FOREIGN DIRECT INVESTMENTS- FEMA PROVISIONS

1. FOREIGN DIRECT INVESTMENTS- FEMA PROVISIONS Bhupender Mantri Phone :+ 91 9829888810 E-Mail :bmantri@kalanico.com 1

2. Sources Foreign Direct Policy Foreign Exchange Management Act 1999 FEMA Regulations Circulars / Notifications Practices 2

3. 3 FEMA Overview STRUCTURE OF THE FEMA FEMA has in all 49 sections of which 9 (section 1 to 9) are substantive and the rest are procedural/administrative. Section 46 of the Act grants power to Central Government to makes rules and section 47 of the Act grants power to RBI to make regulations to implements its provisions and the rules made there under. � Thus RBI is entrusted with the administration and implementation of FEMA

4. 4 Difference in implementation of Income Tax Act & FEMA Under Income Tax, issue is of taxability of income which is determined for the full year, therefore generally amendments are annual. Whereas FEMA regulations are there for undertaking transaction itself, therefore clarity at the time of undertaking transaction is a must and therefore amendments keep pace with changes taking place in economy.

5. 5 Current & Capital A/c Transactions Capital A/c transactions means a transaction which alters assets or liabilities including contingent liabilities outside India of person resident in India and vice-versa. It�s a economic definition rather than accounting or legal definition Current A/c transaction - transaction other than a Capital a/c transaction

6. 6 Current & Capital Account Transaction Difference between concept of Capital Assets and Capital A/c transaction e.g. Import of machinery on payment of cash. From FEMA perspective it is current a/c transaction

7. 7 Current & Capital A/c transactions General Policy is Current A/c transactions are freely permitted unless prohibited whereas Capital A/c transactions are prohibited unless generally permitted. Current A/c transactions are regulated by Central Government whereas Capital A/c transactions are regulated by RBI Sec. 6(3) of FEMA, prescribes the class of capital a/c transactions which are regulated.

8. Capital A/c Transactions: Section 6(3) transfer or issue of any foreign security by a person resident in India Transfer or issue of any security by a person resident outside India Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India Any borrowing or lending in foreign exchange in whatever form or by whatever name called; Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; Deposits between persons resident in India and persons resident outside India; Export, import or holding of currency or currency notes; Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred � (i) by a person resident in India and owed to a person resident outside India (ii) by a person resident outside India 8

9. 9 Sec. 6(4) & 6(5) Sec. 6(4) A Person Resident in India, may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India- If such property was acquired, held or owned by such persons when he was resident outside India or inherited from a person who was resident outside India Sec. 6(5)- Similar provisions for Persons Resident Outside India and assets held in India

10. 10 Inbound InvestmentsFEMA Provisions