India adheres to stringent compliance for cross border transactions. Often companies have to go
through a cumbersome and irritant process while going through cross border transactions. An increase
in inbound outbound flow of funds has also led to increase in the level of check on compliances in
the milieu of foreign exchange. A need emerges with the Corporate to watch out for outside trade
exchanges, in the setting of sectoral tops, investment tops, to go around from the enormous
penalties. FEMA compliance plays an essential role in the growth and success of various sectors in
India. The purpose of introducing the Foreign Exchange Management Act, 1999 (FEMA) is to smooth
external trade, maintaining a healthy foreign exchange market in India, promote the importance of
balance payments.
List of substantial compliance that is essential to follow under the provisions of FEMA
Annual Return On Foreign Liabilities And Assets
Annual Return for Foreign Liabilities and Assets is compulsory to submit by all India inhabitant
companies which have already got FDI or have made ODI in any of the preceding years, including
current year. If the Indian Company fails to make any investment either in FDI or ODI at the end
of the reporting year, then the company doesn't need to submit the FLA Return. If the Indian
Company has any outstanding FDI or ODI then it becomes essential for the company to submit the
FLA return every year.
Annual Performance Report
Annual Performance Report is submitted by those Indian Party or Resident Individual who has made
an Overseas Direct Investment (ODI). Annual Performance Report is provided in Form ODI Part II
to the AD bank in respect of Joint Venture, Wholly Owned Subsidiaries (WOS) outside India on or
before 31st December every year.
Appropriate To Software Companies
1. Directors or employees of the company enjoys the privilege of investing in the shares of
Promoters Company abroad (JV or WOS).
2. Only a limited number of shares can be purchased. The limit prescribed is $10,000 for five
calendar years.
3. These shares cannot be more than 5% of the paid-up capital of the issuing company.
4. Post allotment holding should not exceed the pre allotment holding.
External Commercial Borrowing
Borrowers need to report to the RBI regarding all ECB transactions via an AD Category-I Bank in
the form of ‘ECB 2 Return’ on a monthly basis.
Single Master Form (W.E.F 30.06.2018)
Under the head Single Master form FC-GPR, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR, InVi are to
be recorded and submitted. The Reserve Bank of India (the "RBI"), on September 1, 2018,
discharged a client manual (the "SMF Manual") to understandably set out the system for filing a
single master form(the "SMF"), which it presented on June 7, 2018, to incorporate the current
detailing standards for foreign investment in India.
Advance Reporting Form
An Indian organization enjoying the benefit of receiving investment from abroad for issue of
shares or other qualified securities under the FDI Scheme needs to report the subtleties of the
amount of consideration to the concerned Regional Office of the Reserve Bank via its AD category
I bank within 30 days from the date of issue of offers.
Form FC-GPR
RBI issues this form under Foreign Exchange Management Act, 1999. At the point when the
organization gets the foreign investment and against such investment it distributes its shares
to such outside investors. It becomes the obligation of the organization to file subtleties of
such allotment of shares with the RBI within 30 days and for that organization needs to utilize
the form FC-GPR (Foreign Currency-Gross Provisional Return) for submitting subtleties with RBI.
Form FC-TRS
Form FC-TRS stands for Foreign Currency Transfer. This form is filed at the time of transfer of
shares or convertible debentures of an Indian company from a resident to a
non-resident/non-resident Indian or vice versa with the purpose of sale.
Form ODI
Any Indian resident individual or Indian party is willing to invest in the overseas market needs
to submit Form ODI. At the point when they get a share certificate or some other documentary
proof of investment in the outside JV/WOS as a proof of investment and present the equivalent to
the assigned AD within 30 days.
FEMA Compliance Guidelines and Features
FEMA considers all forex-associated offenses as civil offenses whereas FERA considers them as a
criminal offense. It can be counted as one of the features of FEMA.
Other Essential Features And Guidelines Of FEMA Compliance Are As Follows:
- FEMA will not apply to Indian citizens who live outside India. To check the residency of an
Indian citizen, a method is adopted based on which number of days an individual lived in
India is calculated during the preceding financial year (182 days or more to be a resident).
An office, a branch, or an agency can be considered as a person to calculate Indian
residency.
- FEMA grants the authority to the central government to impose restrictions on three things
and supervise those things as well. These are payment given to any individual outside India,
payment received from any individual outside India, forex, and foreign security deals.
- It indicates the territories around acquisition/holding of forex that requires the explicit
consent of the Reserve Bank of India (RBI) or the government.
- FEMA classifies foreign exchange transactions into two categories:
1. Capital Account
2. Current Account
The purpose of capital account transaction is to adjust the assets and liabilities either outside
or inside India but of an individual who resides outside India. Thus, any transaction that has
led to change in overseas assets and liabilities for an Indian resident in a remote nation or
vice versa falls under the category of capital account transaction. Any other sort of
transaction falls into the category of current account.
If any individual fails to comply with the norms, orders, and provisions of FEMA is liable for
penalty. The penalty to be charged is up to thrice the sum involved in such contravention or up
to Rs 2lakhs. Further penalty, which may reach out to rupees 5,000 for each day post the first
day during which the contravention proceeds. Hence, it is wise of you to stick to all the
compliances of FEMA.