Overview

India follows stringent compliance for cross-border transactions. Often companies have to go through a cumbersome and irritating process during cross-border transactions. The increase in inward outbound flow of funds has led to an increase in the level of checks on compliance in foreign exchange gains. A need emerges with corporate to watch out for outside trade exchanges, sector-wise tops, investment tops, heavy penalties to go around. FEMA compliance plays an important role in the growth and success of various sectors in India. The objective of introducing the Foreign Exchange Management Act, 1999 (FEMA) is to smooth external trade, maintain a healthy foreign exchange market in India, promoting the importance of balance payments.

FEMA Compliance

FEMA considers all foreign exchange related offenses as civil offenses whereas FERA considers them criminal offenses. It can be counted among FEMA features

Other essential features and guidelines :

• FEMA will not apply to Indian citizens who live outside India. To check the residence of an Indian citizen, a method is adopted, on the basis of which the number of persons residing in India is calculated during the preceding financial year (182 days or more resident). An office, a branch or an agency can be considered a person to calculate Indian residence.


• FEMA empowers the central government to ban three things and monitor those things. These are payments made to anyone outside India, payments received from someone outside India, foreign exchange and foreign security deals.


• It indicates the areas surrounding the acquisition / holding of forex, which require the express consent of the Reserve Bank of India (RBI) or the government.


• FEMA classifies foreign exchange transactions into two categories:

1. Capital Account

2. Current Account

The purpose of a capital account transaction is to adjust assets or liabilities outside or inside India, but a person who lives outside India. Thus, any transaction that results in foreign assets and liabilities for an Indian resident in a remote nation or vice versa falls into the category of capital account transactions. Any other type of transaction falls under the current account category.

If a person fails to follow the norms, orders and provisions of FEMA, he is liable to penalty. Penalty is to be imposed for such violation or involving an amount up to Rs 2 lakh. Apart from this, the fine, which can reach up to Rs 5,000 for each day, during the first day of posting, which is as a contraceptive. Therefore, it makes sense for you to stick to all of FEMA compliance..

List of adequate compliance

• Annual Return

  Annual returns for foreign liabilities and assets are mandatory to be submitted by all Indian resident companies, who have already received FDI or have done ODI in any preceding year including current year. If the Indian company fails to make any investment in FDI or ODI at the end of the reporting year, the company is not required to submit FLA returns. If the Indian company has any FDI or ODI dues then it becomes necessary for the company to submit FLA returns every year..

• Annual Performance Report

  Annual performance report is submitted by the Indian party or resident person who has made Foreign Direct Investment (ODI). The Annual Performance Report Form ODI Part II is provided to AD Bank in connection with the joint venture, wholly owned subsidiaries (WOS) on or before 31 December every year in India..

  Appropriate to Software Companies

  1.Directors or employees of the company enjoy the privilege of investing in shares of the promoter company (JV or WOS) abroad.] / />

  2. Only a limited number of shares can be purchased. The limit set for five calendar years is $ 10,000.

  3. These shares may not exceed 5% of the paid up capital of the issuing company.

  4. Post Allotment Holding should not exceed Pre Allotment Holding.

• External Commercial Borrowing

  Borrowers will have to report to the RBI about all ECB transactions through an Authorized Dealer Category-I bank ‘ECB 2 Return’ on a monthly basis.

• Single Master Form (w.e.f 30.06.2018)

  Under the head Single Master form FC-GPR, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR, InVi are to be recorded and submitted. The Reserve Bank of India (the "RBI"), on September 1, 2018, discharged a client manual (the "SMF Manual") to understandably set out the system for filing a single master form(the "SMF"), which it presented on June 7, 2018, to incorporate the current detailing standards for foreign investment in India.

• Advance Reporting Form

  An Indian organization enjoying the benefit of receiving investment from abroad for shares or other eligible securities under the FDI scheme is required to report the nuances of consideration to the concerned Regional Office of the Reserve Bank through its AD Category I bank . The day from the date of issue of the offer.

• Form FC-GPR

  Form FC-TRS stands for Foreign Currency Transfer. This form is filed at the time of transfer of shares or convertible debentures of an Indian company from a resident to a non-resident/non-resident Indian or vice versa with the purpose of sale.