Foreign Exchange Management Act

MANDATORY COMPLIANCES UNDER FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)

Before knowing about the mandatory compliances to be done under FEMA act, it is important to know as why is it necessary to do all reporting. Like all the Indian companies are governed under Companies Act 2013, the government has made separate law to govern all inward and outward foreign transactions i.e Foreign Exchange Management Act which itself is self explanatory to manage foreign exchanges in India. Whenever foreigners invest in India or Indians invest outside India, they have to comply with FEMA regulations.

There are separate compliances for the purpose of Inward and outward remittance. Let’s discuss what are the compliances when there is foreign inward remittance. Now comes the first Question: who is liable to invest in India?

Persons resident outside India shall not invest in India unless investment made are in accordance with Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 or permitted by Reserve Bank of India if considered necessary.

How can they invest in India?

Anyone can invest in India either through an automatic route (Where government approval is not required) or through approval route (where prior approval of government is required).

Investment in India can come by way of sale or purchase of Capital instrument i.e

  1. Acquisition through a right issue or bonus issue;
  2. Issue of shares under ESOP;
  3. Issue of convertible Notes by an Indian startup company;
  4. Merger or demerger or amalgamation of India companies;
  5. Transfer of capital instruments of an Indian company by or to a person resident outside India

What formalities need to be done?

Once inward or outward remittance is done, our next step will be reporting to the concerned regional office of the Reserve Bank of India. Following are the reporting requirements:

For Indian Company:

For Limited Liability Partnership’s

Foreign Exchange Management Act

For Startup Companies

Any delay in reporting of above mentioned forms shall be liable for payment of late submission fee (LSF) as may be levied by Reserve bank in consultation with Central Government.