircular 1/2013 and Annexure 6 to Master Circular dated 01/07/2013
KYC
The company needs to facilitate the AD to obtain KYC information of theremitter from their counterpart bank
The KYC format is prescribed vide Annexure III of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 6 toCircular 1/2013 and Annexure 7 to Master Circular dated 01/07/2013
UIN
RBI upon receipt of the intimation allots Unique Identification Number(UIN) for each such remittance and intimates the company
This UIN has to be quoted at the time of filing the FC-GPR / refund of themoney
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Allotment of sharesFlow
Allotment/Refund
The company shall allot Shares / CCPS / CCD within 180 days of theremittance failing which the money shall be refunded (w.e.f. 29/11/2007)
Valuation ofShares
In case of listed company the valuation >= the value decided under SEBIregulations
In case of Unlisted Companies, the valuation has to be done as per DCFmethod (w.e.f. 07/04/2010)
Even for issue of convertible instruments the price/conversion formula
has to be done upfront. The conversion price cannot be changeddownwards at the time of conversion
Form FC-GPR
The company after allotting the shares/ CCPS/CCD shall file form FC-GPRwith AD who have received the remittance
The intimation to be made in Annexure I (Part A) of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 1 to
Circular 1/2013 and Annexure 8 to Master Circular dated 01/07/2013
Intimationfrom RBI
Upon receipt of the Form FC-GPR RBI after scrutiny of the form, allotsUIN for FC-GPR which shall be used at the time repatriation by theinvestor
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Transfer of Shares / CCPS/ CCD
Transfer
NRI / PIO to NRI/ PIO
NR to NR (includingNRI / PIO)
Sale/ Gift
other than FinancialServices Sector
Automatic Route
The company is inspecified Financial
Services Sector
Govt Approval
NR to R
Gift
Automatic Route
R to NR
Gift
RBI Approval (Needsto comply with
conditions specified)
Sale of Shares (Otherthan specifiedcategories of
industries)
Automatic Route
Sale of Shares(specified categories
of industries)
RBI Approval
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Transfer of sharesFlow
Sale
The seller and buyer enters into the agreement / arrangement to buy /sell the shares
Remittance
The Buyer makes the payment to the seller (Resident Seller / Non-Resident Seller)
Intimation toRBI
The resident party shall intimate to RBI through AD within 60 days ofreceipt / payment of consideration. The onus of submission is on theparty resident in India
The intimation to be made in Form FC-TRS. The said form has beenattached as Annexure 8 to Circular 1/2013 and Annexure 9-I to MasterCircular dated 01/07/2013
KYC
The company needs to facilitate the AD to obtain KYC information of theforeign counter party from their counterpart bank
The KYC format is prescribed vide Annexure III of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 6 toCircular 1/2013 and Annexure 9-II to Master Circular dated 01/07/2013
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Transfer of sharesFlow
Endorsementby AD
Upon receipt of Form FC-TRS (in Quadruplicate), the ADremitting or receiving the consideration has to endorse
on Form FC-TRS
Noting bythe Company
The company only upon receipt of the endorsed FC-TRSalong with relevant share transfer deeds / sharecertificate and any other relevant document, can recordthe transfer in its Register of Members
Valuation ofShares
In case of listed company the valuation >= the valuedecided under SEBI regulations
In case of Unlisted Companies, the valuation has to bedone as per DCF method (w.e.f. 07/04/2010)
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Transfer by R to NR as Gift under RBI approval route
The proposed transferee (donee) is eligible to hold such capital
instruments
The gift does not exceed 5 % of the PUCof the Indian company/each seriesof debentures/each mutual fund scheme.
The applicable sectoral cap limit in the Indian company is not breached
The transferor (donor) and the proposed transferee (donee) are close
relatives as defined in Section 6 of the Companies Act, 1956
The value of capital instruments to be transferred together with anycapital instruments already transferred by the transferor, as gift, to any
person residing outside India does not exceed the rupee equivalent of USD
50,000 during the calendar year.
Such other conditions as stipulated by Reserve Bank in public interest
from time to time
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Conversion of ECB/Lumpsum Fee/Royalty into Equity
The activity of the company is covered under the Automatic Route for FDI
or the company has obtained Government approval for foreign equity in
the company The foreign equity after conversion of ECB into equity is within the sectoral
cap, if any
Pricing of shares shall be as prescribed
Compliance with the requirements prescribed under any other statute and
regulation in force The conversion facility is available for ECBs availed under the Automatic or
Government Route and is applicable to ECBs, due for payment or not, as
well as secured/unsecured loans availed from non-resident collaborators.
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Issue of securitiesother cases
issue of shares/preference shares against lump sum technical know-how
fee, royalty, under automatic route or SIA/FIPB route, subject to pricing
guidelines and compliance with applicable tax laws Issue of Shares on Rights basis
in the case of shares of a company listed on a recognized stock exchange
in India, at a price as determined by the company in compliance with SEBI
(ICDR) Regulations, 2009
in the case of shares of a company not listed on a recognized stockexchange in India, at a price which is not less than the price at which the
offer on right basis is made to resident shareholders.
rights share to such erstwhile OCBs will have to take specific prior
permission from RBI. As such, entitlement of rights share is not
automatically available to erstwhile OCBs. Existing non-resident shareholders are allowed to apply for issue of
additional shares/ CCPS / CCD over and above their rights share
entitlements subject to the sectoral caps.
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Issue of securitiesother cases contd
Units in Special Economic Zones (SEZs) are permitted to issue equity
shares to non-residents against import of capital goods subject to the
valuation done by a Committee consisting of Development Commissionerand the appropriate Customs officials.
Share Swap: Approval of the Foreign Investment Promotion Board (FIPB) is
a prerequisite for investment by swap of shares.
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Pledge of Shares
A person being a promoter of a company registered in India (borrowing
company), which has raised ECB , may pledge the shares of the borrowing
company or that of its associate resident companies for the purpose ofsecuring the ECB raised by the borrowing company, provided that a no
objection for the same is obtained from a bank which is an authorised
dealer.
The authorized dealer, shall issue the no objection for such a pledge after
having satisfied itself that the external commercial borrowing is in linewith the extant FEMA regulations for ECBs and that :
i) the loan agreement has been signed by both the lender and the
borrower,
ii) there exists a security clause in the Loan Agreement requiring the
borrower to create charge on financial securities, and iii) the borrower has obtained Loan Registration Number (LRN) from the
Reserve Bank of India :
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Pledge of Sharescontd.
conditions :
i) the period of such pledge shall be co-terminus with the maturity of the
underlying external commercial borrowing; ii) in case of invocation of pledge, transfer shall be in accordance with the
extant FDI Policy and directions issued by the Reserve Bank;
iii) the Statutory Auditor has certified that the borrowing company will
utilize / has utilized the proceeds of the external commercial borrowing
for the permitted enduse/s only
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Restriction on Various Current Acct Transactions
Particulars Amount exceeding
(USD)
Private visits to any country (except Nepal and Bhutan) 10,000Gift remittances by persons other than Resident Individual
(per FY, per remitter)
5,000
Donation by persons other than Resident Individual (per FY,
per remitter)
5,000
Person going abroad for employment 1,00,000Emigration to foreign country 1,00,000 or amount
prescribed by the Host
Country)
Remittance of Salary Income to Close relatives residing
abroad
Net Salary
Business Travel 25,000
Medical Treatment abroad Amount Prescribed by
Doctor in India,
hospital/ doctor Abroad
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Restriction on Various Current Acct Transactions
Particulars Amount exceeding
(USD)
Studies Abroad 1,00,000 per academicyear or the amount
estimated by the inst.
Commission to a Foreign Agent for sale of residential or
commercial flats in India
25,000 or 5% of the
inward remittance
Project Consultancy Services to a Foreign Consultant for
Infrastructure Projects In India
10 Million Per Project
Project Consultancy Services to a Foreign Consultant for
Other Projects In India
1 Million Per Project
Reimbursement of Pre-Incorporation expenses 1,00,000 or 5% of the
inward remittance
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Compliances Calendar under Various regulations
Particulars Relevant Regulation Due Date
Filing of FIRC intimation
along with KYC
FDI Regulations With in 30 days of Receipt of
FundsAllotment of Shares FDI Regulations Within 180 days of Receipt of
funds
Filing of FC-GPR FDI Regulations Within 30 days of Allotment
Filing of Annual Asset
Liability Statement to RBI
FDI Regulations 15th of July from end of the
relevant FYCopy of Resolution passed
by the company for
enhancement of limits
FDI Regulations Prior Intimation
Filing of Form 83 ECB Regulations With in 7 days of signing of
agreementFiling of Form ECB-2 ECB Regulations Within 7 working days of end
of the relevant month
Making of Payment for
Imports
Current Account Rules Within 6 months of Import
(Normal Period)
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Compliances Calendar under Various regulations
Particulars Relevant Regulation Due Date
Making of Payment for
Imports
ECB Regulations 6 months but 36 months ECB
Filing of Form IPI by a
person other than NRI/PIO
Acquisition of
Immovable Properties
In india
Within 90 days of acquisition
Obtaining RBI approval for
carrying operations in
India
Branch Office
Regulations
Before commencing
operations in India
Register as Foreign
Company in India
Branch Office
Regulations
Before commencing
operations in India
Submission of AAC to RBI/
IT authorities
Branch Office
Regulations
Within 6 months of due date
for closing of account as per
Host Country Regulations
Submission of information
to Police authorities
Branch Office
Regulations
Within 5 working days of
becoming functional
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Compliances Calendar under Various regulations
Particulars Relevant Regulation Due Date
Realization of Dues of
Exports
Exports Regulations SEZ/EOU/ Status Holders etc.,
- 1 yearOthers 9 months (upto
30/09/2013)
Submission of Intimation
of overdue bills to AD
Exports Regulations Within 30 days from end of
the FY
Submission of Form ODI
under Automatic/
Approval Route
ODI Regulations At the time of making
remittance
Submission of Form ODI
for each change in the
step down subsidiaries
ODI Regulations Within 30 days of decision
taken by the Competent
Authority
Submission of details of
Share certificates issued
by JV/WOS
ODI Regulations Within 6 months of
remittance/ capitalisation of
exports
Submission of APR ODI Regulations Within 60 days of closure/ due
date of closure of financials
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Penalties
If the amount involved is quantifiable upto 3 times of the amount involved and
for continuing default Upto Rs. 5,000 per day
In case of the companies, the following persons are also liable to punishment
Person In-Charge of the operations
Person with whose consent or Connivance the offense is taken place
Director or Secretary or Manager or other officer of the company in case of negligence
is attributable to him
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Compounding of offenses
The compounding application can be submitted to the RBI for the cases other than
the Cases of contravention having a money-laundering, national and security
concern involving serious infringements of the regulatory framework including
cases where application for compounding has not been filed within the stipulated
period in the memorandum issued by the Reserve Bank may be referred to
Directorate of Enforcement for further investigation and necessary action under
Section 37 of the Act or to the Anti Money Laundering Authority instituted under
Prevention of Money Laundering Act, 2002 or to any other agencies as deemed fit.
Contraventions related to any transaction without proper approval or permissionfrom the concerned Government or any Statutory Authority as the case may be
under the relevant laws/regulations as envisaged under FEMA, would not be
compounded unless the required approval is obtained from the concerned
authorities.
The compounding application can be made in the format prescribed as per
A.P.(DIR Series) Circular No.31 dated February 1, 2005 (in duplicate). ApplicationFee Rs. 5,000/-
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Compounding Powers of RBI
Amount (INR) Relevant Officer
10 Lakhs and 40 Lakhs and 100 Lakhs CGM
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d f
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Compounding Powers of ED
Amount (INR) Relevant Officer
5 Lakhs and 10 Lakhs and 50 Lakhs and 100 Lakhs SD with D
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U f l W b it Li k
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Useful Website Links1) RBI
www.rbi.org.in
2) DIPP
www.dipp.nic.in
3) ED
http://www.enforcementdirectorate.gov.in/4) FIPB
www.fipb.india.com
5) Ministry of Finance
www.finmin.nic.in
6) Ministry of Home Affairs
www.mha.nic.in
6th July, 2013 FEMA - Compliances - by CA G.Murali Krishna - 9849992493
http://www.rbi.org.in/http://www.dipp.nic.in/http://www.enforcementdirectorate.gov.in/http://www.fipb.india.com/http://www.finmin.nic.in/http://www.mha.nic.in/http://www.mha.nic.in/http://www.finmin.nic.in/http://www.fipb.india.com/http://www.enforcementdirectorate.gov.in/http://www.dipp.nic.in/http://www.rbi.org.in/8/22/2019 FEMA-Compliances Seminar 06072013
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Questions
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Thank you
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G. Murali Krishna M.com., A.C.A, A.C.S
M/s. SBS and Company
Chartered Accountants
#6-3-900/6-9, Flat No.104,
Veeru Castle, Durganagar Colony,
Panjagutta, Hyderabad-500082.
Mobile No. 9849992493
Ph No. 040-64584494/ 40183366
E-mail: [email protected]