Exchange rate

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Querist : Anonymous

Querist : Anonymous (Querist)

24 May 2011 100% advance payment is made to import material. Is there any question of exchange rate difference if rate of exchange is different on day of issue of Purchase Order, date of receipt of material?

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
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24 May 2011 Hi,
When 100% payment is made in advance the exchange rate used for payment shall be the rate for accounting the Inventory as the liability is already crystallized.
There will be no exchange difference to be recognized.

Rgds
Srinivasan

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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24 May 2011 refer to RBI MASTER CIRCULAR NO. 04/2011 DTD. JULAY 1, 2010, Advance Remittance

Advance Remittance for import of goods

(i) AD Category – I bank may allow advance remittance for import of goods without any ceiling subject to the following conditions:

(a) If the amount of advance remittance exceeds USD 100,000 or its equivalent, an unconditional, irrevocable standby Letter of Credit or a guarantee from an international bank of repute situated outside India or a guarantee of an AD Category – I bank in India, if such a guarantee is issued against the counter-guarantee of an international bank of repute situated outside India, is obtained.

(b) In cases where the importer (other than a Public Sector Company or a Department/Undertaking of the Government of India/State Government/s) is unable to obtain bank guarantee from overseas suppliers and the AD Category – I bank is satisfied about the track record and bonafides of the importer, the requirement of the bank guarantee / standby Letter of Credit may not be insisted upon for advance remittances up to USD 5,000,000 (US Dollar five million). AD Category – I banks may frame their own internal guidelines to deal with such cases as per a suitable policy framed by the bank's Board of Directors.

(c) A Public Sector Company or a Department/Undertaking of the Government of India / State Government/s which is not in a position to obtain a guarantee from an international bank of repute against an advance payment, is required to obtain a specific waiver for the bank guarantee from the Ministry of Finance, Government of India before making advance remittance exceeding USD 100, 000.

(ii) All payments towards advance remittance for imports shall be subject to the specified conditions.

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