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FEMA related query

Indian (CA) (53 Points)

30 April 2011

An indian company is making payments to third parties on behalf of a group company based in UK. After these payments are made the UK Company reimburses the amounts to the Indian Company. Is this arrangement permissible under FEMA?

The payments are made for purchase of Indian handicrafts which are distrirbuted as gifts to the customers of the UK company.

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5 Replies

(Guest)

no its not allowed, it comes under dividend balancing which is not allowed.

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 30 April 2011

Originally posted by : Indian
	An indian company is making payments to third parties on behalf of a group company based in UK. After these payments are made the UK Company reimburses the amounts to the Indian Company. Is this arrangement permissible under FEMA? The payments are made for purchase of Indian handicrafts which are distrirbuted as gifts to the customers of the UK company.

It is a current account transaction as per Sec. 2(j).

As per Rule 3 of Current Account Transaction Rules, 2000 read with Schedule I prohibits drawal of foreign exchange by any person for Remittance of dividend by any company to which the requirement of dividend balancing is applicable.

CA. Anuj Gupta (Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA) (7014 Points)
Replied 02 May 2011

This arrangement may be in problem if the said transaction is catagorised as CAPITAL ACCUNT TRANSACTION under FEMA.

Also you can be in trouble with the PE issue and also in TP Assessment.

So the best course of action shall be to charge a little percentage as administrative expenses from UK companies and then you may be safe with FEMA PE and TP issues.

However the above advise is without any refernce to your documents , the advice shall completely change on the documents.

Anuj

0-9810106211

Sudhag (Chartered Accountant and Company Secretary. Visit at : www.taxpertpro.com) (1231 Points)
Replied 29 September 2011

For further discussion on dividend balacing you may refer https://www.slideshare.net/casudhagbhushan/small-note-on-dividend-balancing-8399547

Regards,

CA. Sudha G. Bhushab

sudhag999 @ gmail.com

subhash jangir (na) (38 Points)
Replied 13 November 2011

Sir,

now a days many of abroad companies and brokers in India are serving tamptation to people to trade foreign currency with their MT4 portals with guranteed profits in return as 5% and so on.(even such ads i.e. 4XP, are flaashing in CaClubs website)

Is it a scam or legal under FEMA to trade such transactions.

Please clear this rumour so that one can get safer side.

Regards

Subhash Jangir