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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 need a proper level of compliance mechanism to be in place.

Analysis on FEMA (Foreign Exchange Management Act, 1999) And RBI Compliances

COMPLIANCE APPLICABLE UNDER FEMA/RBI

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS (FLA RETURN)

Particulars

Compliance

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.

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.

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.

Due date for filing FLA Return

FLA Return should be submitted by 15th June ever year.

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.

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)

Particulars

Compliance

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

Who are required to submit APR Return

An Indian Party (IP) / Resident Individual (RI) which has made an Overseas Direct Investment (ODI)

Is it mandatory to file APR Return every year

It is mandatory to submit APR every year.

Due date for filing APR Return

APR Return should be submitted by 30thDecember ever year.

EXTERNAL COMMERCIAL BORROWING RETURN (ECB-2 RETURN)

Particulars

Compliance

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.

Who are required to submit ECB-2 Return

Borrowers are required to submit ECB-2 Return for reporting all ECB transactions.

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.

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)

Particulars

Compliance

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)

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.

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.
  • Form FC-GPR

Particulars

Compliance

Compliance

When a company receives any foreign investment and issue securities including bonus or right shares or any shares on conversion of ECB/lump sum to a person resident outside India (foreign investor)on such investment, must file FC-GPR in SMF

Who are required to submit Form FC-GPR

The Indian companies who issue securities to foreign investors are required to file Form FC-GPR

Due date for filing Form FC-GPR

Form FC-GPR should be submitted within 30 days from the date of issue of shares.

Form FC-TRS

Particulars

Compliance

Compliance

When the shares of an Indian company are transferred from a resident to a non-resident/ non-resident Indian and vise versa, shall report the same in Form FC-TRS in SMF

Who are required to submit Form FC-TRS

Transferor/transferee resident in India, shall file the Form FC-TRS through authorized dealer bank (AD Category-1 Bank)

Due date for filing Form FC-TRS

Form FC-TRS should be submitted within 60 days from the date of transfer or date of remittance whichever is earlier

 

Form ODI

Particulars

Compliance

Compliance

When an Indian Party and a Resident Individual makes an overseas investment is Joint Ventures (JV) or Wholly Owned Subsidiaries (WOS) outside India, then they shall report the same in Form ODI

Who are required to submit Form ODI

An Indian Party and Resident individual making overseas investment must file the Form ODI

Due date for filing Form ODI

In case of the share certificates or other documentary proof received as a evidence of investment in overseas JV or WOS, then the same shall be submitted with designated AD Bank within 6 months.

 

The author can also be reached at csneharedekar@gmail.com

Disclaimer: Please note that the above article is based on the interpretation of related laws, which may differ from person to person and is not legal advice.

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