FOREIGN EXCHANGE MANAGEMENT ACT (FEMA) AND RBI COMPLIANCES
The FEMA, also referred to as the Foreign Exchange Management Act was introduced in the year 1999. The act was a replacement of the FERA or Foreign Exchange Regulation Act. FEMA came into effect on 1st of June, 2000. FEMA was passed since FERA did not meet the requirements of the policies being implemented after liberalization. FEMA introduced a prominent change in the system by making all the offenses pertaining to foreign exchange as the civil offenses, instead of criminal offenses (earlier applicable in the case of FERA).
FEMA aims at facilitating external trade, payments and for promoting the orderly development and maintenance of foreign exchange markets in India. With the liberation, The Reserve Bank of India has permitted foreign investment in almost all sectors with a few exceptions.In most of the sectors no prior approval from the government or the Reserve Bank is required for non-residents investing in India. Thus, the increasing cross border transactions needs a proper level of compliance mechanism to be in place.
COMPLIANCES APPLICABLE UNDER FEMA/RBI
ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS (FLA RETURN)
|1.||Compliance||FLA Return must be mandatorily submitted by all the Indian resident companies which has received FDI (Foreign direct investment) and/ or made FDI abroad (i.e. overseas investment) in any of the previous year(s) including current year.|
|2.||Who are required to submit FLA Return?||
All the companies which has received FDI (Foreign direct investment) and/ or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year i.e. who holds foreign Assets or Liabilities in their Balance Sheets.
Registered Partnership Firms/Branches/Trustees: If the Partnership Firms/Branches/Trustees have any outward FDI outstanding as on March-end of the reporting year, then they shall file a excel based PFA Return.
|3.||Is it mandatory to file every year
||If the company has not received any fresh FDI and/ or ODI in the latest year but the company has outstanding FDI and/ or ODI, then that company is required to submit FLA Return.|
|4.||Due date for filing FLA Return
||FLA Return should be submitted by 15th June ever year.|
|5.||FLA Return in case of Unaudited Accounts
||If the companies accounts are not audited before the due date of submission then the FLA Return should be submitted based on unaudited (provisional) accounts. Once the accounts gets audited and there are revisions from the provisional information submitted by the company, then revised FLA Return shall be submitted by September end.
|6.||Penalties for non-submission of FLA Return
||Non-filing of the return before due date will be treated as a violation of FEMA. The company will be liable to pay a penalty of thrice the sum involved in the contravention. In case if the amount is not quantifiable, then a penalty of Rs. 2,00,000/- has to be paid and if the contravention is continuing then Rs. 5,000/- per day till the default continues.|
ANNUAL PERFORMANCE RETURN (APR RETURN)
|1.||Compliance||An Indian Party (IP) / Resident Individual (RI) which has made an Overseas Direct Investment (ODI) has to submit an Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank in respect of each Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India set up or acquired by the IP / RI|
|2.||Who are required to submit APR Return||An Indian Party (IP) / Resident Individual (RI) which has made an Overseas Direct Investment (ODI)|
|3.||Is it mandatory to file APR Return every year||It is mandatory to submit APR every year.
EXTERNAL COMMERCIAL BORROWING RETURN (ECB-2 RETURN)
|1.||Compliance||Borrowers are required to report all External Commercial Borrowing transactions to RBI on monthly basis through an AD Category -I Bank in ECB-2 Return.|
|2.||Who are required to submit ECB-2 Return||Borrowers are required to submit ECB-2 Return for reporting all ECB transactions.|
|3.||Due date for filing ECB-2 Return||ECB-2 Return are required to be filed within 7 working days from the closure of month to which it relates. This return is to be filed on monthly basis.|
|4.||Penalties for non-submission of ECB-2 Return||
Any failure to comply with reporting guidelines in respect of Form ECB 2, may invite penal action under FEMA.
Delay in submission of ECB-2 can be now regularized by payment of late fees in following manner:
Delay up 30 days - Rs. 5,000/-
Delay up to 3 years- Rs. 50,000/- per year
Delay beyond 3 years- Rs. 1,00,000/- per year
SINGLE MASTER FORM (SMF)
|1.||Compliance||RBI with the objective of providing smooth reporting of FDI transactions, merged FC-GRP, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR forms into one single master form (SMF)|
|2.||Who are required to submit SMF Form||Any entity which is required to report FDI transactions in FC-GRP, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR are required to file single master form.|
|3.||Due date for filing SMF Form||
FDI Reporting in FC-GRP under SMF- within 30 days from the date of issue.
FDI Reporting in FC-TRS under SMF- within 60 days from the date transfer or date of remittance whichever is earlier.
FDI Reporting in LLP-I under SMF - within 30 days from the date of remittance.
FDI Reporting in LLP-II under SMF - within 60 days from the date of remittance.
FDI Reporting in CN under SMF - within 30 days from the date of issue/ date of transfer.
FDI Reporting in ESOP under SMF – within 30 days from the issue of ESOPs.
FDI Reporting in DI under SMF – within 30 days from the date of allotment of equity instruments.
FDI Reporting in DDR under SMF – within 30 days from the date close of issue.
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