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FOREIGN EXCHANGE MANAGEMENT ACT


Foreign Exchange Management Act (FEMA):

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a surrogate for earlier Foreign Exchange Regulation Act (FERA). FEMA became an act on the 1st day of June, 2000. FEMA was pioneered because the FERA didn't fit in with post-liberalization policies. A major change that the FEMA brought with it was that it made all transgressions regarding foreign barters civil offenses, as opposed to illicit offenses as uttered by FERA. It has brought a new executive command of foreign barter reliable with the emerging frame work of the World Trade Organization (WTO).

The main intention behind the Foreign Exchange Management Act (1999) is to fuse and revise the law relating to foreign exchange with the goal of facilitating external deal and payments. It was also formulated to endorse the orderly development and continuance of foreign exchange market in India.

FEMA is pertinent to all divisions of India. The act is also germane to all branches, offices and agencies outside India owned or restricted by a person who is a resident of India.

The FEMA head-office, also known as Enforcement Directorate is positioned in New Delhi and is headed by a Director. The Directorate is further alienated into 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and each office is headed by a Deputy Director. Each zone is further alienated into 7 sub-zonal offices leaded by the Assistant Directors and 5 field units are leaded by Chief Enforcement Officers.

Rationalized facts of FEMA notifications are given below.

Highlights of FEMA:

• It forbids foreign exchange dealing undertaken other than an endorsed person.

•It also makes it lucid that if any person residing in India acknowledged any Forex payment (with no there being an equivalent inward transmittal from abroad) the concerned person shall be reckoned to have received they payment from a nonauthorised human being.

•There are 7 types of contemporary account transactions, which are completely outlawed, and as a result no contract can be undertaken relating to them. These embrace transaction relating to lotteries, football pools, prohibited magazines and a few others.

•FEMA and the associated rules give full liberty to Resident of India (ROI) to clasp or own or relocate any foreign protection or rigid property situated remote India.

•Akin liberty is also given to a dweller who inherits such safety or permanent goods from an ROI.

•An ROI is allowed to hold shares, securities and properties attained by him while he was a Resident or innate such properties from a Resident.

•The replace drawn can also be used for rationale other than for which it is drawn provided drawl of barter is otherwise allowed for such purpose.

•Firm approved limits have been significantly improved. For example, residents now going overseas for business point or for joining in conferences seminars will not need the RBI's acquiescence to gain foreign exchange up to US$ 25,000 per voyage irrespective of the phase of stay. Basic travel allowance have been amplified from the existing US$ 3,000 to US$ 5,000 per calendar year.

Trade acclaim has been subjected to vibrant regulation over an epoch of last two years. At present, Reserve Bank of India (RBI) vide circular figure A.P. (DIR Series) Circular No. 24, Dated November 1, 2004, has given broad-spectrum permission to ADs for issuance of Guarantee/ Letter of Undertaking (LoU) / Letter of Comfort (LoC) subject matter to firm terms and conditions.

1. Definition of Trade Credit:

Credit unmitigated for imports of commodities directly by the overseas supplier, bank and financial institution for innovative maturity of less than three years from the date of shipment is referred to as trade credit for imports.Depending on the spring of finance, such trade credit will consist of supplier's credit or buyers credit. Supplier's credit recounts to credit for imports into India extended by the overseas supplier, whereas Buyers credit refers to loans for disbursement of imports into India arranged by the importer from a bank or financial institution exterior India for prime of life of less than three years.

It may be renowned that buyer's credit and supplier's credit for three years and above come under the group of External Commercial Borrowing (ECB), which is administrated by ECB guidelines. Trade credit can be availed for import of goods only therefore curiosity and other charges will not be a part of trade credit at any position of time.

2. Amount and tenor :

For trade in of all items allowable under the Foreign Trade Policy (excluding gold), sanctioned Dealers (ADs) have been allowed to agreed trade credits up to 20 millions per import deal with a maturity period ( from the date of consignment) up to one year.

Moreover, for trade in of capital goods, ADs have been permitted to approved trade credits up to USD 20 millions transactions with a development period of more than one year and less than three years. No roll over/ porch will be permitted by the AD beyond the acceptable era.

3. All in cost ceiling:

The all in fee ceiling are as under:

Maturity period up to one year 6 months = LIBOR +50 basis points.

Maturity era more than one year but less than three years 6 months = LIBOR* + 125 basis point * for the relevant currency of credit or applicable benchmark like EURIBOR, SIBOR, TIBOR, etc.

4. Issue of warranty:

Letter of undertaking or letter of comfort in favour of overseas lender: RBI has given common permission to ADs for issuance of guarantee / Letter of Undertaking (LOU) / Letter of Comfort (LOC) in favour of overseas supplier, bank and financial instruction, upto USD 20 million per transaction for a period up to one year for trade in of all non capital goods permissible under Foreign Trade Policy (except gold) and up to three years for import of capital goods.

In case the demand for trade credit does not conform to any of the RBI requisites, the importer requirements to have sanction from the central office of RBI.

FEMA set of laws have a gigantic bang in international trade dealings and diverse modes of payments.RBI discharge normal notifications and circulars, delineation its clarifications and modifications associated to diverse divisions of FEMA.