Recent Changes in FEMA and its Implications

Transcription

1 Recent Changes in FEMA and its Implications CHAIRMAN PANKAJ BHUTA SPEAKER TANVI VORA 25 th October 2016 The Chamber of Tax Consultants 1

2 Outbound Investments

3 Outbound Investments Overseas Direct Investment (ODI) Rationalization and reporting of ODI Forms (A.P. (DIR Series) Circular No. 62 dated 13 th April 2016) Format of ODI reporting changed New reporting format for Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), Portfolio Investment and overseas investment by Mutual Funds Reporting of purchase and repurchase of ESOPs shall continue to be reported in the existing format 25 th October 2016 The Chamber of Tax Consultants 3

4 Outbound Investments Overseas Direct Investment (ODI) Rationalization and reporting of ODI Forms (cont..) Part I Application for allotment of Unique Identification Number (UIN) and reporting of Remittances / Transactions: Section A Details of the IP / RI. Section B Capital Structure and other details of JV/ WOS/ SDS. Section C - Details of Transaction/ Remittance/ Financial Commitment of IP/ RI. Section D Declaration by the IP/ RI. Section E Certificate by the statutory auditors of the IP/ self-certification by RI. Part II - Annual Performance Report (APR) Part III Report on Disinvestment by way of a. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of overseas JV / WOS; b. Sale/ Transfer of the shares of the overseas JV/ WOS to another eligible resident or non-resident; c. Closure / Voluntary Liquidation / Winding up/ Merger/ Amalgamation of IP; and d. Buy back of shares by the overseas JV/ WOS of the IP / RI. 25 th October 2016 The Chamber of Tax Consultants 4

5 Outbound Investments Overseas Direct Investment (ODI) Rationalization and reporting of ODI Forms (cont..) Any post investment changes subsequent to the allotment of the UIN are to be reported in Form ODI Part I Disinvestment from the JV/WOS to be reported in Form ODI Part III ODI by Resident Individual Certification of Form ODI Part I by statutory auditor or chartered accountant not compulsory. Self-certification by the RI may be accepted. Online Reporting of Form ODI Online filing of Form ODI revamped Concept of AD Maker, AD Checker and AD Authorizer introduced. Each bank to obtain user-ids for Maker, Checker and Authorizer for accessing online OID application Various changes in Form ODI 25 th October 2016 The Chamber of Tax Consultants 5

6 Outbound Investments Overseas Direct Investment (ODI) Submission of Annual Performance Report (A.P. (DIR Series) Circular No. 61 dated 13 th April 2016) Indian Party (IP) / Resident Individual (RI) which have made ODI have to annually file Form APR Online OID Application modified to enable AD Banks to view outstanding position of all APRs Certification of APR by statutory auditor not insisted for Resident Individuals. Self-certification may be accepted In case of multiple IPs / RIs Obligation to submit APR shall lie with IP / RI having maximum stake in the JV / WOS or as mutually agreed among them (such IP/RI taking responsibility to file APR to furnish appropriate undertaking to AD Bank) Form APR to be filed in Form ODI Part II by 31 st December every year (earlier date 30 th June) APR to be based on latest audited annual accounts unless exempted by RBI Non Compliance of APR filing will be treated as FEMA contravention Various changes in APR reporting 25 th October 2016 The Chamber of Tax Consultants 6

7 Inbound Investments

8 Inbound Investments Investment in companies engaged in tobacco related activities (A.P. (DIR Series) Circular No. 2 dated 3 rd July 2015) As per Notification 20/2000, FDI prohibited in manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes Clarification Prohibition applies only to manufacturing of the products mentioned above. FDI in other activities relating to these products shall be governed by the sectoral restrictions in FDI policy issued by DIPP and Schedule 1 of Notification FEMA 20/2000 Eg Wholesale Cash and Carry, Retail Trading etc. Foreign Investment in India by Foreign Portfolio Investors (A.P. (DIR Series) Circular No. 6 dated 16 th July 2015) Clarification Restriction on investments with less than three years residual maturity shall not be applicable to investment by FPIs in security receipts issued by Asset Reconstruction Companies. However, investment in SRs shall be within the overall limit prescribed for corporate debt from time to time. 25 th October 2016 The Chamber of Tax Consultants 8

9 Inbound Investments Investment by Foreign Portfolio Investors (FPI) in Government Securities (A.P. (DIR Series) Circular No. 19 dated 6 th October 2015) / (A.P. (DIR Series) Circular No. 55 dated 29 th March 2016) Concept of Medium Term Framework (MTF) for FPI limits in Government securities introduced Features of the MTF: The limits for FPI investment in debt securities will henceforth be announced/ fixed in Rupee terms. The effective increase in limits for the following two quarters will be announced every half year in March and September. The limits for FPI investment in the Central Government securities will be increased in phases to reach 5 per cent of the outstanding stock by March In aggregate terms, this is expected to open up room for additional investment of 1,200 billion in the limit for Central Government securities by March 2018 over and above the existing limit of 1,535 billion for all Government securities. Separate limit for investment by all FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2 per cent of the outstanding stock by March This would amount to an additional limit of about 500 billion by March The existing requirement of investments being made in G-sec (including SDLs) with a minimum residual maturity of three years will continue to apply to all categories of FPIs. Aggregate FPI investments in any Central Government security would be capped at 20% of the outstanding stock of the security. Investments at existing levels in the securities over this limit may continue but not get replenished through fresh purchases by FPIs till these fall below 20%. 25 th October 2016 The Chamber of Tax Consultants 9

10 Inbound Investments Investment by Foreign Portfolio Investors (FPI) in Government Securities (cont..) Limits for investment by FPIs in Central Government Securities and State Development Loans are increased as under: Enhancement of limit for investment by FPIs in Government Securities in two tranches from October 12, 2015 and January 1, 2016 respectively as under: Enhancement of limit for investment by FPIs in Government Securities in two tranches from April 4, 2016 and July 5, 2016 respectively as under: 25 th October 2016 The Chamber of Tax Consultants 10

11 Inbound Investments Investment by Foreign Portfolio Investors (FPI) in Government Securities (cont..) (A.P. (DIR Series) Circular No. 4 dated 30 th September 2016) The limits for investment by FPIs in Central Government Securities and SDL for the next half year are proposed to be increased in two tranches from October 3, 2016 and January 2, 2017 respectively as below: 25 th October 2016 The Chamber of Tax Consultants 11

12 Inbound Investments Investment by Foreign Portfolio Investors (FPI) in Corporate Bonds (A.P. (DIR Series) Circular No. 31 dated 26 th November 2015) FPI permitted to acquire NCDs/bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal installment in the case of amortising bond. The revised maturity period of such NCDs/bonds, restructured based on negotiations with the issuing Indian company, should be three years or more FPI which propose to acquire such NCDs/bonds under default should disclose to the Debenture Trustees the terms of their offer to the existing debenture holders / beneficial owners from whom they are acquiring Investment should be within the overall limit prescribed for corporate debt from time to time (currently Rs billion). 25 th October 2016 The Chamber of Tax Consultants 12

13 Inbound Investments Issue of shares under Employees Stock Options Scheme and/or sweat equity shares to persons resident outside India (A.P. (DIR Series) Circular No. 4 dated 16 th July 2015) / (Notification No. FEMA 344/2015 RB dated 11 th June 2015) Hitherto Indian company can issue ESOPs (or by whatever name called) to its employees or employees of its overseas JV/WOS who are resident outside India, directly or through a Trust, scheme is as per SEBI regulations and FV of shares to be allotted under the scheme to NR employees does not exceed 5 per cent of the paid up capital of the issuing company. Change Indian company may issue employees stock option and/or sweat equity shares to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India. Provided: a) Scheme drawn in terms of SEBI regulations or the Companies (Share Capital and Debentures) Rules, 2014 under the Companies Act 2013 b) Issue is in compliance with the sectoral cap applicable to the said Indian company c) Issue for companies falling under FDI under approval route requires prior approval of FIPB d) Issue to an employee/director who is a citizen of Bangladesh/Pakistan requires prior approval of FIPB 25 th October 2016 The Chamber of Tax Consultants 13

14 Inbound Investments Foreign Direct Investment Reporting under FDI Scheme on the e-biz platform (A.P. (DIR Series) Circular No. 9 dated 21 st August 2015) / (A.P. (DIR Series) Circular No. 40 dated 1 st February 2016) Online filing of the Foreign Currency Transfer of Shares (FCTRS) returns enabled Steps involved in Online filing on e-biz portal: Customer to login into e-biz portal, download form FCTRS, complete the form and then upload it on the portal Digital signature to be used AD Banks to download the completed forms from the portal, verify it, call for additional information if necessary and then upload the same to RBI RBI to allot Unique Identification Number (UIN) Vide Circular No. 40 dated 1st February 2016 Online filing of Advance Remittance Form (ARF), Form FCGPR and Form FCTRS enabled Beginning February 8, 2016 the physical filing of forms ARF, FCGPR and FC-TRS discontinued 25 th October 2016 The Chamber of Tax Consultants 14

15 Inbound Investments Subscription to National Pension System by Non-Resident Indians (NRIs) (A.P. (DIR Series) Circular No. 24 dated 29 th October 2015) / (Notification No. 353/2015 RB dated 6 th October 2015) NRIs may subscribe to the NPS governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. Subscription amounts shall be paid by the NRIs either by inward remittance through normal banking channels or out of funds held in their NRE/FCNR/NRO account. No restriction on repatriation of the annuity/ accumulated savings. Annual Return on Foreign Liabilities and Assets (FLA Return) Reporting by Limited Liability Partnerships (A.P. (DIR Series) Circular No. 22 dated 21 st October 2015) / (Notification No. 351/2015 RB dated 30 th September 2015) All LLPs that have made ODI and/or received FDI in the previous year(s) as well as in the current year, shall submit the FLA return to RBI by July 15 every year Since LLPs do not have CIN, to enter A99999AA9999LLP against CIN in the FLA Return. 25 th October 2016 The Chamber of Tax Consultants 15

16 Inbound Investments Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations (A.P. (DIR Series) Circular No. 63 dated 21 st April 2016) (Notification No. FEMA 355/2015 RB dated 16 th November 2015) Foreign investment permitted in the units of Investment Vehicles registered and regulated by SEBI or any other competent authority Currently, Investment Vehicles include: Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014 Infrastructure Investment Trusts (InvITs) registered and regulated under the SEBI (InvITs) Regulations, 2014 Alternative Investment Funds (AIFs) registered and regulated under the SEBI (AIFs) Regulations 2012 Unit means beneficial interest of an investor in the Investment Vehicle and includes shares or partnership interests Features of regime: A person resident outside India (incl. Registered Foreign Portfolio Investor (RFPI) / Non-Resident Indian (NRI)) may invest in units of Investment Vehicles. Payment for units of Investment Vehicle acquired by a person resident or registered / incorporated outside India by inward remittance through the normal banking channel including by debit to an NRE or an FCNR account 25 th October 2016 The Chamber of Tax Consultants 16

17 Inbound Investments Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations (cont..) A person resident outside India may sell or transfer or redeem the units as per SEBI or RBI regulations Downstream investment by an Investment Vehicle shall be regarded as foreign investment if either the Sponsor or the Manager or the Investment Manager is not Indian owned and controlled. If sponsors or managers or investment managers are organized in a form other than companies or LLPs, SEBI shall determine whether the sponsor or manager or investment manager is foreign owned and controlled The extent of foreign investment in the corpus of the Investment Vehicle will not be a factor to determine as to whether downstream investment of the Investment Vehicle concerned is foreign investment or not. Downstream investment by an Investment Vehicle that is reckoned as foreign investment shall have to fulfil sectoral caps and conditions / restrictions as per FDI Policy or Schedule 1 of the Notification 20/2000. Downstream investment in an LLP by an Investment Vehicle to conform to the provisions of Schedule 9 of the Notification 20/2000 or FDI Policy Alternative Investment Fund Category III with foreign investment shall make portfolio investment in only those securities or instruments in which a RFPI is allowed to invest Investment Vehicle receiving foreign investment to undertake regular reporting to RBI or SEBI as prescribed by them from time to time Clarification Foreign investment in units of REITs registered and regulated under the SEBI (REITs) Regulations, 2014 will not constitute real estate business 25 th October 2016 The Chamber of Tax Consultants 17

18 Inbound Investments Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 Notification No.FEMA.368/2016-RB dated 20 th May 2016 RBI has issued notification to permit transfer of shares on a deferred basis, subject to compliance with following conditions: Maximum 25% of the total consideration can be paid by the buyer on a deferred basis Total consideration paid for shares must be compliant with applicable pricing guidelines Parties can enter into an escrow arrangement for the consideration payable on deferred basis If the total consideration is paid, the seller can furnish an indemnity for the amount of consideration payable on deferred basis The consideration payable on deferred basis should be paid within a period of 18 months from date of transfer agreement. Also, the escrow arrangement / period of indemnity cannot exceed 18 months. The above conditions need to be complied with for transfer of shares on a deferred basis between a resident buyer and a non-resident seller, or vice versa. The relaxation will simplify transactions in the secondary space which commercially require part consideration to be deferred. 25 th October 2016 The Chamber of Tax Consultants 18

19 Inbound Investments Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016 Notification No.FEMA.361/2016-RB dated 20 th May 2016 Definition of NRI amended : Non-Resident Indian (NRI) means an individual resident outside India who is citizen of India or is an Overseas Citizen of India cardholder within the meaning of section 7 (A) of the Citizenship Act, 1955 Schedule 3 Amended : Non repatriable inbound investment under this schedule no longer permitted Schedule amended to include convertible preference shares, warrants and units of any investment vehicles Inbound investments under schedule 3 shall be subject to sectoral caps of FDI Policy and schedule 1 Reporting of investments under schedule 3 by AD banks to RBI amended Concept of NRO(PIS) Account removed. All NRO(PIS) Accounts to be re-designated as NRO Account 25 th October 2016 The Chamber of Tax Consultants 19

20 Inbound Investments Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016 (cont..) Schedule 4 Amended : Permission to purchase: Company, trust or partnership firm incorporated outside India and owned and controlled by NRI now permitted to invest under non repatriable basis under schedule 4 Schedule amended to include convertible preference shares and units of any investment vehicles Investments under schedule 4 will be deemed to be domestic investment at par with investments by residents Without loss of generality, schedule 4 states that: An NRI may acquire, on non-repatriation basis, any security issued by a company without any limit either on the stock exchange or outside it. An NRI may invest, on non-repartition basis, in units issued by an investment vehicle without any limit, either on the stock exchange or outside it. An NRI may contribute, on non-repatriation basis, to the capital of a partnership firm, a proprietary firm or a Limited Liability Partnership without any limit. 25 th October 2016 The Chamber of Tax Consultants 20

21 Inbound Investments Review of FDI Policy (Press Note 11 (2015 Series) dated 1 st October 2015) Sector Insertion NBFCs White labeled ATM Operations (Press Note 12 (2015 Series) dated 24 th November 2015) 100% FDI under automatic route NBFC should have minimum net worth of Rs 100 Cr to be maintained at all times If the NBFC also undertaking any of the other permitted activities, cap norms of that activity to apply Sector Amendment Manufacturing Definition of Manufacture inserted manufacturer permitted to undertake wholesale and/or retail including through e-commerce without government approval 25 th October 2016 The Chamber of Tax Consultants 21

22 Inbound Investments Review of FDI Policy (Press Note 12 (2015 Series) dated 24 th November 2015) Particulars Amendment FDI in LLP 100% FDI in LLPs permitted under automatic route in LLPs operating in sectors/activities where 100% FDI is allowed through automatic route and there are no FDI linked performance conditions Definition of control and ownership in reference to LLPs defined Downstream investments by LLPs in another company or LLP is permitted in sectors/activities where 100% FDI is allowed through automatic route and there are no FDI linked performance conditions Other conditions relating to downstream investment by companies to similarly apply Companies not having operations Swap of shares Infusion of foreign investment in an India Co that does not have any operations and also does not have any downstream investment would not require government approval for undertaking activities where 100% FDI is allowed through automatic route and there are no FDI linked performance conditions No government approval is required for swap of shares in sectors under automatic route 25 th October 2016 The Chamber of Tax Consultants 22

23 Inbound Investments Review of FDI Policy (Press Note 12 (2015 Series) dated 24 th November 2015) Particulars Amendment Company / Trust / Firm incorporated outside India by NRI Threshold limit for approval by FIPB Plantation Sector A company, trust and partnership firm incorporated outside India and owned and controlled by NRI shall be considered as par to NRI Therefore, any foreign investment where NRIs are permitted to invest, such entity owned and controlled by them shall also be permitted Earlier FIPB < Rs 3000 Cr and CCEA > Rs 3000 Cr Amendment Limit for FIPB enhanced to Rs 5000 Cr Foreign Investment opened in coffee, rubber, cardamom, palm oil tree and olive oil tree plantations Foreign investment in above sectors including tea tree plantations sector shall be under 100% automatic route Other conditions to continue to apply 25 th October 2016 The Chamber of Tax Consultants 23

24 Inbound Investments Review of FDI Policy (Press Note 12 (2015 Series) dated 24 th November 2015) Sector Amendment Defence Regional Air Transport Services Non scheduled air transport / Ground handling services / Satellites / CIC FDI upto 49% under automatic route Portfolio investment and investment by FVCIs allowed upto 49% automation route Proposals in excess of 49% to be considered by FIPB Fresh infusion of foreign investment resulting in change of ownership to foreign investor will require government approval FDI upto 49% under automatic route permitted 100% permitted for NRIs Enhancement of FDI from 74% to 100% under automatic route 25 th October 2016 The Chamber of Tax Consultants 24

25 Inbound Investments Review of FDI Policy (Press Note 12 (2015 Series) dated 24 th November 2015) Sector Amendment Construction Development Sector SBRT / Wholesale Cash and Carry Area restriction & Minimum capitalisation conditions removed Each phase of construction development considered as separate project for FDI Foreign Investor permitted to exit and repatriate investment before completion of project provided lock-in-period of 3 years has been completed (tranche wise) Transfer of stake from NR to NR (without any repatriation) permitted without lock-in period Exit on completion of project or trunk infrastructure permitted before lock-in-period FDI not permitted in Real Estate Business Lock-in-period not applicable to Hotel & tourist resort, Hospital, SEZ, Educations Institutions, Old Age Homes and Investments by NRIs Meaning of Transfer given Same entity can undertake SBRT and Wholesale C&C provided conditions of FDI policy as complied with by both the business arms separately 25 th October 2016 The Chamber of Tax Consultants 25

26 Inbound Investments Review of FDI Policy (Press Note 12 (2015 Series) dated 24 th November 2015) Sector Amendment Single Brand Retail Trading Duty Free Shops Sourcing requirements in case of state of art and cutting edge technology relaxed subject to government approval Entities undertaking SBRT permitted to undertake e-commerce activities to sell their goods 100% FDI now permitted under automatic route in Duty Free Shops located and operated in Customs bonded areas 25 th October 2016 The Chamber of Tax Consultants 26

27 Inbound Investments Review of FDI Policy (Press Note 1 (2016 Series) dated 23 rd March 2016) Sector Amendment Insurance Sector Enhance limit of foreign investment in insurance sector from 26 to 49 percent under the automatic route subject to terms and conditions Other conditions remain same (Press Note 2 (2016 Series) dated 23 rd March 2016) Sector Amendment Pension Sector 49% FDI under automatic route Investment in Pension Sector to be allowed as per Pension Fund Regulatory and Development Authority (PFRDA) Act 2013 Entities bringing the FDI to obtain necessary registration and compliances with PFRDA Any change/shift in control or ownership to foreign investor shall require government approval Onus of compliances on investee Indian pension fund company 25 th October 2016 The Chamber of Tax Consultants 27

28 Inbound Investments Guidelines for Foreign Direct Investment on E-commerce (Press Note 3 (2016 Series) dated 29 th March 2016) As per the extant FDI Policy, FDI up to 100% under the automatic route is permitted in B2B e-commerce No FDI is permitted in B2C e-commerce. Except in following circumstances: i. Manufacturer is permitted to sell its products manufactured in India through e-commerce ii. SBRT entity operating through brick and mortar stores is permitted to sell through e-commerce iii. Indian manufacturer can sell its own single brand products through e-commerce. Subject to conditions Revised guidelines for FDI in e-commerce sector: FDI up to 100% under automatic route now permitted in marketplace model FDI not permitted in inventory-based model FDI up to 100% under automatic route also applies to entities engaged in sale of services through e-commerce (see definition) 25 th October 2016 The Chamber of Tax Consultants 28

29 Inbound Investments Guidelines for Foreign Direct Investment on E-commerce (cont..) (Press Note 3 (2016 Series) dated 29 th March 2016) Definitions: E-commerce: E-commerce means buying and selling of goods and services including digital products over digital & electronic network E-commerce entity: E-commerce entity has been defined to mean a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2(42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of the Foreign Exchange Management Act, 1999, owned or controlled by a person resident outside India and conducting the e-commerce business Inventory Based Model of E-commerce: This model has been defined to mean an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly Marketplace Based Model of E-commerce: This model defined as providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller. 25 th October 2016 The Chamber of Tax Consultants 29

30 Inbound Investments Guidelines for Foreign Direct Investment on E-commerce (cont..) (Press Note 3 (2016 Series) dated 29 th March 2016) Conditions: i. Digital & electronic network includes networks of computers, television channels and any other internal application used in automated manner such as web pages, extranets, mobiles etc. ii. Marketplace e-commerce entity will be permitted to enter into transaction with seller registered on its platform on B2B basis iii. Marketplace e-commerce entity may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services. iv. E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model. v. An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies. vi. In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller. 25 th October 2016 The Chamber of Tax Consultants 30

31 Inbound Investments Guidelines for Foreign Direct Investment on E-commerce (cont..) (Press Note 3 (2016 Series) dated 29 th March 2016) Conditions: vii. In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India. viii.in marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller. ix. E-commerce entites providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. x. Guidelines on cash and carry wholesale trading as given in para of the FDI Policy will apply on B2B e-commerce 25 th October 2016 The Chamber of Tax Consultants 31

32 Inbound Investments Review of FDI Policy (Press Note 4 (2016 Series) dated 6 th May 2016) Sector Amendment Asset Reconstruction Companies Earlier Position FDI was permitted upto 100% but 49% under automatic route and beyond under government approval route No sponsor was allowed to hold more than 50% in ARC by way of FDI or through FII/FPI FII/ FPI were permitted to invest upto 74% of each trance of scheme of Security Receipts Change FDI was permitted upto 100% under automatic route Investment limit of sponsor to be governed by SARFAESI Act FII/ FPI were permitted to invest upto 100% of each trance of scheme of Security Receipts 25 th October 2016 The Chamber of Tax Consultants 32

33 Inbound Investments Review of FDI Policy (Press Note 5 (2016 Series) dated 24 th June 2016) Entry Conditions on Investment: For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of RBI would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted Sector Agriculture and Animal Husbandry Amendment The requirement of controlled conditions under Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture has been done away with Manufacturing A manufactured is permitted to sell its products manufactured in India through wholesale / retail including e-commerce without government approval 100% FDI under government approval route is allowed for trading, including through e- commerece for food products manufactured in India. Application to be made to DIPP Defence FDI beyond 49% has now been permitted through government approval route wherever it is likely to result in access to modern technology or for other reasons to be recorded FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act th October 2016 The Chamber of Tax Consultants 33

34 Inbound Investments Review of FDI Policy (cont..) (Press Note 5 (2016 Series) dated 24 th June 2016) Sector Amendment Broadcasting Carriage Services 100 % under automatic route permitted for this sector Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval Civil Aviation Sector Earlier FDI policy on Airports permitted 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route. Now 100% FDI under automatic route been permitted in Brownfield Airport projects. As per the earlier FDI policy, FDI up to 49% was allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. Now raised to 100%, with FDI upto 49% permitted under automatic route and FDI beyond 49% through Government approval For NRIs, 100% FDI will continue to be allowed under automatic route. 25 th October 2016 The Chamber of Tax Consultants 34

35 Inbound Investments Review of FDI Policy (cont..) (Press Note 5 (2016 Series) dated 24 th June 2016) Sector Amendment Private Security Agencies Earlier policy permitted 49% FDI under government approval route in Private Security Agencies Since Private Security Agencies are already required to get license under PSAR Act 2005, the requirement of putting them through another line of Government approvals through FIPB has now been done away with for FDI up to 49%. Accordingly, FDI up to 49% is now permitted under automatic route in this sector. FDI beyond 49% and upto 74% is permitted through Government approval route Single Brand Retail Trading Local sourcing norms have been relaxed up to three years, with prior Government approval, for entities undertaking Single Brand Retail Trading of products having state of art and cutting edge technology For such entities, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having state-of-art and cutting-edge technology and where local sourcing is not possible. Thereafter, sourcing norms would be applicable 25 th October 2016 The Chamber of Tax Consultants 35

36 Inbound Investments Review of FDI Policy (cont..) (Press Note 5 (2016 Series) dated 24 th June 2016) Sector Amendment Pharmaceutical Earlier FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield pharma and FDI up to 100% under government approval in brownfield pharma. With the objective of promoting the development of this sector, 74% FDI under automatic route has been permitted in brownfield pharmaceuticals. FDI beyond 74% would be permitted through Government approval route. 25 th October 2016 The Chamber of Tax Consultants 36

37 Inbound Investments Amendment to Schedule 1 to Notification No. FEMA. 20/2000-RB dated 3rd May 2000 (A.P. (DIR Series) Circular No. 8 dated 20 th October 2016) (Notification No.FEMA.375/2016-RB dated 9 th September 2016) Sector Amendment Other Financial Services Erstwhile 13 activities of NFBCs allowed under automatic route stands withdrawn Now, FDI in financial Services activities regulated by any financial sector regulators, eg, RBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India permitted under 100% automatic route RDI in this sector shall be subject to conditionalities, including minimum capitalization norms, as specified by the concerned Regulator/Government Agency Where there is doubt regarding the regulatory oversight or where only part of the financial services activity is regulated, foreign investment up to 100% will be allowed under Government approval route subject to conditions including minimum capitalization requirement, as may be decided by the Government FDI to be limited in activities if specifically regulated by an Act which lays limits of FDI Downstream investments by any of these entities will be subject to the extant sectoral regulations and provisions of Inbound Investments 25 th October 2016 The Chamber of Tax Consultants 37

38 External Commercial Borrowings (ECBs) & Trade Credits

39 External Commercial Borrowings (ECBs) Trade Credit Policy - Rupee (INR) Denominated trade credit (A.P. (DIR Series) Circular No. 13 dated 10 th September 2015) Resident importer can raise trade credit in Rupees (INR) within the following framework after entering into a loan agreement with the overseas lender: Trade credit can be raised for import of all items (except gold) permissible under FTP Trade credit period for import of non-capital goods can be upto one year from the date of shipment or upto the operating cycle whichever is lower Trade credit period for import of capital goods can be upto five years from the date of shipment No roll-over / extension can be permitted by the AD bank beyond the permissible period AD banks can permit trade credit upto USD 20 mn equivalent per import transaction AD banks are permitted to give guarantee, Letter of Undertaking or Letter of Comfort in respect of trade credit for a maximum period of three years from the date of shipment All-in-cost of such Rupee (INR) denominated trade credit should be commensurate with prevailing market conditions All other guidelines for trade credit will be applicable for such Rupee (INR) denominated trade credits Overseas lenders of Rupee (INR) denominated trade credits will be eligible to hedge their exposure in Rupees through permitted derivative products in the on-shore market with an AD bank in India 25 th October 2016 The Chamber of Tax Consultants 39

40 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas (A.P. (DIR Series) Circular No. 17 dated 29 th September 2015) / (A.P. (DIR Series) Circular No. 60 dated 13 th April 2016) Framework for issuance of Rupee denominated overseas bonds: Eligible borrowers : i)any corporate or body corporate. ii)reits and InvITs (registered under SEBI). Type of Instrument: Only plain vanilla bonds issued in FATF compliant financial centres placed privately or listed on exchanges as per host country regulations Recognised investors: Any investor from a FATF compliant jurisdiction. Banks incorporated in India will not have access to these bonds. Indian banks, however, can act as arranger and underwriter. In case of underwriting, holding of Indian banks cannot be more than 5 per cent of the issue size after 6 months of issue. Maturity: Minimum maturity period of 5 years. The call and put option, if any, shall not be exercisable prior to completion of minimum maturity All-in-cost: The all-in-cost of such borrowings should be commensurate with prevailing market conditions 25 th October 2016 The Chamber of Tax Consultants 40

41 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas (cont..) End Uses: The proceeds can be used for all purposes except for the following: i. Real estate activities other than for development of integrated township / affordable housing projects ii. iii. iv. Investing in capital market and using the proceeds for equity investment domestically Activities prohibited as per the foreign direct investment (FDI) guidelines On-lending to other entities for any of the above objectives v. Purchase of land Amount: Under the automatic route the amount will be equivalent of USD 750 million per annum. Cases beyond this limit will require prior approval of the Reserve Bank Conversion Rate: The foreign currency - Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds Hedging: Overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative products with AD banks in India or through branches / subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence Leverage: The leverage ratio for the borrowing by financial institutions will be as per the prudential norms 25 th October 2016 The Chamber of Tax Consultants 41

42 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas Further amendment to Framework for issuance of Rupee denominated overseas bonds vide A.P. (DIR Series) Circular No. 60 dated 13th April 2016 After the Fourth Bi-Monthly Monetary Policy Statement, issued on September 29, 2015, the limit of investment by FPIs in debt securities was to be fixed in rupee terms (rather than earlier USD terms). Also, issuance of Rupee denominated bonds overseas will be within the aggregate limit of foreign investment permitted in corporate debt So, issuance of such bonds under automatic route will be within maximum annual limit of Rs. 50 billion. (Earlier USD 750 million per annum). Cases beyond this limit will require prior approval of the Reserve Bank Eligibility of investors: Rupee denominated bonds can only be issued in a country and can only be subscribed by a resident of a country viz i) member of FATF or FATF Styled Regional Body, ii) whose securities market regulator is a signatory to IOSCO s Multilateral MOU or a signatory to bilateral MOU with SEBI for information sharing arrangements, iii) not be a country identified in the public statement of the FATF Maturity: Reduced to 3 years Borrowers issuing Rupee denominated bonds overseas should incorporate clause in the agreement / offer document so as to enable them to obtain the list of primary bond holders and provide the same to the regulatory authorities in India 25 th October 2016 The Chamber of Tax Consultants 42

43 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework (A.P. (DIR Series) Circular No. 32 dated 30 th November 2015) Key parameters of the Revised ECB Framework : Track I : Medium term foreign currency denominated ECB with MAM of 3/5 years. Track II : Long term foreign currency denominated ECB with MAM of 10 years. Track III : Indian Rupee denominated ECB with MAM of 3/5 years. Track I Track II Track III Forms of ECB i. Bank loans; ii. Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures); iii. Buyers credit; iv. Suppliers credit; v. Foreign Currency Convertible Bonds (FCCBs); vi. Financial Lease; vii. Foreign Currency Exchangeable Bonds (FCEBs) 25 th October 2016 The Chamber of Tax Consultants 43

44 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III i. 3 years for ECB upto USD 50 million or its equivalent. ii. 5 years for ECB beyond USD 50 million or its equivalent i. Companies in - Manufacturing - Software Development - Shipping and Airline Cos. ii. SIDBI iii. Units of SEZs iv. EXIM (approval route) Minimum Average Maturity (MAM) Period 10 years irrespective of the amount Eligible Borrowers i. All entities listed in Track I ii. Companies in Infra sector iii. Holding Cos. iv. Core Investment Cos. (CIC) v. REITs & INVITs registered under SEBI Same as under Track I i. All entities in Track II ii. All NBFCs iii. Entities engaged in micro-finance activities iv. Companies engaged in R&D, training (other than educational institutes), companies supporting infrastructure, logistics services v. Developers of SEZ & NMIZ 25 th October 2016 The Chamber of Tax Consultants 44

45 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III i. International banks ii. International capital markets iii. Multilateral financial institutions iv. Export credit agencies v. Suppliers of equipment vi. Foreign equity holders vii. Overseas long term investors such as: - prudentially regulated financial entities - Pension funds - Insurance companies - Sovereign wealth funds - Financial institutions in IFSC viii. Overseas branches / subsidiaries of Indian banks Recognised Lenders/ Investors All entities listed under Track I except for overseas branches / subsidiaries of Indian banks i. All entities listed under Track I except for overseas branches / subsidiaries of Indian banks ii. In case of NBFCs-MFIs, other eligible MFIs, not for profit companies and NGOs, ECB can also be availed from overseas organizations and individuals satisfying prescribed conditions 25 th October 2016 The Chamber of Tax Consultants 45

46 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III i. MAM 3 to 5 years 300 bps over 6m LIBOR ii. More than 5 years 450 bps over 6m LIBOR iii. Penal interest should not be more than 2% All in Cost i. The maximum spread over the bench mark will be 500 basis points per annum ii. Remaining conditions will be as given under Track I i. The all-in-cost should be in line with the market conditions Definition of all in cost now includes guarantee fees whether paid in FCY or INR 25 th October 2016 The Chamber of Tax Consultants 46

47 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III i. ECB proceeds can be utilised for capital expenditure in the form of: - Import of capital goods - Local sourcing of capital goods - New project - Modernisation /expansion of existing units - ODI in JV/WOS - Acquisition of shares of PSU - Refinancing of existing trade credit raised for import of capital goods - Payment of capital goods already shipped / imported but unpaid - Refinancing of existing ECB provided the residual maturity is not reduced Permitted End Uses i. ECB proceeds can be used for all purposes excluding the following: - Real estate activities - Investing in capital market - Using the proceeds for equity investment domestically; - On-lending to other entities with any of the above objectives; - Purchase of land i. Developers of SEZs/ NMIZs can raise ECB only for providing infrastructure facilities within SEZ/ NMIZ 25 th October 2016 The Chamber of Tax Consultants 47

48 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III ii. iii. iv. SIDBI can raise ECB only for the purpose of on lending to the borrowers in MSME sector Units of SEZs can raise ECB only for their own requirements Shipping and airlines companies can raise ECB only for import of vessels and aircrafts respectively v. ECB proceeds can be used for general corporate purpose (including working capital) provided the ECB is raised from the direct / indirect equity holder or from a group company for a minimum average maturity of 5 years ii. Permitted End Uses Holding companies can also use ECB proceeds for providing loans to their infrastructure SPVs 25 th October 2016 The Chamber of Tax Consultants 48 ii. iii. Developers of SEZs/ NMIZs can raise ECB only for providing infrastructure facilities within SEZ/ NMIZ Micro finance entities can raise ECB only for on-lending to selfhelp groups or for micro-credit or for bonafide micro finance activity including capacity building

49 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework Key parameters of the Revised ECB Framework : Track I Track II Track III vi. ECBs for the following purposes will be considered under the approval route: - Import of second hand goods as per the Director General of Foreign Trade (DGFT) guidelines; - On-lending by Exim Bank Permitted End Uses iv. For other eligible entities under this track, the ECB proceeds can be used for all purposes excluding the following: - Real estate activities - Investing in capital market - Using the proceeds for equity investment domestically; - On-lending to other entities with any of the above objectives; - Purchase of land 25 th October 2016 The Chamber of Tax Consultants 49

50 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework (A.P. (DIR Series) Circular No. 56 dated 30 th March 2016) Changes in ECB framework: Companies in infrastructure sector, Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC- IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs) Eligible under Track I with MAM of 5 years subject to 100% hedging Exploration, Mining and Refinery sectors which are not included in the Harmonised list of infrastructure sector but were eligible to take ECB under the previous ECB framework will be deemed to be included in infrastructure sector, and can access ECB as applicable to infrastructure sector Companies in infrastructure sector shall utilize the ECB proceeds raised under Track I for the end uses permitted in Track I. NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure Holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure Special Purpose Vehicles (SPVs) Individual limit of borrowing under the automatic route for aforesaid companies shall be as applicable to the companies in the infrastructure sector (currently USD 750 million) Companies in infrastructure sector, Holding Companies and CICs will continue to have the facility of raising ECB under Track II of the ECB framework 25 th October 2016 The Chamber of Tax Consultants 50

51 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Revised framework (cont..) Clarifications to the ECB framework: The designated AD banks may allow refinancing of ECBs raised under the previous ECB framework, provided the refinancing is at lower all-in-cost, the borrower is eligible to raise ECB under the extant ECB framework and residual maturity is not reduced (i.e. it is either maintained or elongated) ECB framework is not applicable in respect of the investment in NCDs in India made by Registered Foreign Portfolio Investors (RFPIs) Minimum average maturity of FCCBs / FCEBs is 5 years irrespective of the amount of borrowing. Further, the call and put option, if any, for FCCBs shall not be exercisable prior to 5 years Only those NBFCs which are coming under the regulatory purview of RBI are permitted to raise ECB. Further, under Track III, the NBFCs may raise ECBs for on-lending for any activities including infrastructure as permitted by the concerned regulatory department of RBI. In the forms of ECB, the term Bank loans shall be read as loans as foreign equity holders / institutions other than banks, also provide ECB as recognized lenders 25 th October 2016 The Chamber of Tax Consultants 51

52 External Commercial Borrowings (ECBs) External Commercial Borrowings (ECB) Policy Extension and conversion (A.P. (DIR Series) Circular No. 10 dated 20 th October 2016) Extant guidelines, AD banks were permitted to approve requests from borrowers for changes in repayment schedule during tenure of ECB Now, AD banks permitted to approve requests from borrowers for extension of matured but unpaid ECBs, subject to: No additional cost is incurred Lenders consent is available Reporting requirements are fulfilled AD banks also permitted to approve cases of matured but unpaid ECBs for conversion to equity subject to same above conditions 25 th October 2016 The Chamber of Tax Consultants 52

53 Export / Import of Goods and Services

54 Export of Goods and Services Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export Declaration Form (EDF) formality (A.P. (DIR Series) Circular No. 1 dated 2 nd July 2015) For Unsold rough diamonds : when re-exported from the SNZ (being an area within the Customs) without entering the Domestic Tariff Area (DTA), do not require any EDF formality. Entry of consignment containing different lots of rough diamonds into the SNZ should be accompanied by a declaration of notional value by way of an invoice and a packing list indicating the free cost nature of the consignment. Under no circumstance, entry of such rough diamonds is permitted into DTA. For rough diamonds sold after display or auction at SNZ: For the lot/ lots cleared at the Precious Cargo Customs Clearance Centre, Mumbai, Bill of Entry shall be filed by the buyer. AD bank may permit such import payments after being satisfied with the bona-fides of the transaction. Further, AD bank shall also maintain a record of such transactions. 25 th October 2016 The Chamber of Tax Consultants 54

55 Export of Goods and Services Export factoring on non-recourse basis (A.P. (DIR Series) Circular No. 5 dated 16 th July 2015) Hitherto AD Banks were permitted to provide export factoring services to exporters on with recourse basis without prior approval. Amendment AD banks now permitted to provide export factoring services to exporters on non-recourse basis subject to conditions: AD banks may take their own business decision to enter into export factoring arrangement on non-recourse basis. If export financing not done by the Export Factor, the Export Factor may pass on the net value to the financing bank/ Institution after realising the export proceeds. AD bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation & collection of payment. Notation should be made on the invoice that importer has to make payment to the Import Factor. After factoring, the Export Factor may close the export bills and report the same in the Export Data Processing and Monitoring System (EDPMS) of the Reserve Bank of India. In case of single factor, not involving Import Factor overseas, the Export Factor may obtain credit evaluation details from the correspondent bank abroad. KYC and due diligence on the exporter shall be ensured by the Export Factor. 25 th October 2016 The Chamber of Tax Consultants 55

56 Export of Goods and Services Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (A.P. (DIR Series) Circular No. 16 dated 24 th September 2015) Revised consolidated guidelines relating to export and import payments applicable to AD banks for arrangements with OPGSPs: AD banks to report details of each arrangements with OPGSPs with the FED, Central Office, Mumbai. For each OPGSP, AD banks to i) due diligence ii) separate export and import collection accounts iii) bonafide transactions iv) submit relevant information to RBI and v) conduct reconciliation and audit of collection a/c on quarterly basis Foreign entities, desirous of operating as OPGSP, to open liaison office in India with the approval of RBI before operationalizing the arrangement with any AD bank. OPGSPs to ensure: i) adherence to Information Technology Act, 2000 and other laws in force ii) set up mechanism for resolution of disputes and redressal of complaints iii) create a Reserve Fund appropriate to its return and refund policy and iv) onboard sellers (Indian and foreign), after appropriate due diligence Domestic entities functioning as intermediaries for electronic payment transactions in terms of the guidelines stipulated by our Department of Payment and Settlement Systems and intending to undertake cross border transactions shall maintain separate accounts for domestic and cross border transactions 25 th October 2016 The Chamber of Tax Consultants 56

57 Export of Goods and Services Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (cont..) Export Transactions: Facility available only for export of goods and services (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 10,000 (US Dollar ten thousand) per transaction. AD banks providing such facilities to open a NOSTRO collection account for receipt of the export related payments Where the exporters are required to open notional accounts with the OPGSP, to ensure no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD bank Balances in the NOSTRO collection account shall be repatriated to the Export Collection account in India and then credited to the respective exporter's account with a bank in India immediately on receipt of the confirmation from the importer within seven days from the date of credit to the NOSTRO collection account. Permitted debits to the OPGSP Export Collection account maintained in India will be: payment to the respective Indian exporters accounts; payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and charge back to the overseas importer where the Indian exporter has failed in discharging his obligations under the sale contract. Only credit permitted in the same OPGSP Export Collection account will be repatriation from the NOSTRO collection accounts electronically 25 th October 2016 The Chamber of Tax Consultants 57

58 Import of Goods and Services Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (cont..) Import Transactions: Facility available only for import of goods and software (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 2,000 (US Dollar Two Thousand) Balances held in Import Collection account shall be remitted to the respective overseas exporter's account immediately on receipt of funds from the importer within two days from the date of credit to the collection account AD bank will obtain a copy of invoice and airway bill from the OPGSP containing the name and address of the beneficiary as evidence of import and report the transaction in R-Return under the foreign currency payment head Permitted credits in the OPGSP Import Collection account will be: collection from Indian importers for online purchases from overseas exporters electronically through credit card, debit card and net banking charge back from the overseas exporters Permitted debits in the OPGSP Import Collection account will be: payment to overseas exporters in permitted foreign currency payment to Indian importers for returns and refunds payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP bank charges 25 th October 2016 The Chamber of Tax Consultants 58

59 Export of Goods and Services Switching from Barter Trade to Normal Trade at the Indo-Myanmar Border (A.P. (DIR Series) Circular No. 26 dated 5 th November 2015) Hitherto Trade transactions at Indo-Myanmar border were to be settled through barter system Amendment No more barter system of trade at the Indo-Myanmar border and complete switch over to normal trade with effect from December 1, 2015 Software Export Filing of bulk SOFTEX - further liberalisation (A.P. (DIR Series) Circular No. 27 dated 5 th November 2015) Hitherto Software exporter, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on an all India basis, is eligible to declare all the off-site software exports in bulk in the form of a statement in excel format, to the competent authority for certification on monthly basis Amendment Benefit extended to small exporters also. 25 th October 2016 The Chamber of Tax Consultants 59

60 Export of Goods and Services Export of Goods and Services Project Exports (A.P. (DIR Series) Circular No. 39 dated 14 th January 2015) As amended by GOI, OCCI has been renamed as Project Export Promotion Council (PEPC) Civil construction contracts may include turnkey engineering contracts, process and engineering consultancy services and Project construction items (excluding steel & Cement) along with civil construction contracts Memorandum of Instructions on Project and Service Exports (PEM) also amended accordingly Grant of EDF Waiver for Export of Goods Free of Cost (A.P. (DIR Series) Circular No. 53 dated 3 rd March 2016) Hitherto Status Holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is higher Amendment Status Holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is lower 25 th October 2016 The Chamber of Tax Consultants 60

61 Export / Import of Goods and Services Settlement of Export/ Import transactions in currencies not having a direct exchange rate (A.P. (DIR Series) Circular No. 42 dated 4 th February 2016) To facilitate settlement of export and import transactions where the invoicing is in a freely convertible currency and the settlement takes place in the currency of the beneficiary, which though convertible, does not have a direct exchange rate. AD Banks to permit such transactions subject to: Exporter/ Importer to be a customer of the AD Bank Signed contract / invoice is in a freely convertible currency The beneficiary is willing to receive the payment in the currency of beneficiary instead of the original (freely convertible) currency of the invoice/ contract/ Letter of Credit as full and final settlement AD bank is satisfied with bonafides of the transactions Counterparty to the exporter / importer of the AD bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures. 25 th October 2016 The Chamber of Tax Consultants 61

62 Export of Goods and Services Notf. No. FEMA. 23/2000-RB dt 03/05/2000 Important changes: Vs. Exemption for declaration of goods/ software export < USD withdrawn from revised notification Export on elongated credit terms removed from new notification FEMA 23 (R) / 2015-RB dt January 12, 2016 through Circular No. 68 dated Export of goods on hire purchase, lease removed from revised notification under approval clause 25 th October 2016 The Chamber of Tax Consultants 62

63 Import of Goods and Services Import of Goods into India Evidence of Import (A.P. (DIR Series) Circular No. 29 dated 26 th November 2015) Currently the evidence of import include: (a) the exchange control copy of the Bill of Entry for home consumption; (b) the exchange control copy of the Bill of Entry for warehousing, in the case of 100% Export Oriented Units (EOUs); or (c) Customs Assessment Certificate or Postal Appraisal Form as declared by the importer to the Customs Authorities With establishment of Free Trade Warehousing Zones / SEZ Unit warehouses where imported goods can be stored for re-export / re-selling purposes: evidence of import shall be Ex-Bond Bill of Entry issued by Customs Authorities In case of goods imported through courier, Courier Bill of Entry, as declared by the courier companies to the Customs Authorities to be accepted as evidence of import Advance Remittance for Import of aircrafts /helicopters / other aviation related purchases (A.P. (DIR Series) Circular No. 30 dated 26 th November 2015) AD banks may allow advance remittance without bank guarantee or an unconditional, irrevocable standby letter of credit up to USD 50 million. Only the requisite approval of DGCA for import of aircrafts/helicopters has been obtained by the company for operating Scheduled or Non-Scheduled Air Transport Services (including Air Taxi Services). 25 th October 2016 The Chamber of Tax Consultants 63

64 Import of Goods and Services Import of Rough, Cut and Polished Diamonds (A.P. (DIR Series) Circular No. 57 dated 31 st March 2016) AD banks can give Clean Credit i.e. credit given by a foreign supplier to its Indian customer / buyer, without any Letter of Credit (Suppliers' Credit) / Letter of Undertaking (Buyers' Credit) / Fixed Deposits from any Indian financial institution for import of Rough, Cut and Polished Diamonds, for a period not exceeding 180 days from the date of shipment RBI now permitted AD banks to give clean credit for period exceeding 180 days from the date of shipment. Conditions: AD banks satisfy genuineness and bonafides of transaction AD banks to check that no payment of interest is involved for the additional period Reasons for such extension are financial difficulties and/or quality disputes Importer requesting for such extension is not under investigation/no investigation is pending against the importer Importer seeking extension is not a frequent offender AD banks may allow such extension of time up to a maximum period of 180 days beyond the prescribed period/due date, beyond which they may refer the cases to respective Regional Office of the Reserve Bank 25 th October 2016 The Chamber of Tax Consultants 64

65 LO / BO/ PO in India

66 LO / BO/ PO in India No fresh permission/ renewal of permission to LOs of foreign law firms- Supreme Court s directions (A.P. (DIR Series) Circular No. 23 dated 29 th October 2015) Supreme Court - interim order - Bar Council of India vs A.K. Balaji & Ors.: Direction to RBI not to grant fresh permission nor grant renewal permission to foreign law firms for opening / extending LO in India till final disposal of matter by SC Notf. No. FEMA. 22/2000-RB dt 03/05/2000 Important changes: Vs. Notf. No. FEMA 22 (R) / RB-2016 dt 31/03/16 through A.P. (DIR Series) Circular No.69 [(1)/22(R)] & FED Master Direction No.10/ RBI approval to establish office will be valid only for 6 month from date of approval letter (exceptions enabling grant of extension by 6 months by AD bank and over and above by RBI : force majeure) Validity period of LO for Construction Development Cos. and NBFCs only 2 years instead of 3 years earlier Permission for establishing addtl LO/BO to be given by AD Bank now whereas Permission for undertaking addtl acitivites to be given still by RBI 25 th October 2016 The Chamber of Tax Consultants 66

67 LO / BO/ PO in India Notf. No. FEMA. 22/2000-RB dt 03/05/2000 Important changes: Submission of report to State DGP within 5 working days of establishment of LO/BO/PO no longer required. Also submission of such report annually by 30/09 done away with. Instead, registration required for only applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau Donation of furniture and fixtures to NGOs and other NPOs permitted Vs. Notf. No. FEMA 22 (R) / RB-2016 dt 31/03/16 through A.P. (DIR Series) Circular No.69 [(1)/22(R)] & FED Master Direction No.10/ Transfer of assets to JV / WOS now mentioned formally but only on closure of LO/BO/PO in India Existing PAN and bank accounts can be continued when an LO is permitted to upgrade into a BO BO/LO/PO can change their existing AD bank subject to satisfaction of conditions Change of name without change of ownership: No new permission required Change of name with / as consequence of change of ownership: Fresh permission required Change in the Top Management or CEO/MD/CMD etc. of the BO/LO No prior permission from RBI 25 th October 2016 The Chamber of Tax Consultants 67

68 LO / BO/ PO in India Notf. No. FEMA. 22/2000-RB dt 03/05/2000 Important changes: Additional information in FNC 1 required for following: Applicant from Pakistan Vs. Applicant from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau wanting to set-up LO/BO/PO in J&K, N/E region, Andaman and Nicobar Island Applicant doing business in Defence, Telecom, Private Security and I&B Notf. No. FEMA 22 (R) / RB-2016 dt 31/03/16 through A.P. (DIR Series) Circular No.69 [(1)/22(R)] & FED Master Direction No.10/ Applicant is NGO, NPO, Body/ Agency / Department of foreign government 25 th October 2016 The Chamber of Tax Consultants 68

69 Start-ups

70 Start - Ups DIPP Notification Ministry of Commerce and Industry (G.S.R. 180(E) dated 17 th February 2016) In relation to the Start Up India initiative of GOI, the definition of start-up is: An entity shall be considered as a start-up- Up to five years from the date of its incorporation/registration, If its turnover for any of the financial years has not exceeded Rupees 25 crore, and It is working towards innovation, development, deployment or commercializalion of new products, processes or services driven by technology or intellectual property Entity not to be formed by splitting up or reconstruction of a existing business In order to obtain tax benefit, startup is required to obtain a certificate from inter-ministerial board consisting of: Joint Secretary, Department of Industrial Policy and Promotion Representative of Department of Science and Technology Representative of Department of Biotechnology. 25 th October 2016 The Chamber of Tax Consultants 70

71 Start - Ups DIPP Notification Ministry of Commerce and Industry Entity to undertake Innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialise: A new product or service or process, or A significantly improved existing product or servise or process, that will create or add value for customers or workflow Mere act of developing without a potential to commercialse, or developing undifferentiated products or services or processes, or developing products services or processes with no or limited value for customers not to fall under above defition Process for recognition as start-up to be done through app Detailed steps provided in notification 25 th October 2016 The Chamber of Tax Consultants 71

72 Start - Ups Regulatory relaxations for start-ups- Clarifications relating to acceptance of payments (A.P. (DIR Series) Circular No. 51 dated 11 th February 2016) Issue Start-ups accepting payment on behalf of overseas subsidiaries Clarification Start-up in India with an overseas subsidiary is permitted to open foreign currency account abroad to pool the foreign exchange earnings out of the exports/sales made by the start-up Overseas subsidiary of start-up is also permitted to pool its receivables arising from the transactions with the residents in India as well as the transactions with the non-residents abroad into the said foreign currency account opened abroad in the name of the start-up Balances in the foreign currency account as due to the Indian start-up should be repatriated to India within a period as applicable to realisation of export proceeds (currently nine months) Start-up is also permitted to avail of the facility of OPGSPs for value not exceeding USD 10,000 or up to such limit as may be permitted by RBI Appropriate contractual arrangement between the start-up, its overseas subsidiary and the customers concerned should be in place 25 th October 2016 The Chamber of Tax Consultants 72

73 Start - Ups Regulatory Relaxations for Startups- Clarifications relating to Issue of Shares (A.P. (DIR Series) Circular No. 52 dated 11 th February 2016) Issue issue of shares without cash payment by the investor through sweat equity or against any legitimate payment owed by the company remittance of which does not require any permission under FEMA, 1999 Clarification Issue of shares without cash payment through sweat equity: RBI has permitted the same vide Notification No. FEMA.344/2015 RB dated June 11, 2015 (corresponding A.P. (DIR Series) Circular No.63 dt 16 th July 2015) Issue of shares against legitimate payment owed: RBI has permitted the same vide Notification No. FEMA.315/2014-RB dated July 10, 2014 (corresponding A.P. (DIR Series) Circular No.31 dt 17 th September 2014) 25 th October 2016 The Chamber of Tax Consultants 73

74 Compounding of Contraventions & Penalties

75 Compounding of Contraventions & Penalties Foreign Exchange Management Act, 1999 (FEMA) Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) - Compounding of Contraventions under FEMA, 1999 (A.P. (DIR Series) Circular No. 73 dated 26 th May 2016) Public disclosure of Compounding Orders All compounding orders passed on or after June 1, 2016 to be hosted on RBI s website Data to be updated on a monthly intervals in the following format: Public disclosure of guidelines on the amount imposed during compounding Provisions of section 13 of FEMA: The amount imposed can be up to three times the amount involved in the contravention. Amount imposed to be calculated on basis of guidance note. 25 th October 2016 The Chamber of Tax Consultants 75

76 Compounding of Contraventions & Penalties Public disclosure of guidelines on the amount imposed during compounding Type of contravention 1] Reporting Contraventions A) FEMA 20 Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS (Reg. 10) and taking on record FCTRS (Reg. 4) B) FEMA 3 Non submission of ECB statements C) FEMA 120 Non reporting/delay in reporting of acquisition/setup of subsidiaries/step down subsidiaries /changes in the shareholding pattern D) Any other reporting contraventions (except those in Row 2 below) Formula Fixed amount : Rs10,000/- (applied once for each contravention in a compounding application) + Variable amount as under: Upto 10 lakhs : 1,000 per year Rs lakhs : 2,500 per year Rs lakhs : 7,000 per year Rs.1-10 crore : 50,000 per year Rs Crore : 1,00,000 per year Above Rs.100 Crore : 2,00,000 per year E) Reporting contraventions by LO/BO/PO As above, subject to ceiling of Rs.2 lakhs. In case of Project Office, the amount imposed shall be calculated on 10% of total project cost. 25 th October 2016 The Chamber of Tax Consultants 76

77 Compounding of Contraventions & Penalties Public disclosure of guidelines on the amount imposed during compounding Type of contravention Formula 2] AAC/ APR/ Share certificate delays In case of non-submission/ delayed submission of APR/ share certificates (FEMA 120) or AAC (FEMA 22) or FCGPR (B) Returns (FEMA 20) 3] A] Allotment/Refunds Para 8 of FEMA 20/2000-RB (non-allotment of shares or allotment/ refund after the stipulated 180 days) B] LO/BO/PO (Other than reporting contraventions) Rs.10,000/- per AAC/APR/FCGPR (B) Return delayed. Delayed receipt of share certificate Rs.10,000/- per year, the total amount being subject to ceiling of 300% of the amount invested Rs.30,000/- + given percentage: 1st year : 0.30% 1-2 years : 0.35% 2-3 years : 0.40% 3-4 years : 0.45% 4-5 years : 0.50% >5 years : 0.75% (For project offices the amount of contravention shall be deemed to be 10% of the cost of project) 25 th October 2016 The Chamber of Tax Consultants 77

78 Compounding of Contraventions & Penalties Public disclosure of guidelines on the amount imposed during compounding Type of contravention 4] All other contraventions except Corporate Guarantees 5] Issue of Corporate Guarantees without UIN/ without permission wherever required /open ended guarantees or any other contravention related to issue of Corporate Guarantees Formula Rs.50,000/- + given percentage: 1st year : 0.50% 1-2 years : 0.55% 2-3 years : 0.60% 3-4 years : 0.65% 4-5 years : 0.70% > 5 years : 0.75% Rs.5,00,000/- + given percentage: 1st year : 0.050% 1-2 years : 0.055% 2-3 years : 0.060% 3-4 years : 0.065% 4-5 years : 0.070% >5 years : 0.075% In case the contravention includes issue of guarantees for raising loans which are invested back into India, the amount imposed may be trebled 25 th October 2016 The Chamber of Tax Consultants 78

79 Compounding of Contraventions & Penalties Public disclosure of guidelines on the amount imposed during compounding. Further points to be noted: Maximum: Amount imposed should not exceed 300% of the amount of contravention If amount of contravention is less than Rs. One lakh, the total amount imposed should not be more than amount of simple p.a. calculated on the amount of contravention and for the period of the contravention in case of reporting contraventions p.a. in respect of all other contraventions In case of paragraph 8 of Schedule I to FEMA 20/2000 RB contraventions, the amount imposed will be further graded as under: If the shares are allotted after 180 days without the prior approval of Reserve Bank, 1.25 times the amount calculated as per table above (subject to provisos at (i) & (ii) above) If the shares are not allotted and the amount is refunded after 180 days with the Bank s permission: 1.50 times the amount calculated as per table above (subject to provisos above) If the shares are not allotted and the amount is refunded after 180 days without the Bank s permission: 1.75 times the amount calculated as per table above (subject to provisos above) 25 th October 2016 The Chamber of Tax Consultants 79

80 Compounding of Contraventions & Penalties Public disclosure of guidelines on the amount imposed during compounding. Further points to be noted: In cases where it is established that the contravenor has made undue gains, the amount thereof may be neutralized to a reasonable extent by adding the same to the compounding amount calculated as per chart If a party who has been compounded earlier applies for compounding again for similar contravention, the amount calculated as above may be enhanced by 50% For calculating amount in respect of reporting contraventions under para I.1 above, the period of contravention may be considered proportionately {(approx. rounded off to next higher month 12) X amount for 1 year}. The total no. of days does not exclude Sundays/holidays RBI has appended examples to this circular for further understanding RBI has clarified that the above guidance is meant only for the purpose of broadly indicating the basis on which the amount to be imposed is derived by the RBI compounding authorities. The actual amount imposed may sometimes vary, depending on the circumstances of the case taking into account the various factors 25 th October 2016 The Chamber of Tax Consultants 80

81 Miscellaneous Amendments

82 Miscellaneous Amendments Subject Area Earlier Notification Revised Notification Corresponding A.P. (DIR Series) Circulars Post Office (Postal Orders / Money Orders) Definition of Currency Manner of Receipt and Payment Notf. No. 18/2000-RB dt 03/05/2000 Notf. No. 15/2000-RB dt 03/05/2000 Notf. No. 14/2000-RB dt 03/05/ Notf. No. 16/2000-RB dt 03/05/ Notf. No. 17/2000-RB dt 03/05/2000 Notf. No. 18(R)/RB-2015 dt 29/12/2015 Notf. No. 15(R)/RB-2015 dt 29/12/2015 Notf. No. 14(R)/2016-RB dt 02/05/2016 A.P. (DIR Series) Circular No.49/ [(1)/18(R)] A.P. (DIR Series) Circular No.48/ [(1)/15(R)] Remarks No change No change - No change 25 th October 2016 The Chamber of Tax Consultants 82

83 Miscellaneous Amendments Subject Area Earlier Notification Revised Notification Corresponding A.P. (DIR Series) Circulars Possession and Retention of Foreign Currency Realisation, repatriation and surrender of forex Export and Import of currency Remittance of Assets Notf. No. 11/2000-RB dt 03/05/2000 Notf. No. 9/2000-RB dt 03/05/2000 Notf. No. 6/2000-RB dt 03/05/2000 Notf. No. 13/2000-RB dt 03/05/2000 Notf. No. 11(R)/2015-RB dt 29/12/2015 Notf. No. 9(R)/2015-RB dt 29/12/2015 Notf. No. 6(R)/RB-2015 dt 29/12/2015 Notf. No. 13(R)/2016-RB dt 01/04/2016 A.P. (DIR Series) Circular No.47/ [(1)/11(R)] A.P. (DIR Series) Circular No.46/ [(1)/9(R)] A.P. (DIR Series) Circular No. 45/ [(1)/6(R)] A.P. (DIR Series) Circular No. 64/ [(1)/13(R)] Remarks No change No change No change No change 25 th October 2016 The Chamber of Tax Consultants 83

84 Miscellaneous Amendments Foreign Exchange Management (Permissible Capital Account Transactions) (Fourth Amendment) Regulations, 2015 (Notification No. FEMA. 345/2015-RB) Explanation to Regulation 4(b) in Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 (Notification No. FEMA 1/2000-RB dated 3rd May 2000), has been amended to exclude development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014 from the definition of Real Estate Business 25 th October 2016 The Chamber of Tax Consultants 84

85 Miscellaneous Amendments Opening of foreign currency accounts in India by ship-manning / crew-management agencies (A.P. (DIR Series) Circular No. 15 dated 24t h September 2015) Guidelines on operating such foreign currency a/c by foreign shipping or airline companies or their agents in India: Credits only by way of freight or passage fare collections in India or inward remittances through normal banking channels from the overseas principal Debits towards various local expenses in connection with the management of the ships / crew in the ordinary course of business No credit facility (fund based or non-fund based) should be granted against security of funds held in such accounts Bank should meet the prescribed reserve requirements in respect of balances in such accounts No EEFC facility allowed in respect of the remittances received in these accounts These foreign currency accounts will be maintained only during the validity period of the agreement 25 th October 2016 The Chamber of Tax Consultants 85

86 Miscellaneous Amendments Regularisation of assets held abroad by a person resident in India under Foreign Exchange Management Act, 1999 (A.P. (DIR Series) Circular No. 18 dated 30 th September 2015)(Notification No. FEMA 348/2015-RB dated September 25, 2015) In relation to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) Notification No. FEMA 348/2015-RB dated September 25, 2015 notified Foreign Exchange Management (Regularization of assets held abroad by a person resident in India) Regulations, 2015 to effectively deal with assets held abroad by persons resident in India in violation of the Foreign Exchange Management Act, 1999 (FEMA) for which declarations have been made and taxes and penalties have been paid under the provisions of the Black Money Act Clarifications No proceedings under FEMA, 1999 against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid No permission under FEMA will be required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration If declarant wishes to hold the asset so declared, she/ he may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application. 25 th October 2016 The Chamber of Tax Consultants 86

87 Miscellaneous Amendments Compilation of R-Returns: Reporting under FETERS (A.P. (DIR Series) Circular No. 50 dated 11 th February 2016) Web based data submission by AD banks In order to enhance level of security in data submission, reporting guidelines for AD banks to RBI has been amended. Revision of Form A2 Form A2 amended to introduce a check the box for LRS transactions Revised Form A2 also includes Application cum Declaration for purchase of foreign exchange under the Liberalised Remittance Scheme of USD 250,000 in order to reduce multiplicity of forms Online submission of Form A2 by remitter to be enabled by AD banks offering internet banking facilities Currently, limit for online Form A2 (excl. declaration) permitted for remittances with an upper limit of USD 25,000 for individuals and USD 100,000 for corporates 25 th October 2016 The Chamber of Tax Consultants 87

88 Miscellaneous Amendments Compilation of R-Returns: Reporting under FETERS (cont..) For the purpose of FETERS reporting, purpose codes relating to LRS have been broadened New purpose codes are: 25 th October 2016 The Chamber of Tax Consultants 88

89 Miscellaneous Amendments Acceptance of deposits by Indian companies from a person resident outside India for nomination as Director (A.P. (DIR Series) Circular No. 59 dated 13 th April 2016) Section 160 of the Companies Act, 2013, provides that a person who intends to nominate himself or any other person as a director in an Indian company is required to place a deposit with the said company There was ambiguity that such deposit would require RBI approval under Regulation 3 of the Foreign Exchange Management (Deposit) Regulations, 2016 (Notification No. FEMA 5(R)) Clarifications Keeping deposits with an Indian company by persons resident outside India, in accordance with section 160 of the Companies Act, 2013, is a current account (payment) transaction and, as such, does not require any approval from RBI. All refunds of such deposits, arising in the event of selection of the person as director or getting more than twenty five percent votes, shall be treated similarly. 25 th October 2016 The Chamber of Tax Consultants 89

90 Miscellaneous Amendments Notf. No. FEMA 7 (R) / 2015-RB dt 21/01/16 through A.P. (DIR Notf. No. FEMA. 7/2000-RB dt Vs. Series) Circular No. 43/ [(1)/7(R)] 03/05/2000 FED Master Direction No.12/ Acquisition and Transfer of Immovable Property outside India - Important changes: PRI can jointly own immovable property o/s India with relative if there is not outflow of funds from India PRI can inherit or acquire by gift from PRI who has acquired property under LRS Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16 through A.P. (DIR Notf. No. FEMA. 5/2000-RB dt Vs. Series) Circular No. 67/ [(1)/5(R)] & 03/05/2000 FED Master Direction No.14/ Deposits and Accounts - Important changes: Transfer from NRO to NRO a/c formally mentioned PROI having business interest in India can open, hold and maintain Special Non-Resident Rupee Account (SNRR a/c). SNRR a/c newly introduced. SNRR a/c conditions specified under Schedule th October 2016 The Chamber of Tax Consultants 90

91 Miscellaneous Amendments Notf. No. FEMA. 5/2000-RB dt 03/05/2000 Deposits and Accounts - Important changes: Erstwhile definition of PIO PIO means a citizen of any country other than Bangladesh or Pakistan, if a) he at any time held Indian passport; or b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or c) the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b). Vs. New definition of PIO Notf. No. FEMA 5(R) / 2016-RB dt 01/04/16 FED Master Direction No.14/ PIO is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions: a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c) Explanation: PIO will include an Overseas Citizen of India cardholder within the meaning of Section 7(A) of the Citizenship Act, th October 2016 The Chamber of Tax Consultants 91

92 Miscellaneous Amendments Notf. No. FEMA 10(R) / 2015-RB dt 21/01/16 Notf. No. FEMA. 10/2000-RB dt 03/05/2000 Vs. through Circular No. 44 dt FED Master Direction No.14/ Foreign Currency Account by PRI - Important changes: Foreign Currency Account in India now permitted for: Organisers of international seminars, conferences, conventions etc. for holding such events in India for the receipt of the delegate fees and payment towards expenses including payment to special invitees from abroad, etc An Indian company receiving foreign investment under FDI route Provided it has impending foreign currency expenditure; a/c to be closed immediately after the requirements are completed; max 6 months duration of a/c Foreign Currency Account outside India now permitted for: LRS formally notified. Resident nominee to close a/c and bring back proceeds. During visit to a foreign country. Closure upon return. 25 th October 2016 The Chamber of Tax Consultants 92

93 Miscellaneous Amendments Guidelines on trading of Currency Futures and Exchange Traded Currency Options in Recognized Stock Exchanges Introduction of Cross-Currency Futures and Exchange Traded Option Contracts (A.P. (DIR Series) Circular No. 35 dated 10 th December 2015) Currently, residents and eligible non-resident market participants are permitted to trade in US Dollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Pound Sterling (GBP)-INR and Japanese Yen (JPY)-INR currency futures contracts and USD-INR currency option contract in recognized stock exchanges To enable direct trading of exposures, RBI has now permitted recognized stock exchanges to offer cross-currency futures contracts and exchange traded option contracts in the currency pairs of EUR-USD, GBP-USD and USD-JPY. Recognised stock exchanges are also permitted to offer exchange traded currency option contracts in EUR-INR, GBP-INR and JPY-INR (in addition to USD-INR option contract currently permitted) Market Participants are allowed to take positions in the cross-currency futures and exchange traded crosscurrency option contracts without having to establish underlying exposure Position Limits applicable to market participants remains unchanged AD banks may also undertake trading in all permitted exchange traded currency derivatives within their Net Open Position Limit (NOPL) subject to limits. 25 th October 2016 The Chamber of Tax Consultants 93

94 Miscellaneous Amendments Permitting writing of options against contracted exposures by Indian Residents (A.P. (DIR Series) Circular No. 78 dated 23 rd June 2016) (Notification FEMA 365 dated 1 st June 2016) To encourage participation in Over the Counter (OTC) currency options market and improve its liquidity, RBI has permitted resident exporters and importers of goods and services to write (sell) standalone plain vanilla European call and put option contracts against their contracted exposure, i.e. covered call and covered put respectively, to any AD bank in India subject to operational guidelines, terms and conditions 25 th October 2016 The Chamber of Tax Consultants 94

95 Tanvi Vora M.Com., A.C.A. M/s. P. R. Bhuta & Co. Chartered Accountants,