FEMA Prohibited Current Account Transaction

Thats pretty simple. Indian companies are allowed to made equity investments in foreign subsidiary /JV by sale of goods and no commission can be paid on the same.

For ex. A ltd. an Indian Company wishes to take equity in B Ltd.(UK). Now instead of sending money as equity A Ltd. (manufacturer of machines)sends the machines and books the following entry:-

Investment in Share Capital of B Ltd.          Dr.         .................

    To Sales                                                        Cr.         ..................

(Being exports sales vide invoice no.XXXX made in lieu of equity participation in B Ltd.)

FEMA doesn't allow any commission to be paid against such export sales.

Hope the matter is clear.

Anuj

0-981016211

Dear CAClubIndia Member,

            Eventually CA. Anuj Gupta has helped me to interpret the above transaction.

He wrote to me at my personal mail ID the following clarification.

 “The answer to your query is pretty simple. Indian companies are allowed to made equity investments in foreign subsidiary /JV through sale of goods and no commission can be paid on the same.

For example, A ltd. an Indian Company wishes to take equity in B Ltd (UK). Now instead of sending money as equity, A Ltd. (manufacturer of machines) sends the machines and books the following entry:

Share Capital of B Ltd.          Dr.         .................

                        To Sales                               Cr.         ..................

(Being exports sales vide invoice no. XXXX made in lieu of equity participation in B Ltd.)

FEMA doesn't allow any commission to be paid against such export sales.

Hope the matter is clear.”

About CA. Anuj Gupta:

He is a practicing Chartered Accountant, Company Secretary and has also completed his DISA. He is a member of the research group of NIRC and the joint secretary of Delhi Chapter of The Chamber of Tax Consultants.

To know more about him, click the link below.

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