Name Membership Number

Background Material

Seminar on

Foreign Trade Policy, FEMA & FDI

25th April 2015

Hotel the Suryaa New Friends Colony, Delhi.

Organised by

Northern India Regional Council of The Institute of Chartered Accountants of India

DISCLAIMER

This Background Material has been compiled and summarized from information available in official documents, circulars, other publically available information and websites of the Government of India & Reserve Bank of India. This Background Material is intended to serve as a guide to members and does not purport to be a legal document. In case of any variation between what has been stated in this Background Material and the relevant Act, Rules, Regulations, Policy Statements etc., the latter shall prevail. This Background Material is for information purposes only. While due care has been taken during the compilation of this Background Material to ensure that the information is current and accurate to the best of our knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. NIRC-ICAI neither recommends nor endorses any specific products or services that may have been mentioned in this Background Material and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this Background Material. Although due care and diligence has been taken in the preparation/compilation of this material, errors may creep in. NIRC-ICAI shall not be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this Background Material.

Northern India Regional Council ofTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

(Set up by an Act of Parliament)

"ICAI Bhawan", 4th & 5th Floor, "Annexe" Indraprastha Marg, New Delhi - 110 002, IndiaTel. : 011 30100500 Fax : 30100509

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QUOTES FROM SPEECH OF MINISTER OFCOMMERCE & INDUSTRY, MRS. NIRMALA SITHARAMAN ON THE OCCASION OF THE ANNOUNCEMENT OF THE FOREIGN TRADE POLICY 2015-2020

Compiled by CA. Hans Raj Chugh. Vice Chairman, NIRC of ICAI

India is now significantly more integrated with the global economy than 15 years ago. Foreign Trade today plays an important part in the Indian economy.

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We want to make India a significant participant in world trade by the year 2020. India must assume a position of leadership in the international trade discourse.

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Government has taken a number of very important initiatives such as ‘Make in India’, ‘Digital India’ and ‘Skills India’. The foreign trade policy is closely integrated with these initiatives. The new Policy provides a framework for increasing exports of goods and services as well as generation of employmentand increasing value addition in the country, in keeping with the ‘Make in India’ vision of Hon’ble Prime Minister. The focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ease of doing businesses.

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The foreign trade policy supports ‘Make in India’ through measures to encourage procurement of capital goods from indigenous manufacturers under EPCG Scheme by reducing Export Obligation (EO) by 25%. This will promote the domestic capital goods manufacturing industry and enable them to develop their productive capacities for both local and global consumption. Further, there is a higher level of rewards under the MEIS for export items with high domestic content and value addition.

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Our objective is to provide a stable and sustainable policy environment for foreign trade in bothmerchandise and services.

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We aim to help various sectors of the Indian economy to gain global competitiveness.

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We must focus on quality and standards and produce zero defect products. ‘Brand India’ must be synonymous with quality and reliability.

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The Services sector has emerged as a prominent sector in India in terms of its contribution to national and State incomes, trade flows and FDI inflows. The Department of Commerce is working on an ambitious reform agenda, which is being pursued through an inter-ministerial mechanism. In addition, the ‘Services Exports from India Scheme’ (SEIS) is aimed at encouraging exports of the notified services.

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I urge the Government and industry to work in tandem to deal with the challenges and to respond to the tremendous opportunities before us.

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Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP. One of the major objectives of the FTP is to move towards paperless working in a 24x7 environment.

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Special Economic Zones have been facing some challenges in recent times. In order to boost exports from SEZs, government has now decided to extend benefits of both the reward schemes (MEIS and SEIS) of the Chapter 03 to units located in SEZs. It is hoped that this measure will give a new impetus to the development and growth of SEZs in the country.

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E-Commerce exports of employment creating sectors have been supported under the “Merchandise Exports from India Scheme” through courier or foreign post offices.

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We aim to enable India to respond to the challenges of the external environment, keep in step with a rapidly evolving international trading architecture and make trade a major contributor to the country’s economic growth and development. The confluence of several favorable factors gives India an unprecedented window of opportunity to set its house in order and face the challenges thrown up by an ever changing global economic environment.

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MAJOR FEATURES OF THE FTP 2015-2020 HIGHLIGHTED BY DIRECTOR GENERAL OF THE FOREIGN TRADE SHRI PRAVIR KUMAR.

CHAPTER 03 EXPORT FROM INDIA SCHEMES (MEIS AND SEIS).

1. Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) under chapter 03 of the Foreign Trade Policy 2009-2014 for rewarding merchandise exports with different kinds of Duty Credit Scrips with varying conditions (sector specific or actual user only) attached to their use. Now all these schemes have been merged into a single scheme, namely Merchandise Export from India Scheme (MEIS) and there would be no conditionality attached to scrips issued under the scheme as far as use and transferability is concerned. However the validity of the MEIS scrip will remain 18 months from the date of the issuance of the Authorization.

2. Served from India Scheme (SFIS) has been replaced with Service Exports from India Scheme (SEIS). SEIS shall apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’. Thus SEIS provides for rewards to all Service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider. (Old SFIS Scheme was available for India Service providers promoting the Indian brand).

3. The rate of reward under SEIS would be based on net foreign exchange earned. The SEIS reward issued as Duty Credit Scrip would be transferable and can be used for import/domestic procurement of all types of goods (Input and Capital Goods both) and procurement of the services. Further Debited value would be eligible for CENVAT credit or drawback. (In old Policy on Services export SFIS Duty Credit Scrip was available with the condition of non-transferability and was usable only for the import/Domestic Procurement of the specified Goods and debited value was not eligible for the CENVAT).

4. Chapter -3 Incentives under the FTP 2015-2020 (Also known as MEIS & SEIS reward scheme) to be available for units operating from the SEZs. (Earlier in FTP 2009-2014 it was not available.)

5. In new policy all the Market are categorized into following three categories namely i. Traditional Markets(Total 30) ii. Emerging & Focus Markets (Total 139). iii. Other Markets (Total 70).

6. Products Supported under MEIS

Hi-tech products with high export earning potential.

Industrial Products from potential winning sectors.

Labour intensive Products with large employment potential

Value added and packaged products

Agricultural and Village industry products,

7. Market Supported Under the MEIS

Most Agricultural products supported across the Globe

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Compiled by CA. Hans Raj Chugh. Vice Chairman, NIRC of ICAI

  

Industrial and other products supported in Traditional and/or Emerging markets only.

8. The present rates of reward under the SEIS scheme are 3% and 5%. The list of services and the rates of rewards would be reviewed after 30.9.2015. (In old scheme rate was 10% with the conditions of non transferability and usability was limited for specified purpose only).

9. Duty Credit Scrips issued under the Chapter 03 (i.e. Reward under MEIS and SEIS) to be freely transferable and usable for payment of custom duty, excise duty and service tax and debited value will be eligible for the CENVAT as per the CENVAT Credit Rules, 2004.

10. Status Holders

a. The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House Certificate has been changed to One, Two, Three, Four, Five Star Export House.(In FTP 2009-2014 Status holders was categorized into Export House, Star Export House, Trading House, Star Trading House, Premier Trading House based on the export performance realized in the current financial year and previous three financial years. However in the FTP 2015-2020 status is categorized in One, Two, Three, Four, Five Star Export House based on export performance of the current financial year and previous two financial years).

b. The criteria for export performance for recognition of status holder have been changed from

Rupees to US dollar earnings. The new criteria is as under:-

Status category Export Performance FOB / FOR (as converted) Value (in US $ million) during current and previous two years

One Star Export House 3

Two Star Export House 25 Three Star Export House 100

Four Star Export House 500 Five Star Export House 2000

(In old policy performance was measured in the rupees for recognition of the status). c. Self certification by Status Holders- Approved Exporter Scheme

Manufacturers who are also Status Holders will be enabled to self-certify their manufactured goods as originating from India with a view to qualify for preferential treatment under different Preferential Trading Agreements [PTAs], Free Trade Agreements [FTAs], Comprehensive Economic Cooperation Agreements [CECAs] and Comprehensive Economic Partnerships Agreements [CEPAs] which are in operation. They shall be permitted to self-certify the goods manufactured as per their Industrial Entrepreneur Memorandum (IEM) / Industrial License (IL)/ Letter of Intent (LOI).

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d. Other amendments related to Status Holder i. Grant of the double weightage for the specified category of the export (Such as export of

Rs.100 by the ISO 9000 certificate holder was treated as export of Rs.200) will be given only for the recognition of the One Star Export House not for other category earlier it was given for the recognition of all category of the status.

ii. Exemption from furnishing of Bank Guarantee for schemes under FTP for status holder, unless specified otherwise anywhere in FTP or HBP;

iii. Two star and above Export houses shall be permitted to establish Export Warehouses as per Department of Revenue guidelines.

iv. Status holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is higher.

11. Measures to boost to "Make in India"

Specific Export Obligation under EPCG scheme, in case capital goods are procured from indigenous manufacturers, which is currently 90% of the normal export obligation (6 times at the duty saved amount) has been reduced to 75%, in order to promote domestic capital goods manufacturing industry.

In EPCG scheme of the FTP 2009-2014 there are two kinds of the obligation is imposed on the Authorizations holder for the duty free import of the capital Goods.

(i) Specific Export Obligation (Over and above the average export obligation which will be

equivalent to the SIX Times of the Duty Saved on Import or 5.4 times of the Notional Duty Saved on Domestic Procurement of the Capital Goods i.e. in case of the domestic procurement specific obligation will be the 90% of the normal obligation). and

(ii) Average Export Obligation (Equivalent to the arithmetic average of the export of the previous

three years excluding the specific export made under EPCG Authorizations; however premier trading house certificate holder was at discretion to take five year instead of the three for average calculation).

In the new FTP 2015-2020 all the conditions is same except

i. Specific export obligation for the Domestic procurement will be 4.5 times of the duty saved i.e. 75% of the normal obligation.

ii. Option of calculation of the average obligation based on the export performance of previous five year have been removed i.e. even in case of the premier trading house the average obligation will be average of the past three years.

Other Provision of the EPCG Scheme amended in the New Policy:-

i. Installation certificate issued by the Chartered Engineer may be furnished to the Regional Authority of the DGFT within six months of the import instead of the Certificate from the

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Excise Authority. (In previous policy only certificate from the Excise Authority was acceptable).

ii. Provision of the Annual EPCG Authorizations has been deleted i.e. no Annual EPCG Authorizations will be issued in New Policy.(In old policy there was the provision for issuance of EPCG Authorization for annual requirement).

iii. Import under EPCG Authorizations Scheme shall not be eligible for exemption from payment of anti-dumping duty, safeguard duty and transitional product specific safeguard duty.

12. Higher level of rewards under MEIS for export items with high domestic content and value

addition.

13. Online filing of documents/ applications and Paperless trade in 24x7 environments to be ensured. 14. New initiatives for EOUs, EHTPs and STPs.

i. EOUs, EHTPs, STPs have been allowed to share infrastructural facilities among themselves. This will enable units to utilize their infrastructural facilities in an optimum way and avoid duplication of efforts and cost to create separate infrastructural facilities in different units.

ii. Inter unit transfer of goods and services have been allowed among EOUs, EHTPs, STPs, and BTPs. This will facilitate group of those units which source inputs centrally in order to obtain bulk discount. This will reduce cost of transportation, other logistic costs and result in maintaining effective supply chain.

iii. EOUs have been allowed facility to set up Warehouses near the port of export. This will help in reducing lead time for delivery of goods and will also address the issue of unpredictability of supply orders.

iv. STP units, EHTP units, software EOUs have been allowed the facility to use all duty free equipment/goods for training purposes. This will help these units in developing skills of their employees.

v. 100% EOU units have been allowed facility of supply of spares/ components up to 2% of the value of the manufactured articles to a buyer in domestic market for the purpose of after sale services.

vi. At present, in a period of 5 years EOU units have to achieve Positive Net Foreign Exchange Earning (NEE) cumulatively. Because of adverse market condition or any ground of genuine hardship, then such period of 5 years for NFE completion can be extended by one year.

vii. Time period for validity of Letter of Permission (LOP) for EOUs/EHTP/ STPI/BTP Units has been revised for faster implementation and monitoring of projects. Now, LOP will have an initial validity of 2 years to enable the unit to construct the plant and install the machinery. Further extension can be granted by the Development Commissioner up to one year.

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Extension beyond 3 years of the validity of LOPS, can be granted, and in case unit has completed 2/3rd of activities, including the construction activities.

viii. At present, EOUs/EHTP/STPI units are permitted to transfer capital goods to other EOUs, EHTPs, STPs, SEZ units. Now a facility has been provided that if such transferred capital goods are rejected by the recipient, then the same can be returned to the supplying unit, without payment of duty.

ix. A simplified procedure will be provided to fast track the de-bonding / exit of the STP/ EHTP units. This will save time for these units and help in reduction of transaction cost.

x. EOUs having physical export turnover of Rs.10 crore and above, have been allowed the facility of fast track clearances of import and domestic procurement. They will be allowed fast tract clearances of goods, for export production, on the basis of preauthenticated procurement certificate, issued by customs / central excise authorities. They will not have to seek procurement permission for every import consignment.

Trade Facilitation & Ease of Doing Business

15. Validity of SCOMET export authorization has been extended from the present 12 months to 24 months.

16. Imports against Advance Authorization shall also be eligible for exemption from Transitional Product Specific Safeguard Duty.

17. Normal export obligation period under advance authorization is 18 months. Export obligation period for export items falling in the category of defense, military store, aerospace and nuclear energy shall be 24 months from the date of issue of authorization.

18. Goods falling in the category of handloom products, books / periodicals, leather footwear, toys

and customized fashion garments, having FOB value up to Rs.25000 per consignment (finalized using ecommerce platform) shall be eligible for benefits under FTP.

19. Calicut Airport, Kerala and Arakonam ICD, Tamil Nadu have been notified as registered ports

for import and export. 20. A new chapter, namely, Chapter on Quality Complaints and Trade Disputes has been

incorporated in the Foreign Trade Policy. 21. A Committee on Quality Complaints and 18 Trade Disputes (CQCTD) is being constituted in 22

offices and would have members from EPCs/FIEOs/APEDA/EICs.

22. Vishakhapatnam and Bhimavaram added as Towns of Export Excellence.

A New Documents published first times along with the Foreign Trade Policy is called the Foreign Trade Policy Statements which explain the Vision/ Mission/Objective/Goals/Focus of the Foreign Trade Policy and also describe the Market and products strategy for enhancement of the entire trade ecosystem which is as under.

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Vision and Mission:-

To make India a significant participant in world trade by the year 2020.

To enable the country to assume a position of leadership in the international trade discourse.

Strong trade relations with immediate neighborhood and in new directions, both bilaterally as well as through regional forums.

The policy of market diversification which has stood India in good stead during the global economic downturn will continue to be a key determinant of the country’s trade policy, together with product diversification.

High quality products are their own best advertisement. Recognizing the increasing role of standards in global trade and the steps India needs to take both to strengthen its own standards as well as to meet the challenges posed to its exports, a roadmap has been developed on measures required to protect consumers, raise the quality of the merchandise produced and greatly enhance India’s capacity to export to discerning markets.

The increasing challenge of Non-Tariff Measures (NTMs) used by various countries cannot be wished away. India will have to adopt a multi-pronged strategy to deal with NTMs and to increase overseas market access. Equally, there is a need to put in place measures to keep out sub-standard products by strengthening monitoring and surveillance systems.

Simplification of procedures and digitization of various processes. Specific measures will be taken to facilitate the entry of new entrepreneurs and manufacturers in global trade through extensive training programmes.

Mainstream States in the process of international trade.

Compliance with India’s international obligations and this consideration has fully informed the Policy.

Goals and Objectives of the FTP for 2015-2020:-

A vision is best achieved through measurable targets. Government aims to increase India’s exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and to raise India’s share in world exports from 2 percent to 3.5 percent.

To provide a mechanism for regular appraisal in order to rationalize imports and reduce the trade imbalance.

To provide a stable and sustainable policy environment for foreign trade in merchandise and services;

To Link rules, procedures and incentives for exports and imports with other initiatives such as 'Make in India', 'Digital India' and 'Skills India' to create an 'Export Promotion Mission';

To promote the diversification of India’s export basket by helping various sectors of the Indian economy.

To gain global competitiveness;

To Create an architecture for India’s global trade engagement

To expanding its markets and better integrating with major regions,

Increasing the demand for India’s products and contributing to the 'Make in India' initiative;

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To provide a mechanism for regular appraisal in order to rationalize imports and reduce the trade imbalance.

Employment creation in both manufacturing and services through the generation of foreign trade opportunities

Zero defect products with a focus on quality and standards;

A stable agricultural trade policy encouraging the import of raw material where required and export of processed products;

A focus on higher value addition and technology infusion;

Investment in agriculture overseas to produce raw material for the Indian industry;

Lower tariffs on inputs and raw materials; and

Development of trade infrastructure and provision of production and export incentives.

Focus of the FTP

Primarily focused on accelerating exports.

To implement various schemes intended to exempt and remit indirect taxes on inputs physically incorporated in the export product

Allow Import capital goods at concessional duty,

Stimulate services exports

To promote the export of specific products in the specific markets.

To identify products that are winners and potential winners for export purposes, based on their price competiveness

Promote the country as an investment destination

Spur manufacturing and promote employment

Encompasses initiatives for skill development to ensure the availability of skilled manpower for manufacturing.

To improve the ease of doing business through initiatives such as self-certification of documents and innovative revenue models.

Development of infrastructure including i-ways besides highways, ports, optical fiber networks gas grids.

Genuine enhancement of economic capacity and development.

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MEASURES TO BE UNDERTAKEN BY SEVERAL DEPARTMENTS AND MINISTRIES OF THE GOVERNMENT OF INDIA AND ALSO STATE GOVERNMENTS TO ACHIEVE THE GOALS AND OBJECTIVES

Help improve India’s export competitiveness and deepen engagements with new markets;

Operationalise institutional mechanisms in existing bilateral and regional trade agreements;

Deepen and widen the export basket;

Reduce transaction costs;

Make efforts to reduce the cost of export credit;

Help improve infrastructure eg. ports, laboratories and Common Facility Centres;

Promote product standards, packaging and branding of Indian products;

Rationalise tax incidence - introduce the Goods and Services Tax (GST);

Help improve manufacturing by mainstreaming exports;

Incentivise potential winners for promising markets;

Promote and diversify Services Exports; and

Mainstream States and Ministries in India’s Export Strategy

Whole-of-Government’s Approach & Role of State/UT Governments

Foreign trade policy can neither be formulated nor implemented by any one department in isolation. Going forward, a whole-of-government’s approach will be required.

An Export Promotion Mission will be constituted to provide an institutional framework to work with State Governments to boost India’s exports.

“In-House Challenges to be Addressing” such as

Infrastructure bottlenecks,

High transaction costs, complex procedures,

Constraints in manufacturing and inadequate diversification in services exports.

Making export promotion schemes more focused and effective.

Import Appraisal

Striking a balance between meeting the needs of a growing economy and the promotion of domestic industry is a continuous challenge for policy makers. An institutional mechanism for continuous import appraisal would provide valuable inputs for economic policy in general and trade policy in particular. A mechanism has been put in place by the Department of Commerce for quarterly appraisal of imports. The 21 stakeholder Ministries/Departments which have been identified have been advised to probe into the need for importing various commodities and the feasibility of producing them in a cost effective way. The objective is to develop an ecosystem conducive to formulating coordinated and rational import policies in various sectors.

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The Mega Agreements: Implications for India

The three mega agreements that are currently being negotiated namely the Trans Pacific Partnership, Trans-Atlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership (RCEP).

India is a party to the RCEP negotiations. The mega agreements are bound to challenge India’s industry in many ways, for instance, by eroding existing preferences for Indian products in established traditional markets such as the US and EU and establishing a more stringent and demanding framework of rules. Indian industry needs to gear up to meet these challenges for which the Government will have to create an enabling environment.

The US is one of India’s top trading partners and now that the US is back on a growth path, future bilateral trade prospects are bright. Employment-generating sectors such as textiles, agriculture, leather and gems & jewellery will continue to receive major attention for promoting exports to the US market. Important aspects of the India-US economic relationship for India include access for our high skilled professionals in US markets, and increased investment. Regular dialogue with the US to make India’s perspective clear on issues such as intellectual property rights, immigration policies of the US Government, labour and skill related policies of the US Government, will also be a key part of the India-US economic relationship. Canada and Mexico are other important trading partners in North America. Manufacturing sector.

European Union, which is a highly discerning market, our exporters face several challenges in the form of stringent sanitary and phytosanitary standards, a complex system of quotas and tariffs and trade remedial actions against Indian products. The EU is a significant market for India’s information technology services but remains underutilized because of the data security related constraints posed by EU regulations.

There is considerable scope to widen and deepen India’s economic relations with both Australia and New Zealand. India is negotiating Comprehensive Economic Cooperation/Partnership Agreements with both countries.

India’s trade relations with its immediate neighbors in South Asia are a special focus area for the government, with a larger goal of building regional value chains in different sectors such as textiles, engineering goods, chemicals, pharmaceuticals, auto components, plastic and leather products.

Another focus area is South-East Asia

India’s most important trading partner amongst the countries of the North East Asia is China, Japan and Korea.

India is engaging actively with countries and regional groupings in Africa for trade agreements, project exports and capacity building initiatives.

The West Asia & North Africa Region is a dynamically growing region with concomitantly high absorptive capacity for exports and deserves greater focus. India is negotiating two FTAs in the region, with Israel and with the six countries comprising the Gulf Cooperation Council.

The plan for greater engagement with the Latin American and Caribbean region encompasses the expansion and deepening of various existing trading arrangements as well as new ties. Efforts will also be made to diversify India’s exports to the region and to encourage project exports

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through easy access to credit facilities. Another promising area to be explored is the potential for large-scale farming by Indian companies/individuals in this region.

India’s economic engagement with most of the countries in the CIS (Commonwealth of Independent States) region, except Russia, has been much below its potential. Therefore the focus of action should be to promote investment in the exploitation of raw materials; to operationalise the International North South Transport Corridor; to promote export of products of India’s strength and to help facilitate investments in some of these countries to build value chains, for example, in the pharmaceutical sector. The Indian diamond industry stands to benefit from the Special Notified Zones proposed for consignment import and export of rough diamonds

Initiatives for LDCs

India is committed to helping LDCs in various ways such as duty concessions, capacity building, development assistance in specific sectors and market access for products and services. Initiatives already taken include a Duty Free Tariff Preference Scheme for LDCs; preferential treatment for LDCs in the Services sector, technical assistance for the cotton sector in six African countries and various other capacity-building initiatives

Product Strategy

The focus will be on promoting exports of high value products with a strong domestic manufacturing base, including engineering goods, electronics, drugs and pharmaceuticals. The challenges posed to the pharmaceuticals sector by NTBs in Japan and regulatory hurdles in China have to be addressed. A track and trace policy for all exports of medicinal products will be effective from 1 April 2015. A composite programme for promotion of healthcare products and services will be conducted in various regions to showcase and market India’s unique strengths.

Other sectors which require special attention, in light of India’s strengths and their contribution to employment generation, are leather, textiles, gems and jewellery and the sectors based on natural resources, which include agriculture, plantation crops, marine products and iron ore exports. Revitalizing plantations, enabling a less controlled regime for agriculture and aiming at greater value addition and processing would help to increase the value of exports from these sectors. Export strategies for processed agricultural exports and organic product exports will shortly be ready. The North-Eastern States are a special focus area for organic product exports. A number of steps to address the challenges faced by the plantations sector are on the anvil.

Further, Government aims to encourage and promote hi-tech products and, as a first step, certain products have been identified for a special focus for the duration of the policy. The potential of the MSME sector, the problems it faces and its requirements have been kept in view while framing the FTP.

The Services Sector

The Services sector is an area of great potential. The Department of Commerce is working on an ambitious reform agenda, which is being pursued through an inter-ministerial mechanism. Efforts will be made to gain effective market access abroad through comprehensive economic partnership agreements with important markets. A Global Exhibition on Services will be held

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annually, which will provide a forum for showcasing India’s strengths in the Services sector. Efforts are also underway to improve the availability of data on services.

Towards World Class Products

Government is committed to transforming India into a manufacturing and exporting hub. This is possible only if India’s products are of world class standard. A roadmap has been developed on measures required to protect consumers, raise the quality of the merchandise produced and enhance India’s capacity to export to even the most discerning markets.

Building the India Brand

A programme to promote the branding and commercialization of products registered as Geographical Indications and to promote their exports will be initiated within one year of this policy coming into force.

Trade Ecosystem

Several initiatives are underway or in the pipeline for the simplification of procedures and digitization of various processes involved in trade transactions. Steps are being taken by various Ministries and Departments to simplify administrative procedures and reduce transaction costs based on the recommendations of two Task Forces constituted by the Directorate General of Foreign Trade. The implementation of these recommendations is being actively pursued.

India is committed to implementing the WTO's Trade Facilitation Agreement (TFA). A National Committee on Trade Facilitation is being constituted for domestic coordination and implementation of the TFA.

Specific measures will be taken to facilitate the entry of new entrepreneurs and manufacturers in global trade through extensive training programmes. The Niryat- Bandhu scheme will be revamped to achieve these objectives and also further dovetailed with the ongoing outreach programmes.

Capacity development efforts will focus on EPCs and commercial missions. A new institution, namely, the Centre for Research in International Trade, is being established not only to strengthen India’s research capabilities in the area of international trade, but also to enable developing countries to articulate their views and concerns from a well-informed position of strength.

Despite the global slowdown, India’s merchandise exports increased from USD 83.5 billion in 2004-05 to USD 314.4 billion in 2013-14.

The cumulative value of imports in 2013-14 was USD 450.1 billion as against USD 490.7 billion during the previous year registering a decline of 8.3 percent. Coupled with the moderate growth in exports, this resulted in a decline in India’s trade deficit from USD 190.3 billion in 2012-13 to USD 137 billion in 2013-14, contributing to a lower Current Account Deficit (CAD).

India’s two-way merchandise trade crossed USD 760 billion in 2013-14 or 44.1 percent of the GDP. If services trade is added, India’s trade reached nearly USD 1 trillion. This has been achieved despite the global contraction and is indicative of India’s resilience and increasing integration with the global economy.

According to the WTO, in merchandise trade, India was the 19th largest exporter in the world with a share of 1.7 percent and the 12th largest importer with a share of 2.5 percent in 2013. In commercial services, India was the 6th largest exporter in the world with a share of 3.2 percent and the 9th largest importer with a share of 2.8 percent.

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ABOUT FOREIGN TRADE POLICY 2015-2020

1. Legal Framework of Foreign Trade Policy (FTP):- The Foreign Trade Policy, 2015-20, notified by Central Government vide Notification No.01/2015-2020 dated 1st April 2015, in exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 to be known as FTP 2015-2020. Incorporating provisions relating to export and import of goods and services shall come into force w.e.f 01.04.20185 and shall remain in force up to 31st March, 2020.

2. Documents Published with the FTP:- i. Minister Speech ii. Foreign Trade Policy Statement. iii. High light of the Foreign Trade Policy. iv. Foreign Trade Policy v. Handbook Of Procedures contained in following compilations

a. Hand Book of Procedures b. Appendices & Aayat Niryat Forms and c. Standard Input Output Norms (SION)

vi. ITC(HS) Classification of Export &Import Items

i. Minister Speech:-In exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992, Hon’ble Minster of Commerce and Industry Smt. Nirmala Sitharaman with their speech on 01st April 2015 announced the new Foreign Trade Policy 2015-2020.

ii. Foreign Trade Policy Statement: - The Foreign Trade Policy Statement explains the

vision, goals and objectives of the Foreign Trade Policy for the period 2015-2020. The vision is to make India a significant participant in world trade by the year 2020.Objective of the Foreign Trade Policy 2015-2020 is to provide a stable and sustainable policy environment for foreign trade in merchandise and services; to link rules, procedures and incentives for exports and imports with other initiatives such as ‘Make in India’, ‘Digital India’ and ‘Skills India’ to gain global competitiveness.

iii. Foreign Trade Policy (“FTP”):- “FTP” means the Foreign Trade Policy which specifies policy for exports and imports under Section 5 of the Foreign Trade (Development and Regulation) Act 1992. Foreign Trade Policy 2015-2020 are divided into nine chapters.

iv. Hand Book of Procedures:- In exercise of powers conferred under Para 1.03 of the Foreign Trade Policy 2015-2020 the Director general of Foreign Trade notifies the Handbook of procedures, Appendices and Aayat and Niryat Form vide public notice No.01/2015-2020 dated 01.04.2015.It contains the procedure to be followed by an exporter or importer or by the licensing/Regional Authority or by any other authority for purpose of implementing the provisions of Foreign Trade (Development & Regulation) Act, the Rules/orders made there under and the provisions of Foreign Trade Policy.

v. Appendices of the FTP:- Appendix means annexure forming part of the FTP, Currently it

is 70 in Numbers in FTP 15-20 and different appendix contains different information such Appendix 2K contains the Scale of Fee and Format for Depositing of Application Fee/Penalty etc for issuance of the Authorization/IEC, Appendices 5B contains the format of CA certificate for issuance of the EPCG Authorization. Appendices are numbered in convenient manner such as Appendices related with chapter -1 of the FTP is numbered as

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Appendices 1A, 1B and 1C similarly Appendices related with the Chapter 2 is numbered as 2A, 2B 2C etc. First Numerical value of the Appendices identifies the chapter of the FTP to which it relates with.

vi. Aayat Niryat Forms of the FTP: - It is prescribed form under different scheme of the FTP for claiming of the Benefits of that scheme. Aayat Niryat Forms are numbered in convenient manner such as Aayat Niryat Forms related with chapter -1 of the FTP is numbered as ANF- 1; similarly Aayat Niryat Forms related with the Chapter 2 is numbered as ANF-2A, ANF-2B etc. Numerical value of the Aayat Niryat Forms denotes the chapter of the FTP to which it relates with.

vii. Standard Input Output Norms (SION):- SION “means Standard Input Output Norms

notified by DGFT” with a view to facilitate determination of the proportion of various inputs which can be used or required in the manufacture of different resultants products .Input to the extent notified in the SION can be imported duty free under duty exemption scheme of the FTP such as Advance Authorization, duty is required to be paid on import in excess of the SION.

3. Relevant ACT, Rules and Orders for Reference:

a. Foreign Trade (Development and Regulation) Act, 1992 b. Foreign Trade (Development and Regulation) Amendment Act,

2010 c. Foreign Trade(Regulation) Rules, 1993 d. Foreign Trade (Exemption from Application of Rules in certain

cases)Order, 1993 e. Notifications f. Safeguard Measures (Quantitative Restrictions) Rules, 2012

4. Policy Interpretation and Relaxations:

The decision of DGFT shall be final and binding on all matters relating to interpretation of

Policy. DGFT may in public interest pass such orders or grant such exemption, relaxation or relief,

as he may deem fit and proper, on grounds of genuine hardship and adverse impact on trade to any person or class or category of persons from any provision of FTP or any procedure.

While granting such exemption, DGFT may impose such conditions as he may deem fit after consulting the Committees as under:

S. No Description Committee

a. Fixation / Modification of Products Norms

Norms Committee

b. Nexus with Capital (CG) and Benefits under EPCG Scheme.

EPCG Committee

c. All other Issues Policy Relaxation Committee

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5. Personal Hearing by DGFT for Grievance Redressal

Government is committed to easy and speedy redressal of grievances from Trade and Industry. As per FTP DGFT may provide for relaxation of Policy on grounds of genuine hardship and adverse impact on trade. DGFT may consider request for relaxation after consulting concerned Norms Committee, EPCG Committee or Policy Relaxation Committee (PRC).

As a last resort to redress grievances of Importers/ Exporters, DGFT may provide an opportunity for Personal Hearing (PH) before PRC. For such PH, a specific request along with the prescribed application fee as per Appendix-2K has to be made to DG.

The decision conveyed in pursuance to the personal hearing shall be final and binding. The opportunity for Personal Hearing will not apply to a decision/order made in any

proceeding, including an adjudication proceeding, whether at the original stage or at the appellate stage, under the relevant provisions of FT (D&R) Act, 1992, as amended from time to time.

6. Contents of the FTP:

Chapter -1 Legal framework and trade facilitation

Chapter -2 General provisions regarding imports and exports

Chapter -3 Exports From India Schemes Chapter -4 Duty Exemption / Remission Schemes Chapter -5 Export promotion capital goods (EPCG) scheme

Chapter -6

Export oriented units (EOUS), electronics hardware technology parks (EHTPS), software technology parks (STPS) and bio-technology parks (BTPS)

Chapter -7 Deemed exports Chapter -8 Quality complaints and trade disputes Chapter -9 Definitions

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NOTES ON CHAPTER -1 Legal framework and trade facilitation

1.1 Legal Basis of Foreign Trade Policy (FTP)

FTP 2015-2020 is notified by the Central Government in exercise of the power under section 5 of the FT (D&R) Act, 1992.

1.2 Duration of FTP

Effective from 1st April 2015 and remain in force up to 31 March 2020.

1.3 Amendment to FTP

Central Government, in exercise of powers conferred by Section 5 of FT (D&R) Act, 1992 reserves the right to make any amendment to the FTP, by means of notification, in public interest.

1.4 Hand Book of Procedures (HBP) and Appendices & Aayat Niryat Forms (AANF)

DGFT by means of a Public Notice, notify Hand Book of Procedures, including Appendices and Aayat Niryat Forms or amendment thereto, if any, laying down the procedure to be followed by an exporter or importer or by any Licensing/Regional authority or by any other authority for purposes of implementing provisions of FT (D&R) Act, the Rules and the Orders made there under and provisions of FTP.

1.5 Transitional Arrangements

Any License / Authorization / Certificate / Scrip / any instrument issued before commencement of FTP 2015-20 shall continue to be valid for the purpose and duration for which it was issued, unless otherwise stipulated.

1.6 DGFT as a facilitator of exports/imports

DGFT has a commitment to function as a facilitator of exports and imports. Focus is on good governance, which depends on efficient, transparent and accountable delivery systems. In order to facilitate international trade, DGFT consults various Export Promotion Councils as well as Trade and Industry bodies from time to time.

1.7 Citizen’s Charter

DGFT has in place a Citizen’s Charter, giving time schedules for providing various services to clients.

1.8 Assistant from the Department

For assistance an email may be sent at dgftedi@nic.in or Toll Free number 1800111550 can be used.

1.9 Exporter Importer Profile

An electronic procedure has been created to upload various documents such as RCMC etc in exporter importer profile. Once uploaded, there will be no need to submit these documents / copies of these documents to Regional Authority repeatedly with each application. It intends

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to reduce the transaction cost and time and is a step towards paperless processing of different applications in DGFT.

1.10 Facility of online filing of applications

The application for IEC/Authorization/License can be filed by exporter/CHA sitting at home or office in 24X7 environments. Application fee can also be paid online from linked banks.

1.11 Opportunities for Chartered Accountants/Company Secretary/ Cost Accountant.

Documents for the license/redemption to be uploaded by Chartered Accountant / Company Secretary / Cost Accountant. This facility presently allowed only for Export from India Schemes under Chapter 3. These facilities may be extended in phased manner for all other scheme.

1.12 Free passage of Export consignment

Consignments of items meant for exports shall not be withheld/ delayed for any reason by any agency of Central/ State Government. In case of any doubt, authorities concerned may ask for an undertaking from exporter and release such consignment. No seizure shall be made by any agency so as to disrupt manufacturing activity and delivery schedule of exports except in case of serious irregularity. In case of serious irregularities such seizure should be lifted within 7 days unless the irregularities are substantiated.

1.13 24 X 7 Customs clearance

Has been made available, at the 18 sea ports at: Chennai, Cochin, Ennore, Gopalpur, JNPT, Kakinada, Kandla, Kolkata, Mumbai, New Mangalore, Marmagoa, Mundra, Okha, Paradeep, Pipavav, Sikka, Tuticorin, Vishakapatnam.

1.14 Facility of Common Bond / LUT against authorizations issued under different EP

Schemes

CBEC Circular 11(A)/2011-Cus dated 25.02.2011 has provided the financial year-wise facility of executing common Bond/LUT against Advance Authorization (AA)/Export Promotion Capital Goods (EPCG) Authorization which is usable across all EDI ports/locations.

1.15 Prior filing facility for Shipping Bills

Has been provided by the Customs - 7 days for air shipments & ICDs and 14 days for shipments by sea.

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NOTES ON CHAPTER-02 General Provisions Regarding Imports And Exports

2.1 Exports and Imports – ‘Free’, unless regulated

For the purpose of import and export all the goods are categorized in following category:- i. Free ii. Prohibition. iii. Restriction iv. State Trading Enterprises (STEs) v. Free but subject to conditions stipulated in other Acts or in law for the time being in force. These classifications are as per the [ITC (HS)] of Exports and Imports. The list of ‘Prohibited’, ‘Restricted’ and ‘STE’ items can be viewed by clicking on ‘Downloads’ at http://dgft.gov.in. ITC (HS) is a compilation of codes for all merchandise / goods for export/ import. Goods are classified based on their group or sub-group at 2/4/6/8 digits. Schedule 1 of ITC (HS) lays down the Import Policy regime while Schedule 2 of ITC (HS) details the Export Policy regime for new goods and not for the Second Hand goods.

2.2 Compliance of Imports with Domestic Laws

Domestic Laws/ Rules/ Orders/ Regulations / Technical specifications/ environmental/ safety and health norms applicable to domestically produced goods shall apply, mutatis mutandis, to imports, unless specifically exempted. However, goods to be utilized/ consumed in manufacture of export products, as notified by DGFT, may be exempted from domestic standards/quality specifications.

2.3 Penal action and placing of an entity in Denied Entity List (DEL)

If an Authorization holder violates any condition of any Authorization or fails to fulfill export obligation, or fails to deposit the requisite amount within the period specified in demand notice issued by Department of Revenue and /or DGFT, he shall be liable for action in accordance with FT (D&R) Act, the Rules and Orders made there under, FTP and any other law for time being in force. A firm may be placed under Denied Entity List (DEL), by the concerned RA, under the provision of Rule 7 of Foreign Trade (Regulation) Rules, 1993. On issuance of such an order, for reasons to be recorded in writing, a firm may be refused grant or renewal of a license, certificate, scrip or any other benefits. If a firm is placed under DEL all new licenses, scrips, certificates, instruments, etc will be blocked from printing / issue / renewal. DEL orders may be placed in abeyance, for reasons to be recorded in writing by the concerned RA. DEL order can be placed in abeyance, for a period not more than 60 days at a time. A firm's name can be removed from DEL, by the concerned RA for reasons to be recorded in writing, if the firm completes Export Obligation/ pays penalty/ fulfills requirement of Demand Notice(s) issued by the RA/submits documents required by the RA

2.4 Issue of e-IEC (Electronic-Importer Exporter Code).

An IEC is a 10-digit number allotted by the DGFT.DGFT has recently introduced the facility of issuing Importer Exporter Code in electronic form (e-IEC). For issuance of e-IEC an application can be made online on DGFT website (http//:dgft.gov.in). Applicants can upload the documents and pay the required fee through Net banking/Debit Card/Credit Card. E-IEC would normally be issued/ e-mailed to the applicant within 2 working days.

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Procedure for Online Application:- (a) Go to the http://dgft.gov.in/ (b) On left hand side click on online IEC Application. (c) Fill the required information such as PAN/ Mobile Number/ Email ID. (d) Click on generate tokens then tokens number will be send to your mobile number and

email id. (e) Use these tokens number for application. (Please note that the tokens send on mobile and

email will be different both are required for IEC application). (f) Fill the required information and pay the prescribed fee of Rs.500 and upload the

required scanned documents. (g) Digitally signed e-IEC would normally be issued/ e-mailed to the applicant within 2

working days. (h) In case the application is incomplete or otherwise ineligible, the same shall be rejected

and a Rejection letter/email (with reasons for rejection) would be sent to the applicant. (i) Briefly, following are the requisite details /documents (scanned copies) to be submitted/

uploaded along with the application for IEC. i. PAN of the business entity.

ii. Address Proof of the applicant entity. iii. LLPIN /CIN/ Registration Certification Number (whichever is applicable). iv. Bank account details of the entity. v. Cancelled Cheque bearing entity’s pre-printed name or Bank certificate in prescribed

format ANF2A (I). vi. Details of the Proprietor/ Partners/ Directors/ Secretary or Chief Executive of the

Society/ Managing Trustee of the entity: a. PAN (for all categories) b. DIN/DPIN (in case of Company /LLP firm) c. Details of the signatory applicant: d. Identity proof e. PAN f. Digital photograph

Note-1 In case the applicant has digital signature, the application can also be submitted online and no physical application or document is required. In case the applicant does not possess digital signature, a print out of the application filed online duly signed by the applicant has to be submitted to the concerned jurisdictional RA, in person or by post. Note-2 Detailed guidelines for applying for e-IEC are available at <http://dgft.gov.in/exim/2000/ iec_anf/ iecanf.htm>. Note-3 Only one IEC one PAN (Permanent Account Number). 2.5 Registrations-cum-Membership Certificate (RCMC)

Any person, applying for an Authorization to import/export or any other benefit or concession under FTP shall be required to furnish RCMC issued by the governing Export Promotion Council such as EEPC/SEPC/AEPC/FIEO etc.

2.6 Application Fee

Application for IEC/ Authorization / License / Scrips must be accompanied by application fees as indicated in the Appendix 2K of the FTP.

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2.7 Mandatory documents for export/import of goods from/into India Mandatory documents required for export of goods from India:

1. Bill of Lading/Airway Bill 2. Commercial Invoice cum Packing List* 3. Shipping Bill/Bill of Export

Mandatory documents required for import of goods into India

1. Bill of Lading/Airway Bill 2. Commercial Invoice cum Packing List* 3. Bill of Entry

Note: As per CBEC Circular No. 01/15-Customs dated 12/01/2015. (ii) Separate Commercial Invoice and Packing List would also be accepted.

2.8 Export/Import of Restricted goods/Services

Any goods /service, the export or import of which is ‘Restricted’ may be exported or imported only in accordance with an Authorization / Permission or in accordance with the procedure prescribed in a Notification / Public Notice issued in this regard

2.9 Import of Samples

No license shall be required for Import of bonafide technical and trade samples of items restricted in ITC (HS) except vegetable seeds, bees and new drugs. Samples of tea not exceeding Rs.2000 (CIF) in one consignment shall be allowed without an Authorization by any person connected with Tea industry. Duty free import of samples up to Rs.3, 00,000 for all exporters shall be allowed as per terms and conditions of Customs Notification.

2.10 Export of Samples

Exports of confide trade and technical samples of freely exportable item shall be allowed without any limit. An application for export of samples/exhibits, which are restricted for export, may be made to DGFT as per ANF-2Q.

2.11 Export of Gifts

Goods including edible items, of value not exceeding Rs.5, 00,000/- in a licensing year, may be exported as a gift. However, items mentioned as restricted for exports in ITC (HS) shall not be exported as a gift, without an Authorization.

2.12 Export of Replacement Goods

Goods or parts thereof on being exported and found defective/damaged or otherwise unfit for use may be replaced free of charge by the exporter and such goods shall be allowed clearance by Customs authorities, provided that replacement goods are not mentioned as restricted items for exports in ITC (HS).

2.13 Export of Spares

Warranty spares (whether indigenous or imported) of plant, equipment, machinery, automobiles or any other goods, [except those restricted under ITC (HS)] may be exported along with main equipment or subsequently but within contracted warranty period of such goods, subject to approval of RBI.

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2.14 Export of SCOMET Items

Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET), as indicated in Appendix-3 of Schedule 2 of ITC(HS) Classification of Export & Import Items governed by the specific provisions of (i) Chapter IV A of the FT(D&R) Act, 1992 as amended from time to time (ii) Sl. No. 4 & 5 of Table A and Appendix-3 of Schedule 2 of ITC(HS) Classification of Export & Import Items (iii) Para 2.16, Para 2.17, Para 2.18 of FTP and (iv) Para 2.73-2.82 of Hand Book of Procedures.

2.15 Export through Courier Service

Exports through a registered courier service are permitted as per Notification issued by

2.16 Sale on High Seas

Sale of goods on high seas for import into India allowed.

2.17 Denomination of Export Contracts

All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. Export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan. Export proceeds from Iran may be realized in Indian Rupees. The payment realized through insurance cover, would be eligible for benefits under FTP.

2.18 Export to Iran – Realizations in Indian Rupees to be Eligible for FTP Benefits /

Incentives

Export proceeds realized in Indian Rupees against exports to Iran are permitted to avail exports benefits / incentives under the Foreign Trade Policy (2015-20), at par with export proceeds realized in freely convertible currency.

2.19 Import of Gifts

Import of gifts shall be ‘free’ where such goods are otherwise freely importable under ITC (HS). In other cases, such imports shall be permitted against an authorization issued by DGFT.

2.20 Re – Import of Goods Repaired Abroad

Capital goods, equipments, components, parts and accessories, imported or indigenous, except those restricted under ITC (HS) may be sent abroad for repairs, testing, and quality improvement or up gradation or standardization of technology and re-imported without an Authorization.

2.21 Non-Realization of Export Proceeds

If an exporter fails to realize export proceeds within time specified by RBI, he shall, be liable to return all benefits / incentives availed against such exports.

In case an Exporter is unable to realize the export proceeds for reasons beyond his control

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(force-majeure), he may approach RBI for writing off the unrealized amount. 2.22 Regularization Of EO Default and Settlement of Customs Duty and Interest Through

Settlement Commission

With a view to providing assistance to firms who have defaulted under FTP for reasons beyond their control as also facilitating merger, acquisition and rehabilitation of sick units, it has been decided to empower Settlement Commission in Central Board of Excise and Customs to decide such cases also with effect from 01.04.2005.

2.23 Import of Goods Used in Projects Abroad

Project contractors after completion of projects abroad, may import without an Authorization, goods including capital goods used in the project, provided they have been used for at least one year.

2.24 Import Policy for Second Hand Goods:

2.25 Removal of Scrap/waste from SEZ A SEZ unit/Developer/ Co-developer may be allowed to dispose of in DTA any waste or scrap, including any form of metallic waste and scrap, generated during manufacturing or processing activity on payment of applicable Customs Duty. 2.26 Import under Lease Financing No specific permission of RA is required for lease financed capital goods. 2.27 Execution of Legal Undertaking (LUT) / Bank Guarantee (BG) In case of Import: Applicable Bond/LUT/BG

to be executed with the Customs Authority at the port of the registration of the Authorization in the Format of CBEC Circular 11(A)/2011-Cus dated 25.02.2011.

In Case of the Indigenous Sourcing: Applicable Bond/LUT/BG to be executed with the regional Authority of the DGFT as per the format given in Appendices 2N.

2.28 Private/Public Bonded Warehouses for Imports

Sr. No.

Categories of Capital Goods

Import Policy

Conditions, if any

I. Second Hand Capital Goods a. Personal Computers/Lap

Top Photocopiers machine/Digital Multifunction Print & Copying Machines.

. Air Conditioner

. Diesel Generating Set.

Restricted

Import against license issued by the DGFT

b. Refurbished reconditioned spares of capital Goods.

Free Subject to the production of the Chartered Engineer Certificate to the affect that such spares have at least 80% residual life of original Spares.

c. All other second hand capital goods {other than (a) & (b) above}

Free

II. Second Hand Goods other than capital goods

Restricted

Importable against Authorization

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(a.) Private/ Public bonded warehouses may be set up in DTA as per terms and conditions of notification issued by DoR. Any person may import goods except 45 prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such bonded warehouses.

(b.) Such goods may be cleared for home consumption in accordance with provisions of FTP and against Authorization, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods.

(c.) If such goods are not cleared for home consumption within a period of one year or such extended period as the customs authorities may permit, importer of such goods shall re-export the goods.

2.29 Exemption / Remission of Service Tax In DTA on Goods & Services Exported

For all goods and services which are exported from units in DTA and units in EOU / EHTP / STP / BTP, refund of service tax levied and related to exports, shall be allowed, as per the Rule 5 of the CENVA Credit Rules 2004.

2.30 Benefits for Supporting Manufacturers

"Supporting Manufacturer" is one who manufactures goods/products or any

part/accessories/components of a good/product for a merchant exporter or a manufacturer exporter under a specific authorization. “Supporting Manufacturer” for the EPCG Scheme shall be one in whose premises/factory Capital Goods imported/ procured under EPCG authorization is installed.

"Manufacturer Exporter" means a person who exports goods manufactured by him or intends to export such goods.

“Merchant Exporter” means a person engaged in trading activity and exporting or intending to export goods.

For any benefit to accrue to the supporting manufacturer, the names of both supporting manufacturer as well as the merchant exporter must be mentioned in the concerned export documents, especially in ARE-1 / ARE-3 / Shipping Bill / Bill of Export/ Airway Bill.

However, MEIS rewards under chapter 03 of the FTP can be claimed either by the supporting manufacturer (along with disclaimer certificate from the company / firm who has realized the foreign exchange directly from overseas) or by the company/ firm who has realized the foreign exchange directly from overseas.

Advance Authorization can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer.

Merchant Exporter shall be required to mention name and address of supporting manufacturer of the export product on the export document viz. Shipping Bill / Airway Bill / Bill of Export / ARE-1 / ARE-3.

EPCG Authorization can be issued to manufacturer exporters with or without supporting manufacturer(s).Name of supporting manufacturer(s) shall be endorsed on the EPCG authorization before installation of the capital goods in the factory / premises of the supporting manufacturer (s). In case of any change in supporting manufacturer (s) the RA

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shall intimate such change to jurisdictional Central Excise Authority of existing as well as changed supporting manufacturer (s) and the Customs at port of registration of Authorization.

Export obligation shall be fulfilled by the Authorization holder through export of goods which are manufactured by him or his supporting manufacturer for which the EPCG authorization has been granted.

2.31 Third Party Exports

"Third-party exports" means exports made by an exporter or manufacturer on behalf of

another exporter(s).

Third party exports (except Deemed Export as defined in Chapter 9) shall be allowed under FTP. In such cases, export documents such as shipping bills shall indicate name of both manufacturing exporter/manufacturer and third party exporter(s).

Bank Realization Certificate (BRC), export order and invoice should be in the name of third party exporter.

2.32 Self Certification of Originating Goods

The Manufacturers who are also Status Holders shall be eligible for Approved Exporter

Scheme. Approved Exporters will be entitled to self-certify their manufactured goods as originating from India with a view to qualifying for preferential treatment under different PTAs/FTAs/CECAs/CEPAs which are in operation. Self-certification will be permitted only for the goods that are manufactured as per the Industrial Entrepreneurial Memorandum (IEM) / Industrial License (IL)/Letter of Intent (LOI) issued to manufacturers. (Scheme is Optional in Nature).

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NOTES ON CHAPTER-3 Exports From India Schemes

3.1 Export from India Scheme Consists of Following Two Scheme Namely :

(i) Merchandise Exports from India Scheme (MEIS). (ii) Service Exports from India Scheme (SEIS)

3.2 Objective of the Export from India Scheme :

The objective of schemes under this chapter is to provide rewards to exporters to offset infrastructural inefficiencies and associated costs involved and to provide exporters a level playing field.

3.3 Nature of Rewards under MEIS and SEIS Scheme

Reward issued under MEIS and SEIS is called Duty Credit Scrip.

The Duty Credit Scrips issued under MEIS and SEIS and goods imported / domestically procured against them shall be freely transferable in open Market for encashment of the rewards without any conditions.

Duty Credit Scrip can be used for the payment of the Customs/Excise duty and Service tax for the procurement of the goods or service tax as the case may be.

Interest and Penalty cannot be paid through these Scrips.

3.4 Merchandise Exports from India Scheme (MEIS) This scheme emerge out as a results of merges the old five scheme of FTP 2009-2014 namely ((Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, and VKGUY).

3.5 Entitlements under MEIS Exports of notified goods with ITC [HS] code, to notified markets as listed in Appendix 3B, shall be rewarded. The basis of calculation of reward would be on realized FOB value of exports of the goods in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less at the rate specified in the said appendix.

Goods which are Originated/Manufactured in India is only eligible for the MEIS reward. In case of export of goods through courier or foreign post offices using e-commerce are eligible for the MEIS. If the export consignment is more than the Rs.25000 per consignment then the reward will be limited to FOB Value of Rs.25000 only.

Appendix 3B of the FTP notified vide Public Notice No. 3 /2015-20 DT. April 1, 2015. Appendix 3B has two tables Table-1 and Table-2.Table-1 notifies the market and categories all market in three groups (A, B and C) and Table-2 Notifies the Goods. If the notifies goods under the Table-2 exported to the notifies markets of Table-1 then the exporter is eligible for the MEIS incentive at the rate specified in the table-2 on FOB value of export

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3.6 Service Exports from India Scheme (SEIS). New Scheme Service Exports from India Scheme (SEIS) has replaced the old scheme Served from India Scheme (SFIS).

Duty Credit Scrip issued under the SFIS was non- transferable i.e. usable by only the person to whom it was issued for the purpose of excise duty and customs duty only on domestic procurement/import of the specified goods. However Duty Credit Scrip Issued under the SEIS can be used for the payment of the Service Tax/Customs Duty/Excise Duty without any conditions and is transferable. On an application SEIS reward is available for the Service Providers located in India of notified services. All services are not eligible for SEIS only services which are listed in Appendix 3D i.e. services listed in the Appendix 3D are eligible for the SEIS at the rate specified in the said Appendix. Appendix 3D is notified vide DGFT Public Notice No. 3 /2015-20 Dated April 1, 2015 containing list of services eligible for the SEIS and rate of SEIS.

Rate of SEIS is 3 or 5 % of Net Foreign Exchange Earning from the Notified Services. Notified Services rendered in the manner as per Para 9.51(i) and Para 9.51(ii) of Foreign Trade policy shall only be eligible. .

Para 9.51defines the meaning of the Service Provider which is reproduced as under:- "Service Provider" means a person providing: (i) Supply of a ‘service’ from India to any other country; (Mode1- Cross border trade) (ii) Supply of a ‘service’ from India to service consumer(s) of any other country; (Mode 2-

Consumption abroad) (iii) Supply of a ‘service’ from India through commercial presence in any other country. (Mode

3 – Commercial Presence.) (iv) Supply of a ‘service’ from India through the presence of natural persons in any other

country (Mode 4- Presence of natural persons.)

Note : Since the services provided in the manner of Para 9.51(i) and 9.51(ii) are only eligible for the SEIS, hence the services provided through commercial presence or presence of the Natural person outside India are not eligible for the SEIS i.e. Para9.51(iii) and Para 9.51(iv) are not eligible for the SEIS. MEIS and SEIS is to be issued by the regional office of the DGFT on online application along with the proof of export such as incase of SEIS certificate from CA certifying the figure of net foreign exchange realization from export of the services during the year. In case of the MEIS EP copy of the Shipping Bills etc. MEIS and SEIS to be issued in the form of Transferable Duty Credit Scrip. Transferable means exporter who have been awarded the MEIS or SEIS Duty Credit Scrip can sale it to anyone in Open Market for encashment of the award.

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MEIS and SEIS Duty Credit Scrip can be used for the payment of Customs/ Excise Duty and Service Tax on import/domestic procurement of the goods or procurement of the services which are eligible for the CENVAT or Duty Drawback as the case may be. Validity of the MEIS and SEIS Scrip is 18 months from the date of the issuance of the Scrip. 3.7 Frequency of application of the reward:-

SEIS: Annual i.e. reward for the financial year ending 2015-2016 can be claimed on or after 01.04.2016.

MEIS: At any time on or after the issuance of the let export order from the Customs Authority. In an application maximum number of 50 shipping bills can be felled. All the 50 shipping bills should be from the same port.

3.8 Last Date for Filling Application:-

SEIS: Within 12 months from the end of relevant Financial year of Claim Period. e.g. Claim for the Financial year 2015-2016 can be filed at any time on or after 01.04.2016 but before 31.03.2017.

MEIS: 12 months of the LEO date or Three months from the date of Uploading of the EDI Shipping Bills onto DGFT server by the Customs or Three Months of the Printing of the Shipping Bills whichever is later.

3.9 Application with Late Cut:-Applicable for MEIS and SEIS

Sr. No

Delays Late Cut

1. Up to 6 months (<=) from the last date. 2% 2. Exceeding 6 (>) months but upto 12

months (<=). 5%

3. Exceeding 12(>) months but on or before the end of 2 years (<=) from the last date.

10%

4. Any other case i.e exceeding two years from the last date.

Time barred i.e. no reward.

3.10 Ineligible Category Export Under MEIS and SEIS (i.e. on which no rewards)

Sr. No.

Types of Export MEIS Availability

SEIS Availability

i Supply from DTA units to SEZ units Not available Not available ii. Exported of Imported Goods as it is(i.e. goods

originated/manufactured outside India) Not available Not available

iii. Deemed Export as per Chapter 7 such as supply to the EPCG/Advance Authorization holder and EOU/EHTP/STP/BTP etc

Not available Not available

iv. SEZ/ EOU/ EHTP/ BPT /FTWZ zone products exported through DTA units i.e. not exported directly by the SEZ/EOU units.

Not available Not available

v. Exported of the restricted/prohibited Items under ITC (HS) with the approval.

Not available Not available

vi. Service Export Not available Available only for the

30

  

services notified under Appendix 3D provided payment not received from the EEFC account.

vii. Export of the products subject to minimum price and export Duty.

Not available

viii. Export of the Sugar/ Red Sanders/ Beach Sands/ Diamond/ Gold/ Silver /Platinum/ Other Precious Metal/ Ores/ Concentrates/ Cereals/ Crude/ Petroleum/ Milk/ Milk Products/ Meat/ Meat Products.

Not available

ix. Donation received /Loan / Debt raised /or any other payment not related with the export of the services/goods.

Not available Not available

Note: As per the Serial Number of 3 of the FTP highlights by DGFT and Para 23 of the speech of the Minister of the Commerce and Industry MEIS and SEIS is available to the units located in the SEZ. Which is reproduced hereunder:- Minister Speech:- Special Economic Zones have been facing some challenges in recent times. In order to boost exports from SEZs, government has now decided to extend benefits of both the reward schemes (MEIS and SEIS) to units located in SEZs. It is hoped that this measure will give a new impetus to the development and growth of SEZs in the country. FTP 2015-2020 Highlight on Chapter 03 Rewards:- 3.11 Chapter -3 Incentives (MEIS & SEIS) to be available for SEZs

It is now proposed to extend Chapter -3 Incentives (MEIS & SEIS) to units located in SEZs also.

3.12 Comparison of Chapter 03 of FTP 2009-2014 and FTP 2015-2020 at glance:-

I. Export of the Goods vs. Export of Services Particulars Chapter 03 FTP

2009-2014 Chapter 03 FTP

2015-2020 Remarks

Export of Goods

Incentive was available under FMS/FPS/MLFPS/IEIS/SHIS/AIIS on the export of notified goods or export to the notified markets or export of the notified goods to the notified markets.

Rewards are available under MEIS on export of the notified goods to the notified markets.

In the new scheme goods and market are linked for rewards.

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Export of Services.

SFIS was available for the notified services.

SEIS replaced the SFIS.

Rate of the SEIS (3 or 5%) is low in comparison to SFIS rate (10%).

II. Export of Services (SFIS Vs. SEIS)

Particulars Chapter 03 FTP 2009-2014

Chapter 03 FTP 2015-2020

Export of Services SFIS was available for the notified services.

SEIS is available

Transferability Non Transferable Transferable Frequency of the Application

Monthly/Quarterly/Annually at the Option of the exporter.

Annually

Rate of the Benefits

10% 3 or 5 %

Payment of the Service Tax.

Not Allowed Allowed

Import of the Input

Not allowed Allowed

CENVAT of the Utilised Amount

Not Allowed Allowed

Export By the SEZ Units

Not Eligible Eligible

Appendix for the Notified Services

Appendix 41 Appendix 3E

Services provided by the Commercial presence or presence of the Natural Person Outside India.

Eligible Not Eligible

Minimum Foreign Exchange earning required for eligibility.

Individual Rs.500000/- Others Rs.1000000/-

Individual or Proprietor USD 10000 Other 15000 USD.

III. Export of the Goods;

Particulars Chapter 03 FTP 2009-2014

Chapter 03 FTP 2015-2020

Scheme There are various scheme

Only one scheme MEIS.

Market Two Types i. Focus Market ii. Special Focus Market

Three Types i. Traditional Markets ii. Emerging & Focus

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Markets iii. Other Markets

Export by the SEZ units.

Not Eligible Eligible

Combination of the Shipping Bills of Different Port.

Allowed Not Allowed. I.e. one application will be port wise and the port of registration should be the port of export.

Declaration of the Intents in the Shipping Bills that we will claim the Benefits under the Chapter 3

Was not required for export under the Advance Authorisation/EPCG/EOU Scheme.

Was required for export under the Advance Authorisation/EPCG/EOU Scheme

3.13 Status Holder

FTP 2015-2020 FTP 2009-2014 Category Export

Performance of the current and previous TWO financial years cumulatively In USD Million (Total FOB Value of Export to be taken)

Category Export Performance current and previous THREE financial years In Rs. In Crore. (Only realized Value to be taken not FOB of export)

One Star Export House

3 Export House

20

Two Star Export House

25 Star Export House

100

Three Star Export House

100 Trading House

500

Four Star Export House

500 Star Trading House

2500

Five Star Export House

2000 Premier Trading House

7500

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a. Double weighted for specified category of export such export by ISO 9000 holder to be allowed only for recognition of the one star export house however in the old policy it was allowed for all category of status.

b. In new Policy Manufacturer who are also status holder shall be eligible to self certify their goods as originating in India (Certificate of Origin).

c. Status holder can export free of cost basis for export promotion upto 10 lakh or 2% of average annual export realized during the preceding three licensing years whichever is higher.

d. Status Holder issued in earlier policy to be amended on or before 30th June 2015 as per new policy.

*****

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NOTES ON CHAPTER- 4 Duty Exemption / Remission Schemes

4.1 Objective

Schemes under this Chapter enable duty free import of inputs for export production, including replenishment of input or duty remission.

4.2 Schemes under this Chapter

(a) Duty Exemption Schemes. The Duty Exemption schemes consist of the following: (i) Advance Authorization (AA) (which will include Advance Authorization for Annual

Requirement). (ii) Duty Free Import Authorization (DFIA). (b.) Duty Remission Scheme Consists of.

(i) Duty Drawback (DBK) Scheme, administered by Department of Revenue. 4.3 Applicability of Policy & Procedures for the Chapter 4 Authorization

(Authorization under this Chapter shall be issued in accordance with the Policy and Procedures in force on the date of issue of the Authorization.

4.4 Advance Authorization

(a.) Advance Authorization is issued to allow duty free import of input, which is physically incorporated in export product (making normal allowance for wastage).

(b.) Advance Authorization is issued for inputs in relation to resultant product, on the

following basis:

(i) As per Standard Input Output Norms (SION) notified (available in Hand Book of Procedures);

OR (ii) On the basis of self declaration as per paragraph 4.07 of Handbook of

Procedures. 4.5 Eligible Applicant / Export / Supply

(a.) Manufacturer exporter or Merchant exporter tied to Supporting Manufacturer. (b.) Advance Authorization for pharmaceutical products manufactured through Non-

Infringing (NI) process shall be issued to manufacturer exporter only. 4.6 Advance Authorization for Annual Requirement

(i) Advance Authorization for Annual Requirement shall only be issued for items notified in Standard Input Output Norms (SION), and it shall not be available in case of adhoc norms or self declared norms.

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(ii) Advance Authorization for Annual Requirement shall also not be available in respect of SION where any item of input appears in Appendix 4-J.

(iii) Exporters eligible for such Authorizations shall file online application in ANF 4A to Regional Authority concerned.

4.7 Eligibility Condition of Advance Authorization for Annual Requirement

(i) Exporters having past export performance (in at least preceding two financial years) shall be entitled for Advance Authorization for Annual requirement.

(ii) Entitlement in terms of CIF value of imports shall be upto 300% of the FOB value of

physical export and / or FOR value of deemed export in preceding financial year or Rs 1 crore, whichever is higher.

4.8 Minimum Value Addition (VA)

a. Minimum value addition required to be achieved under Advance Authorization is 15%.

b. A - B VA = ----------- x 100, where

B A = FOB value of export realized / FOR value of supply received. B = CIF value of inputs covered by Authorization, plus value of any other input used on which benefit of DBK is claimed or intended to be claimed.

c. In case of Tea, minimum value addition shall be 50%.

d. Minimum value addition for Gems & Jewellery Sector is given in paragraph 4.61 of

Handbook of Procedures.

e. Export Products where value addition could be less than 15% are given in Appendix 4D. 4.9 Details of Duties exempted under the Advance Authorization.

Imports under Advance Authorization are exempted from payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Safeguard Duty and Transition Product Specific Safeguard Duty.

4.10 Actual User Condition for Advance Authorization

(i) Advance Authorization and / or material imported under Advance Authorization shall be subject to ‘Actual User’ condition i.e. non- transferable. The same shall not be transferable even after completion of export obligation. However, Authorization holder will have option to dispose of product manufactured out of duty free input once export obligation is completed.

(ii) Waste / scrap arising out of manufacturing process, as allowed, can be disposed off on

payment of applicable duty even before fulfillment of export obligation.

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4.11 Validity Period of Advance Authorization

i. Validity period for import of Advance Authorization shall be 12 months from the date of issue of Authorization.

ii. Period for fulfillment of export obligation under Advance Authorization shall be 18 months from the date of issue of Authorization or as notified by DGFT.

iii. Fulfillment Period of Export Obligation under an Advance Authorizations shall commence from date of issuance of Authorizations.

iv. A company holding Advance Authorization and registered with BIFR / Rehabilitation Department of State Government or any firm / company acquiring a unit holding Advance Authorization which is under BIFR / Rehabilitation, may be permitted export obligation extension for the Advance Authorization(s) held by the acquired unit, as per rehabilitation package prepared by operating agency and approved by BIFR / Rehabilitation Department of State Government. If time-period upto which EO extension is to be granted is not specifically mentioned in the BIFR order, EO extension of two years from the date of expiry of EOP (including extended period) or the date of BIFR order, whichever is later, shall be granted without payment of composition fee.

4.12 Domestic Sourcing of Inputs against Advance Authorization.

i. Holder of an Advance Authorization / Duty Free Import Authorization can procure inputs from indigenous supplier/ State Trading Enterprise in lieu of direct import. Such procurement can be against Advance Release Order (ARO), Invalidation Letter, and Back-to-Back Inland Letter of Credit.

ii. Regional Authority may issue Advance Release Order or Invalidation Letter at the time

of issue of Authorization simultaneously or subsequently. iii. Advance Authorization holder under DTA can procure inputs from EOU / EHTP / BTP /

STP / SEZ units without obtaining Advance Release Order or Invalidation Letter. iv. Validity of Advance Release Order / Invalidation Letter shall be co-terminus with

validity of Authorization. 4.13 Advance Release Order (ARO)

Application shall be filed on line in ANF 4A to Regional Authority concerned for grant of ARO to procure inputs from indigenous sources / STEs.

4.14 Port of Registration

i. Advance Authorization shall be issued for purpose of import only through one of sea

ports or airports or ICDs or LCS. Authorization holder shall register authorization at the port specified in authorization and thereafter all imports against said authorization shall be made only through that port, unless the authorization holder obtains permission from customs authority concerned to import through any other port.

ii. However, exports may be made through any of the specified ports.

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4.15 Facility of Clubbing of Authorizations

i. All imports and exports of more than one Advance Authorization can be considered provided imported inputs are common and properly accounted for as per norms.

ii. Clubbing of authorizations covered under Appendix 4 J and authorizations with EOP less than 18 months shall not be allowed.

iii. Facility of clubbing shall not be available for Advance Authorizations for Annual Requirement.

iv. For clubbing, Authorizations are required to have been issued under similar Customs notifications. Such Authorizations may pertain to different financial years.

v. Only such Advance Authorizations shall be clubbed which have been issued within 18 months from the date of issue of the earliest authorization that is sought to be clubbed, whether such authorizations are valid or not.

vi. Upon clubbing wherever exports are accounted beyond the EO period of the earlier Authorizations, a composition fee of 0.5% of the shortfall in EO shall be levied.

vii. Minimum value addition as prescribed in FTP and Procedures for the export product will be required to be maintained. Thereafter, shortfall if any shall be regularized in terms of this paragraph.

viii. After clubbing, authorizations shall for all purposes, be deemed to be one Authorizations. The value addition would be calculated on the basis of total CIF and total FOB arrived at after clubbing the Authorizations.

4.16 Revalidation of Authorizations

Request(s) for revalidation of Authorizations shall be filed online in ANF 4D.

Regional Authority may consider a request of original Authorizations holder and grant one revalidation for six months from expiry date.

Regional Authority may consider a request of Advance Authorizations holder for one extension of EO period up to six months from the date of expiry of EO period subject to payment of composition fee of 0.5% of the shortfall in EO. Authorizations holder will have to submit a self declaration to RA stating that unutilized imported/domestically procured inputs are available with the applicant.

Request for further extension of six months after first extension can be considered by Regional Authority, provided Authorizations holder has fulfilled minimum 50% export obligation in quantity as well as in value, on pro-rata basis this will be subject to payment of composition fee @ 0.5% per month on unfulfilled FOB value of export obligation. No further extension shall be allowed by Regional Authority.

At the time of filing application for second extension, authorization holder will have to submit a certificate to RA from an independent Chartered Accountant/Chartered Engineer

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certifying that unutilized imported/domestically procured inputs are available with the applicant.

Whenever a ban / restriction is imposed on export of any product, export obligation period in respect of Advance Authorizations already issued prior to imposition of ban, would stand automatically extended for a period equivalent to the duration of ban, without any composition fee.

4.17 Currency for Realization of Export Proceeds

i. Export proceeds shall be realized in freely convertible currency except otherwise specified. Provisions regarding realization of export proceeds are given in paragraph 2.43 of FTP.

ii. Export to SEZ Units shall be taken into account for discharge of export obligation provided payment is realized from Foreign Currency Account of the SEZ unit.

iii. Export Obligation for items falling in categories of defense, military store, aerospace and nuclear energy shall be 24 months from the date of issue of authorization or co-terminus with contracted duration of the export order whichever is more.

4.18 Re-import of exported goods under Duty Exemption / Remission Scheme

Goods exported under Advance Authorization / Duty Free Import Authorization may be re-imported in same or substantially same form subject to such conditions as may be specified by Department of Revenue. Authorization holder shall also inform about such re-importation to the Regional Authority which had issued the Authorization within one month from date of re-import.

4.19 General Procedure for the Advance Authorization.

i. Mode of Application: - Application in the prescribed format ANF 4A for grant of Advance Authorization / Advance Authorization for Annual Requirement / Duty Free Import Authorization (DFIA) shall be filed online (digitally signed).

ii. Applicant shall upload documents as prescribed in ANF 4A, if any, at the time of online

filing of application. iii. No physical copy of application is required to be submitted to Regional Authority. iv. Application for the Authorization to be field to the concerned jurisdictional Regional

Authority as per Appendix 1A. Applicant could be either registered office or Head office or a branch office or a manufacturing unit

v. Where applicant is a branch office or a manufacturing unit, name of branch office or

manufacturing unit should appear in electronic RCMC and in IEC of the applicant. vi. In case an applicant is not able to upload any document as given in Appendix 4E

electronically for fixation of adhoc norms / standardization of norms, then only such documents may be submitted in physical form to the concerned Norms Committee in DGFT headquarters.

4.20 Fixation of Norms

I. In case where norms have not been notified, application in ANF 4B, along with prescribed

39

  

documents therein, shall be uploaded online to concerned Norms Committee (NC) in DGFT headquarters for fixation of norm.

II. Details of Norms Committees along with products groups dealt by each Norms Committee and respective email addresses for correspondence relating to norms fixation is as follows:

III. At present there is Seven Norms Committee in the DGFT head quarter the details of which are given hereunder:-

Norms Committees(NC) in DGFT

For fixation / revision / amendment of norms of Export Products under following ITC HS Chapters

Email addresses for communication with respective Norms Committee

NC-1 81 to 84, 86 to 93 nc1.dgft@nic.in

NC-2 72 to 76, 78 to 80, 85 nc2.dgft@nic.in

NC-3 29, 30 nc3.dgft@nic.in

NC-4 27, 28, 31 to 38, 44 to 49, 68to 71 nc4.dgft@nic.in

NC-5 41 to 43, 50 to 67 nc5.dgft@nic.in

NC-6 1 to 26, 94 to 98 nc6.dgft@nic.in

NC-7 39, 40 nc7.dgft@nic.in

IV. An applicant shall indicate a valid email address for communication purpose and to ensure that

this email address is active. V. Where norms are not finalized by Norms Committee within four months from the date of

receipt of complete application along with documents / technical details as per Appendix 4E, norms as applied for may be treated as final.

VI. Applicant may file representation against the decision of the Norms Committee with regard to the fixation of norms within a period of 90 days from the date of hosting of decision on DGFT website. Representation beyond 90 days shall be subject to payment of composition fee of Rs.5000/-

4.21 Modification of SION

An application for modification of existing SION shall be filed online in ANF 4B to the concerned Norms Committee in DGFT headquarters.

4.22 Revision of SION by NC

NC may identify SIONs which in its opinion are required to be reviewed. Exporters are required to submit revised data in ANF 4B for such revision. It is mandatory for industry / exporter(s) to provide production and consumption data etc. as may be required by DGFT /

40

  

EPC for revision of SION. Otherwise, applicant shall not be allowed to take benefit of Advance Authorization scheme.

4.23 Advance Authorization for applicants with multiple units

Transfer of any duty free material imported or procured against Advance Authorization from one unit of a company to another unit for manufacturing purpose shall be done with prior intimation to jurisdictional Excise Authority. Benefit of CENVAT shall not be claimed on such transferred input.

To avail this facility, names of such units should appear in IEC. Rules and Regulation of Central Excise for job work would be followed

4.24 Maintenance of Proper Accounts

Every Advance Authoritsation holder shall maintain a true and proper account of consumption and utilization of duty free imported/domestically procured inputs against each authorization as prescribed in Appendix 4-I. This record in Appendix 4-I format, duly verified and certified by the jurisdictional Excise Authority, shall be submitted to the concerned Regional Authority at the time of filing application for redemption / bond waiver. Regional Authority shall compare the details of Appendix 4-I, with that of the inputs allowed in the authorization, before allowing redemption or bond waiver against individual authorization. Such records shall be preserved for a period of at least three years from the date of redemption.

4.25 Amendment of Export Item and Inputs

i. An application for amendment of an export item or input or quantity of input under SION or under adhoc Norms shall be filed online in ANF 4B.

iii. Applicant would give justification for seeking amendment and Regional Authority would

consider it with specific approval of Head of Office. In case of any major change in input or request for more wastage to that allowed under SION or adhoc norm, same should be referred to Norms Committee for ratification.

4.26 Fulfilment of Export Obligation

Authorizations holder shall file online application in ANF 4F to concerned Regional Authority and upload prescribed documents in support of fulfillment of EO.

4.27 Analysis on Advance Authorization Scheme (Governed by the Chapter 04 of the FTP -

pre export benefits).

These Schemes enable duty (all duty such as BCD, CVD, ADDL.CVD, EC, SHE, Specific Safeguard) free import/Domestic Procurement of inputs for export production with minimum value addition of 15%.

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It is of two types:-

Advance Authorization issued by the regional Authority of the DGFT on consignment basis.

Advance Authorization for annual requirement.

Advance Authorization can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer.

Advance Authorization or material imported under Advance Authorization shall be subject to ‘Actual User’ condition i.e. can be used by the person to whom it was issued, However the material imported under the Advance authorization can be transferred from one unit of the holder of the Authorization to another units with prior permission of the regional authority of the DGFT

Every Advance Authoritzation holder shall maintain a true and proper account of consumption and utilization of duty free imported / domestically procured inputs against each authorization as prescribed register in the format of in Appendix 4-I.

Validity Period of Advance Authorization for import shall be 12 months from the date of issue of Authorization.

Period for fulfillment of export obligation under Advance Authorization shall be 18 months from the date of issue of Authorization or as notified by DGFT

Fulfillment Period of EO under an Advance Authorization shall commence from date of issue of Authorization, unless otherwise specified.

Regional Authority may consider a request of Advance Authorization holder for one extension of EO period up to six months from the date of expiry of EO period subject to payment of composition fee of 0.5% of the shortfall in EO.

Application for grant of Advance Authorization / Advance Authorization for Annual Requirement shall be filed online (digitally signed) by IEC holder to the concerned jurisdictional Regional Authority as per Appendix 1A. Applicant could be either registered office or Head office or a branch office or a manufacturing unit of the IEC holder.

4.28 Duty Free import Authorization-Post Export Benefits

Duty Free Import Authorizations is issued to allow duty free import of inputs. In addition, import of oil and catalyst which is consumed / utilized in the process of production of export product, may also be allowed.

Duties Exempted and Admissibility of CENVAT and Drawback

Duty Free Import Authorizations shall be exempted only from payment of Basic Customs Duty.

Additional customs duty/excise duty, being not exempt for import under the DFIA, hence shall be adjusted as CENVAT credit as per DoR rules.

Drawback as per rate determined and fixed by Central Excise authority shall be available for duty paid inputs, whether imported or indigenous, used in the export product. However, in case such drawback is claimed for inputs not specified in SION, the applicant should have indicated clearly details of such duty paid inputs also in the application for Duty Free Import

42

  

Authorization, and as per the details mentioned in the application, the Regional Authority should also have clearly endorsed details of such duty paid inputs in the condition sheet of the Duty Free Import Authorization.

4.28.1 Eligibility

(i) Duty Free Import Authorization shall be issued on post export basis for products for which Standard Input Output Norms have been notified.

(ii) Merchant Exporter shall be required to mention name and address of supporting manufacturer of the export product on the export document viz. Shipping Bill / Airway Bill / Bill of Export / ARE-1 / ARE-3.

(iii) Application is to be filed with concerned Regional Authority before effecting export under Duty Free Import Authorization.

4.28.2 Minimum Value Addition

Minimum value addition of 20% shall be required to be achieved. For items where higher value addition has been prescribed under Advance Authorization in Appendix 4C, the same value addition shall be applicable for Duty Free Import Authorization also.

4.28.3 Validity & Transferability of DFIA

(i) Applicant shall file online application to Regional Authority concerned before starting export under DFIA.

(ii) Export shall be completed within 12 months from the date of online filing of application and generation of file number.

(iii) While doing export/supply, applicant shall indicate file number on the export documents viz. Shipping Bill / Airway Bill/ Bill of Export / ARE-1 / ARE-3, Central Excise certified Invoice.

(iv) After completion of exports and realization of proceeds, request for issuance of transferable Duty Free Import Authorizations may be made to concerned Regional Authority within a period of twelve months from the date of export or six months (or additional time allowed by RBI for realization) from the date of realization of export proceeds, whichever is later.

(v) Applicant shall be allowed to file application beyond 24 months from the date of generation of file number as per paragraph 9.03 of Hand Book of Procedures.

(vi) Separate DFIA shall be issued for each SION and each port.

(vii) Exports under DFIA shall be made from from a single port as mentioned in paragraph 4.37 of Handbook of Procedures.

(viii) No Duty Free Import Authorization shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.

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(ix) Regional Authority shall issue transferable DFIA with a validity of 12 months from the date of issue. No further revalidation shall be granted by Regional Authority.

4.28.4 Procedure

(a) Application in ANF 4G along with documents therein, shall be filed online to concerned Regional Authority.

(b) Provisions of paragraphs 4.26, 4.27, 4.28, 4.48, 4.49(e) & 4.49 (f) and 4.53 of this Handbook of Procedures shall also be applicable for DFIA Scheme.

4.28.5 Facility for Split DFIA

Split Authorizations of DFIA subject to a minimum of CIF value of Rs. 10 lakh each and multiples thereof may also be issued, on request at the time of seeking transferability. A fee of Rs. 1000/- each shall be paid for each split authorization. Split-up DFIAs shall be permitted with the same port of registration as appearing on the original DFIA.

4.28.6 Re-export of goods imported under DFIA Scheme

(i) Goods imported against transferable DFIA, which are found defective or unfit for use, may be re-exported, as per Department of Revenue guidelines. In such cases, if the goods were not put to use after import, a certificate shall be generated by concerned Commissioner of Customs to the extent of 95% of CIF value debited against DFIA containing amount and description of exported goods and the details of original DFIA.

(ii) Based on the certificate, a fresh DFIA shall be issued by concerned Regional Authority. Fresh DFIA, so issued, shall have same port of registration and shall be valid for a period equivalent to balance period available on date of import of such defective/unfit goods.

4.28.7 Maintenance of proper accounts of import and its utilization

Original DFIA holder shall maintain a true and proper account of consumption and utilization of duty free imported / domestically procured goods against each authorization as prescribed in Appendix 4H. These records are required to be sent to concern Regional Authority along with request for bond waiver / redemption / discharge of export obligation / transferability. Such records should be preserved for a period of at least three years from date of redemption.

4.29 Comparison between Advance Authorizations and Duty Free Import Authorizations:-

Basis of Difference

Advance Authorizations Duty Free Import Authorizations

Nature Pre Export Benefits Post Export Benefits Transferability Non Transferable Transferable Usability Import as well as for the Domestic Procurement Only for the Import Duty Exempted

All the Duty Such as BCD/CVD/ADD.CVD,EC/SHEC etc

Only BCD

Split Up Not Possible Possible for the 1000000or Multiple thereof.

SION Can be issued for the items for which no SION notified on the basis of the self declaration /adhoc

Issued only for the SION fixed items.

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NOTES ON CHAPTER-5

EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME

5.1 Objective

The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services to enhance India’s export competitiveness.

5.2 About the EPCG Scheme

EPCG Scheme allows import of capital goods for pre-production, production and post-production at Zero customs duty. Alternatively, the Authorization holder may also procure Capital Goods from indigenous sources on Zero Duty.

5.3 Capital Goods are Defined in the Chapter 9 as under:-

"Capital Goods" means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up-gradation or expansion. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.

Import of capital goods for Project Imports notified by Central Board of Excise and Customs is also permitted under EPCG Scheme.

Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorization.

Authorization shall be valid for import for 18 months from the date of issue of Authorization. Revalidation of EPCG Authorization shall not be permitted.

In case countervailing duty (CVD) is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided CENVAT is not availed.

Second hand capital goods shall not be permitted to be imported under EPCG Scheme.

For import of the restricted Capital Goods approval of the Exim Facilitation Committee (EFC) at DGFT Headquarters is required.

For export of the restricted items under the EPCG scheme approval of the Exim Facilitation Committee (EFC) at DGFT Headquarters is required.

5.4 Coverage

EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers.

5.5 Actual User Condition

Import of capital goods shall be subject to Actual User condition till export obligation is completed.

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5.6 Export Obligation (EO)

Following conditions shall apply to the fulfillment of EO:-

EO shall be fulfilled by the authorization holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorization has been granted.

EO under the scheme shall be, over and above, the average level of exports achieved by the applicant in the preceding three licensing years for the same and similar products within the overall EO period including extended period, if any; except for categories mentioned in paragraph 5.13(a) of HBP. Such average would be the arithmetic mean of export performance in the preceding three licensing years for same and similar products.

In case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than the Normal EO stipulated above. (Average obligation will remain same whether the capital goods imported or sourced indegenenously).

Paragraph 5.13(a) of HBP provides Exemption from maintenance of average export obligation as under.

In case of export of goods relating to the following the EPCG authorization holder shall not be required to maintain average export obligation:

(i) Handicrafts,

(ii) Handlooms,

(iii) Cottage & Tiny sector,

(iv) Agriculture,

(v) Aqua-culture (including Fisheries), Pisciculture,

(vi) Animal husbandry,

(vii) Floriculture & Horticulture,

(viii) Poultry,

(ix) Viticulture,

(x) Sericulture,

(xi) Carpets,

(xii) Coir, and

(xiii) Jute

Shipments under Advance Authorization, DFIA, Drawback scheme or reward schemes under Chapter 3 of FTP; would also be countable for fulfillment of EO under EPCG Scheme.

EO can also be fulfilled by the supply of ITA-I items to DTA, provided realization is in free foreign exchange.

5.7 Calculation of Specific Export Obligation

In case of direct imports, EO shall be reckoned with reference to actual duty saved amount. In case of domestic sourcing, EO shall be reckoned with reference to notional Customs duties saved on FOR value.

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5.8 Calculation of Average Export Obligation

While calculating Average Export Obligation, exports counted/being counted for fulfilling specific EO against EPCG Authorizations within valid EO Period (whether original or extended) that have been made in the preceding 3 years will not be taken into account.

5.9 Incentive for Early EO Fulfillment

In cases where Authorization holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned.

5.10 Maintenance of the Block wise Export Obligation

Period from the date of issue of Authorization

Minimum export obligation to be fulfilled

Block of 1st to 4th year 50%

Block of 5th and 6th year Balance EO i.e. remaining 50% however the excess of the previous block can be set off in the next block.

The Authorization holder would intimate the Regional Authority on the fulfillment of the export obligation, as well as average exports, within three months of completion of the block, by secured electronic filing using digital signatures.

5.11 Reduced EO for Green Technology Products

For exporters of Green Technology Products, Specific EO shall be 75% of Normal EO. There shall be no change in average EO imposed.

5.12 Reduced EO for North East Region and Jammu & Kashmir

For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Jammu & Kashmir, specific EO shall be 25% of the Normal EO. There shall be no change in average EO.

5.13 Post Export EPCG Duty Credit Scrip(s)

Exporters can exercise this option by filing an application in ANF5A with the RA concerned by selecting the option for this Scheme.

All applicable duties shall be paid in cash by the exporter at the time of import of Capital Goods.

Specific EO @ 85% of the applicable specific EO, computed as if the imports were to take the benefit of duty exemption.

Export Obligation shall be fixed with reference to the basic Customs duty paid only.

Post Export EPCG Duty Credit Scrip(s) shall be available to exporters who intend to import capital goods on full payment of applicable duties in cash and choose to opt for this scheme.

Basic Customs duty paid on Capital Goods shall be remitted in the form of freely transferable duty credit scrip(s), similar to those issued under Chapter 3 of FTP.

47

  

Specific EO shall be 85% of the applicable specific EO under the EPCG Scheme. However, average EO shall remain unchanged.

Duty remission shall be in proportion to the EO fulfilled.

All provisions of the existing EPCG Scheme shall apply insofar as they are not inconsistent with this scheme.

Scrip issued under the Post Export EPCG can be used for payment of the Customs/Excise Duty or he Service Tax for the Import/Domestic procurement of the Capital Goods/Inputs or the Service.

5.14 Certificate of Installation of Capital Goods

Authorization holder shall produce, within six months from date of completion of import, to the concerned RA, a certificate from the jurisdictional Central Excise Authority or an independent Chartered Engineer, at the option of the authorization holder, confirming installation of capital goods at factory.

5.15 Port of Registration

EPCG Authorization shall be issued with a single port of registration for imports. However, exports can be made from any port specified in paragraph 4.37 of HBP.

5.16 Sourcing of Capital Goods Manufactured Indigenously

EPCG authorization holder intending to source capital goods manufactured indigenously shall make a request to the RA for invalidation of EPCG authorization for direct import / issuance of Advance Release Order (ARO) for availing deemed export benefits as given in paragraph 7.03 of FTP read with paragraph 7.02(c) of HBP.

This request can be made either along with application or during the validity period of EPCG Authorization.

Applicant shall give the name and address of the manufacturer(s) of capital goods. RA concerned will issue the invalidation letter / ARO, in quadruplicate.

5.17 Realization of Export proceeds

Export proceeds shall be realized in freely convertible currency except for deemed exports. Exports to SEZ units /Supplies to developers/ co-developers irrespective of currency of realization would also be counted for discharge of Export Obligation. Realization in case of supplies to SEZ units shall be from foreign currency account of the SEZ unit.

5.18 Redemption

Authorization holder shall apply for redemption in ANF 5B with documents prescribed therein as a proof of EO fulfillment.

On being satisfied, RA concerned shall issue a certificate of discharge of export obligation to the EPCG authorization holder and forward a copy to Customs Authorities with whom BG/LUT has been executed. A statement giving details of the documents submitted by the authorization holder towards evidence of EO fulfillment shall also be enclosed with the certificate.

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RA shall process such applications ordinarily within 30 days. Shortcomings, if any, shall be pointed out in one go. All correspondence, thereafter, shall relate to these deficiencies only. Fresh correspondence, if necessary, shall be within 15 days. Once documents are complete, EO will be discharged within 30 days of receipt of complete documents /information.

Applications that remain outstanding beyond a period of 60 days after receipt of complete documents shall be reported to the EPCG Division at DGFT headquarters along with reasons thereof.

5.18 Maintenance of Records

Every EPCG authorization holder shall maintain, for a period of 2 years from date of redemption, a true and proper account of exports/ supplies made and services rendered towards fulfillment of export obligation.

5.19 Clubbing of EPCG Authorizations

Clubbing of two or more EPCG authorizations issued to the same authorization holder would be permitted.

An application for clubbing can be made to RA concerned in ANF 5C. Clubbing shall only be permitted in case export products endorsed on the authorizations are same /similar and if authorizations are issued by the same RA.

Total export obligation would be re-fixed taking into account total of duty saved amount of the clubbed authorizations.

On Clubbing, authorizations for all purpose shall be deemed to be a single EPCG authorization. Export obligation period for clubbed authorizations shall be reckoned from first authorization issue-date.

Average export obligation for clubbed authorizations would be highest of average export obligations endorsed on individual authorizations so clubbed.

Clubbing would be permitted only during valid EOP including extended period, if any.

49

  

NOTES ON CHAPTER-6

EXPORT ORIENTED UNITS (EOUs), ELECTRONICS HARDWARE TECHNOLOGY PARKS (EHTPs), SOFTWARE TECHNOLOGY PARKS (STPs) SCHEME AND BIO-

TECHNOLOGY PARKS (BTPs).

6.1 Introduction and Objective

Units undertaking to export their entire production of goods and services (except permissible sales in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods. Trading units are not covered under these schemes.

EOU unit will procure the Capital Goods/Input Duty free. Services will be procured on payment of the Service tax of which CENVAT can be availed.

An EOU / EHTP / STP / BTP unit may export all kinds of goods and services except items that are prohibited in ITC (HS).

Procurement and supply of export promotion material like brochure / literature, pamphlets, hoardings, catalogues, posters etc up to a maximum value limit of 1.5% of FOB value of previous year’s exports shall also be allowed.

EOU / EHTP / STP / BTP units, other than service units, may export to Russian Federation in Indian Rupees against repayment of State Credit/ Escrow Rupee Account of buyer subject to RBI clearance, if any.

Second hand capital goods, without any age limit, may also be imported duty free

6.2 Letter of Permission / Letter of Intent and Legal Undertaking

For setting up an EOU, three copies of application as in ANF 6 A of Appendices & ANFs may be submitted to DC.

Applications for setting up units under EOU scheme shall be approved or rejected by Units Approval Committee within 15 days, as per criteria indicated in Appendix 6 A of Appendices & ANFs.

On approval, a Letter of Permission (LoP) / Letter of Intent (LoI) shall be issued by DC / designated officer to EOU/ EHTP / STP / BTP unit

6.3 Legal Undertaking (LUT)

Approved EOU / EHTP / STP / BTP unit shall execute an LUT with DC / Designated Officer concerned as in Appendix 6 E of Appendices & ANFs.

All EOU / EHTP / STP / BTP units should have permanent e-mail address.

No LUT for new units shall be executed unless unit has its permanent e-mail address and digital signature on said e-mail ID

50

  

6.4 Investment Criteria

Only projects having a minimum investment of Rs. 1 Crore in plant & machinery shall be

considered for establishment as EOUs.

6.5 Application / Approval / Renewal of approval

For setting up an EOU, three copies of application as in ANF-6 A of Appendices & ANFs may be submitted to DC.

6.6 Export through Others

An EOU / EHTP / STP / BTP unit may export goods manufactured / software developed by it through another exporter or any other EOU / EHTP / STP / SEZ.

6.7 Other Entitlements

Other entitlements of EOU / EHTP / STP / BTP units are as under:

Exemption from industrial licensing for manufacture of items reserved for SSI sector.

Export proceeds will be realized within nine months

Units will be allowed to retain 100% of its export earnings in the EEFC account

100% FDI investment permitted through automatic route similar to SEZ units.

Units shall pay duty on the goods produced or manufactured and cleared into DTA on monthly basis in the manner prescribed in the Central Excise Rules.

Transfer of manufactured goods from one EOU / EHTP / STP / BTP unit to another EOU / EHTP / STP / BTP unit is allowed with prior intimation to concerned Development Commissioners

Capital goods may be transferred or given on loan to other EOU / EHTP / STP / BTP / SEZ units, with prior intimation to concerned DC and Customs authorities

6.8 Exits from EOU Scheme

With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment of Excise and Customs duties and industrial policy in force.

If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.

6.9 Conversion

Existing DTA units may also apply for conversion into an EOU / EHTP / STP / BTP unit.

6.10 Warehousing Facilities

An EOU which intends to set up warehousing facilities outside the EOU premises and outside the jurisdiction of DC, at a place near to the port of export, to reduce lead time for delivery of goods overseas and to address unpredictability of supply orders, is permitted to do so subject to the provisions related to export warehousing as per terms and conditions of Notifications issued by the Department of Revenue.

51

  

6.11 Net Foreign Exchange (NFE) Earnings

EOU / EHTP / STP / BTP unit shall be a positive net foreign exchange earner.

Positive NFE = A – B> 0 Where ‘NFE’ is Net Foreign Exchange; ‘A’ is FOB value of exports by EOU / EHTP / STP / BTP unit;

6.12 Maintenance of Accounts

EOU / EHTP / STP / BTP unit shall maintain proper account, and shall file digitally signed quarterly and annual report as prescribed in Annexure to Appendix 6 E of Appendices & ANFs to DC / Designated Officer in DeitY / DoBT and Customs and Central Excise

authorities.

6.13 DTA Supplies

Notwithstanding provision of DTA sales in Paragraph 6.08 of FTP, such DTA sales shall not affect application, to any goods, of any other prohibition or regulation affecting import thereof in force at the time, when such goods are imported. This also does not confer any immunity, exemption or relaxation at any time from any commitment or compliance with any requirements to which importer may be subject to under other laws or regulations

52

  

NOTES ON CHAPTER-7

DEEMED EXPORTS Deemed Exports “Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Categories of Supply regarded as the Deemed Export:- Deemed Export Benefits for different Kind of the Deemed Exports

Deemed Exports Benefits Supply of goods under following categories shall be regarded as “Deemed Exports”

Countablity towards the Export Obligation of Advance Authorization / Advance Authorization for annual requirement / DFIA

Deemed Export Drawback.

Refund of terminal excise duty, if exemption is not available.

(a.) Supply of goods against Advance Authorization / Advance Authorization for annual requirement / DFIA.

Yes (for intermediate supplies against an invalidation letter)

Yes (against ARO or Back to Back letter of credit)

(i) Exemption, in case of Invalidation Letter (ii) Refund, in case of ARO or back to back letter of credit (iii) No exemption/ refund against supply to DFIA as CVD is not exempted

(b.) Supply of goods to EOU / STP / EHTP / BTP;

Yes Yes Exemption

(c.) Supply of capital goods against EPCG

Yes Yes Refund

53

  

Authorization (d.) Supply of

marine freight containers by 100% EOU (Domestic freight containers-manufacturers) provided said containers are exported out of India within 6 months or such further period as permitted by customs

No Yes Refund

(e.) Supply of goods to projects financed by multilateral or bilateral Agencies / Funds as notified by Department of Economic Affairs (DEA), MoF, where legal agreements provide for tender evaluation without including customs duty

Yes Yes Exemption

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NOTES ON CHAPTER-8

QUALITY COMPLAINTS AND TRADE DISPUTES

8.1 Obligation on Part of the Importer/Exporter

i. Importer of goods in case importation shall in the Bill of Entry or any other documents prescribed under the Customs Act, 1962 (52 of 1962), state that value, quality and description of such goods to the best of his knowledge and belief and

ii. Exporter of the goods in case of exportation of goods, certify that the quality and specification of the goods as stated in documents, are in accordance with the terms of the export contract entered into with the buyer or consignee in pursuance of which the goods are being exported

iii. And shall subscribe a declaration of the truth of such statement at the foot of such Bill of Entry or Shipping Bill or any other documents. Violation of this provision renders the exporter liable for penal action.

8.2 Objective Exporters need to project a good image of the country abroad to promote exports.

Maintaining an enduring relationship with foreign buyers is of utmost importance, and complaints or trade disputes, whenever they arise, need to be settled amicably as soon as possible.

In an Endeavour to resolve such complaints or trade disputes and to create confidence in the

business environment of the country, a mechanism is being laid down to address such complaints and disputes in an amicable way.

8.3 Quality Complaints/ Trade Disputes

The following type of complaints may be considered: (a) Complaints received from foreign buyers in respect of poor quality of the products

supplied by exporters from India; (b) Complaints of importers against foreign suppliers in respect of quality of the products

supplied; and (c) Complaints of unethical commercial dealings categorized mainly as non-supply/ partial

supply of goods after confirmation of order; supplying goods other than the ones as agreed upon; non-payment; non-adherence to delivery schedules, etc

8.4 Mechanism for handling of Complaints/ Disputes

‘Committee on Quality Complaints and Trade Disputes’ (CQCTD) will be constituted in the 22 offices of the RA’s of DGFT under the Chairpersonship of the Head of Office.

Committee (CQCTD) will be responsible for enquiring and investigating into all Quality

related complaints and other trade related complaints.

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An application for investigation of quality complaints and/or other trade disputes may be

filed to the concerned RA, in the format given in ANF8 of Appendices & Aayaat Niryat Forms.

The CQCTD, on receipt of a complaint, from importer abroad, against Indian exporter

would call for comments from the firm against whom the complaint has been made. After giving reasonable opportunity of hearing to both sides, CQCTD may arrive at a

conclusion to resolve the matter and CQCTD /RA will take action as considered appropriate.

RA would forward a copy of the complaint received from Indian importer, against

foreign exporter to the concerned Foreign Trade (FT) Division in the Department of Commerce (DoC). FT Division in DoC will take up the complaint with the concerned Embassy/High Commission/ Consulate General in India and with concerned Indian Embassy/ High Commission abroad for effective resolution of the complaint.

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NOTES ON CHAPTER-9

DEFINITIONS AND MISCELLANEOUS MATTERS

9.1 Denomination of Import Authorization/License/ Certificate/ Permissions

i. CIF value of Authorization / FOB value of export obligation shall be indicated both in Rupees and in freely convertible currency(s) at the exchange rate(s) prevailing on Authorization issue date.

ii. Remittance of foreign exchange and discharge of export obligation against Authorization shall be regulated in freely convertible currency.

iii. No enhancement in Rupee value shall be necessary if remittance of foreign exchange is covered by CIF value of Authorization shown in freely convertible currency.

iv. However, on Advance Authorization(s), issued for exports to ACU countries, export obligation shall be denominated and discharged in ACU dollars.

v. Export obligation in Advance Authorization for intermediate supply and for deemed export, where supplies are to be made within the country, shall be denominated and discharged in Indian rupees.

9.2 Late Cut

Wherever any application for any fiscal/financial benefits under FTP complete in all respects is received after expiry of last date for submission of such application, the application may be considered after imposing a late cut in the following manner:

i. Application received after the expiry of last date but within six months from the last date

2%

ii.

Application received after six months from the prescribed date of submission but not later than one year from the prescribed date

5%

ii Application received after 12 months from the prescribed date of submission but not later than 2 years from the prescribed date

10%

9.3 Supplementary Claims

Wherever any application for supplementary claim is received, within specified time limits, such application may also be considered after imposing a cut @2% on the entitlement

9.4 Furnishing of Information

Every importer/ exporter shall furnish such information within the stipulated time as may be called for by DGFT or any officer duly authorised. Failure to furnish the requisite information within the stipulated time shall warrant Penal action as laid down in the FTP or as per the FT(D&R) Rules,1993.

9.5 Clarifications on Policy/Procedure

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A request seeking clarifications on any provision of FTP or HBP, importability or exportability of items under ITC (HS), made to DGFT in the form in ANF2F. Clarification may also be sought on E-mail.

9.6 Maintenance of Consumption Register

Importer shall maintain a register as in Appendix-4G (for 3 years period) of items imported under an Authorization and separately for items imported with actual user condition and its consumption. In respect of particular schemes such register shall be maintained for specified period.

9.7 Time Bound Disposal of Applications

RA shall dispose of applications expeditiously. Following time schedule shall normally be followed to dispose of applications provided it is complete in all respects and is accompanied by prescribed documents.

Sr. No

Category of Application Time Limit For

Disposal (in working days)

i. IEC Number 2

ii. Advance Authorization where Input-Output norms are notified or Advance Authorization for Annual Requirement and DFIA.

3

iii. Fixation of input output norms 120 iv. Issuance of EPCG Authorizations 3 v. All Authorizations under Gem & Jewellery scheme 3 vi. Revalidation of Authorization and extension of export

obligation period by R.A 3

vii. Acceptance of BG/LUT 15 viii. Redemption/EODC of Advance Authorization/ DFIA 15 ix. Redemption of EPCG Authorizations and release of BG

/LUT 30

x. Issuance/renewal of status certificate 3 xi. Amendment of any category of Authorization 3 xii. Miscellaneous 10 xiii. Refund of DBK/ TED under deemed export 30 xiv. Fixation of Brand Rate for duty drawback 30

In all the above cases, the number day is counted from the date of submission of complete application. Cases of undue delay in disposal of applications may be brought to notice of head of regional offices by way of a written representation, which shall be promptly enquired into and responded to.

"Act" means Foreign Trade (Development and Regulation) Act, 1992 (No.22 of 1992) [FT (D&R) Act] as amended from time to time.

"Exporter" means a person who exports or intends to export and holds an IEC number, unless otherwise specifically exempted.

“Import” is as defined in FT (D&R) Act, 1992 as amended from time to time.

58

  

"Importer" means a person who imports or intends to import and holds an IEC number, unless otherwise specifically exempted.

“ITC (HS)” refers to Indian Trade Classification (Harmonized System) at 8 digits.

"Licensing Year" means period beginning on the 1st April of a year and ending on the 31st March of the following year.

“Actual User” is a person (either natural or legal) who is authorized to use imported goods in his/its own premise which has a definitive postal address.

"Capital Goods" means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up-gradation or expansion. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.

"Person" means both natural and legal and includes an individual, firm, society, company, corporation or any other legal person including the DGFT officials

"Development Commissioner (DC)" means Development Commissioner of SEZ.

“Domestic Tariff Area (DTA)" means area within India which is outside SEZs and EOU/ EHTP/ STP/BTP.

"EOU" means Export Oriented Unit for which a letter of permit has been issued by Development Commissioner.

"Drawback on deemed export” in relation to any goods manufactured in India and supplied as deemed exports, means the rebate of duty or tax, as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods.

"Export Obligation" means obligation to export product or products covered by Authorization or permission in terms of quantity, value or both, as may be prescribed or specified by Regional or competent authority.

“Free” as appearing in context of import/export policy for items means goods which do not need any ‘Authorization’/ License or permission for being imported into the country or exported out.

"Policy" means Foreign Trade Policy (2015-2020) as amended from time to time

"Registration-Cum-Membership Certificate" (RCMC) means certificate of registration and membership granted by an Export Promotion Council / Commodity Board / Development Authority or other competent authority as prescribed in FTP or Handbook of Procedures

59

ODI, LRS, ECB & FEMA Updates

April 25, 2015

ICAI – NIRC

CA. Amithraj AN

+ 91 98861 20086

amithraj123@gmail.com

Contents

• ODI Regulations

• LRS Updates

• ECB & NCD

• Round Tripping IssuesRound Tripping Issues

• Overview of Indian Tax Concepts

• Options for Investing

2ICAI – FEMA Update CA. Amithraj AN

60

Routes for ODI

Routes for ODI by Indian Parties

• Subscription to MoA• Contribution to capital• Purchase of existing

shares (Stock exchange/ Private Placement)

Specifically prohibited activities – Real Estate* and Banking Business

Automatic Route Approval Route

Authorized Dealer Prior approval of RBI

3ICAI – FEMA Update CA. Amithraj AN

* Real Estate Business means buying and selling of real estate or trading in Transferable Development Rights but does not include development of townships, construction of residential/ commercial premises, roads or bridges

ODI Overview, including Financial Commitment

Indian Party

Company, LLP and Registered Firm

LLP –Recent

Addition

Equity Shares & Preference Shares

Debt

Convertible/ Non-convertible

Guarantee

Financial Guarantee

Performance Guarantee

100%100%

Bank Guarantee, with Counter

Guarantee

CCPS shall be treated at par

4ICAI – FEMA Update CA. Amithraj AN

No Distinction Between Equity, Preference & Debt for ODI purposes

100% 50%

Guarantee

100%with equity

shares

61

ODI Regulations for Automatic Route

• Total financial commitment not to exceed 400% of the net worth

• Investment can be made by way of equity or equity and debt/ guarantee

• Equity includes CCPS

• Only debt without equity participation not permitted (under Auto

Total Financial

commitment • Only debt without equity participation not permitted (under Auto

Route)

• Energy & Natural Resources sector – investment exceeding specified limits permitted with RBI approval

• All Indian entities are prohibited from investing in real estate and banking business under automatic route

M t b d i b fid b i ti itConditions

5ICAI – FEMA Update CA. Amithraj AN

• Must be engaged in bonafide business activity

• Investment in un-incorporated entities – not permitted (except Oil & Gas sector)

ODI Regulations for Automatic Route

• Investment in shares of existing company – mandatory valuation requirements

• > USD 5 mn: SEBI regd. Category I Merchant Banker/ Investment Banker/

Merchant Banker regd in host countryMerchant Banker regd. in host country

• < USD 5 mn: Valuation by CA/ CPA

• Investment by way of swap of shares

• SEBI regd. Category I Merchant Banker/ Investment Banker/ Merchant

Banker regd. in host country

• ADR/ GDR Swap: Valuation by Investment Banker

• Prior approval of FIPB required ? ?

Valuation

6ICAI – FEMA Update CA. Amithraj AN

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Calculation of Financial Commitment (400% of NW)

• Net-worth as on last audited Balance Sheet date

• Net worth means paid up capital and free reserves

• Securities premium ?

• Position of newly incorporated companies/ firms

• Last audited Balance Sheet – Should it be mandatorily March 31?

• Net-worth of holding co (holding at least 51% stake) or subsidiary co (in which at least 51% stake is held) includible if not availed of by such holding or subsidiary co

• Entire amount of guarantees (50% in case performance guarantee) to be considered

• RBI approval required for remittance on breach of performance guarantee > 400% net-worth

• Ceiling not applicable for investments out of EEFC or funds raised through ADRs/ GDR

7ICAI – FEMA Update CA. Amithraj AN

GDRs

Maximum limit would be:

+Balance in EEFC A/ c

ADR/ GDR proceeds +400% of net worth

(including guarantees)

Total Financial Commitment – Some Issues

Particulars I Co Sub1 (60%)

Sub2 (40%)

F Sub (75%)

Equity Share Capital 50 10 30 100

India Co

Equity Share Capital 50 10 30 100

Preference Share Capital

10 2 6 20

General reserves 20 4 12 40

Securities Premium Account

90 18 54 -

Capital reserves 100 20 60 -

Revaluation Reserves 80 16 48 -

Total 350 70 210 160

60%

Sub 1 Sub 2 F Sub

40% 75%

8ICAI – FEMA Update CA. Amithraj AN

Total 350 70 210 160

What is the Net Worth of I Co (including the net worthsubsidiaries) as per ODI Regulations

63

Total Financial Commitment – Some Issues

I Co Negative

N/W

Debt

I Co N/W – 100

India Sub

100% Equity

Foreign Sub

India Sub

100% Equity – 100

Foreign Sub

ODI Limit – 800ODI Limit – 400% of India Sub N/W

N/W – 100

9ICAI – FEMA Update CA. Amithraj AN

Total Financial Commitment – Some Issues

I Co

di

I Co

SPV1

100%

Debt

XYZ Ltd. (UK)

India

Outside India Guarantee

External party

SPV1

100%

XYZ Ltd. (UK) Debt

10ICAI – FEMA Update CA. Amithraj AN

XYZ2 Ltd (UK)

XYZ2 Ltd (UK)

64

Total Financial Commitment – Some Issues

I Co

di

I Co

Individual Promoter

SPV1

XYZ Ltd. (UK)

India

Outside India

Guarantee

External

Guarantee

Guarantee

SPV1

XYZ Ltd. (UK)

Guarantee

Guarantee

Guarantee

11ICAI – FEMA Update CA. Amithraj AN

XYZ2 Ltd (UK)

party

Debt

XYZ2 Ltd (UK)

External party

Guarantee

Investment through SPV

di

I Co I Co I Co

India

Outside India

SPV1

OpCo

SPV1

SPV2

SPV1

OpCo

12ICAI – FEMA Update CA. Amithraj AN

OpCo SPV2

65

Swap of Shares – Some Issues

Original structure and transaction steps

Issue of h

Resultant Structure

I Co I Co

Outside India

India

I Co acquires the shares of F Sub Co and issues its own shares to Foreign Hold Co

shares

Transfer of

shares

Equity Equity

F Sub Co Foreign Hold

Co F Sub Co

Foreign Hold Co

13ICAI – FEMA Update CA. Amithraj AN

Whether the above situations involve share swap envisaged by Outbound Regulations?

Guarantee

• Corporate guarantee on behalf of fist level step down operating JV/ WOS is permitted

• Direct subsidiary can be an operating or a SPV

• Corporate guarantee on behalf of second/ subsequent level step down operating subsidiary is permitted under approval route

• Indian Party, indirectly, holds atleast 51% stake

• Renewal/Rollover of an existing guarantee shall not be treated as a fresh financial commitment:

• No change in the end use of guarantee

• No change in terms, conditions & amount except validity period of guarantee

• Fresh reporting is done in Form ODI

14ICAI – FEMA Update CA. Amithraj AN

66

ODI Steps

Step 1• Board Resolution for investment in overseas entity

• Valuation of shares only if it is acquiring existing companyStep 2

• Valuation of shares only if it is acquiring existing company

Step 3• Reporting in Form ODI within 30 days from the date of remittance

Step 4• RBI will allot UIN for investment in entity

15ICAI – FEMA Update CA. Amithraj AN

Step 5• Filing of share certificates with the AD within 6 months

Other• Post investment changes needs to be reported within 30 days

ODI Reporting

• All transactions relating to investment in WOS to be routed through one AD Bank branch

ODI comprises of four parts:

• Part I – includes the following:

• Section A – Details of Indian Party

• Section B – Details of Investment in New Project

• Section C – Details of Investment in Existing Project

• Section D – Funding for WOS

• Section E – Declaration by Indian Party

• Section F – Certificate by the Statutory Auditors of the Indian Party

16ICAI – FEMA Update CA. Amithraj AN

• Part II – Reporting of Remittances

• Part III – Annual Performance Report (APR)

• Part IV – Report on Closure/ Disinvestment/ Voluntary Liquidation/ Winding up of WOS

67

ODI Reporting – Key Aspects

• Second remittance not to be made pending allotment of UIN

• UIN should be received for the first investment in a company, before proceeding with set-up of another company

• Changes in equity shareholding of JV/ WOS to be reported within 30 days

• Downstream investment by JV/ WOS to be reported within 30 days

• How many levels of subsidiaries covered within this reporting requirement?

17ICAI – FEMA Update CA. Amithraj AN

Disinvestment in JV/ WOS

GiftSale

Forms of Disinvestment

Buy-backAccounting write-off

DilutionAsset sale/ slump sale

18ICAI – FEMA Update CA. Amithraj AN

Liquidation/ Merger/

Demerger

Capital Reduction/ Repayment

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Disinvestment in JV/ WOS

• Disinvestment when transferee is another Resident

• Compliance of Regulation 6(2) by transferee

• Disinvestment to PROI (Non-resident) – Auto Route applicable if

• Overseas company is a listed company• Overseas company is a listed company

• Listed Indian Party with 100 Cr. Net worth

• Unlisted Indian Party with total investment not over US$ 10mn

• Listed Indian Party with less than 100 Cr. Net-worth but also investment is less than US$

10mn

19ICAI – FEMA Update CA. Amithraj AN

Disinvestment – Conditions

• Sale is effected through stock exchange

• Valued by CA/ CPA if sold through a private arrangement – linked to latest audited balance sheet

• Overseas concern in operation for at least full year

• All APR & Accounts are filed with the ADs

• Indian Party is not in adverse notice of Regulatory Authorities in India

• Amount is repatriated not later than 90 days from date of sale

20ICAI – FEMA Update CA. Amithraj AN

69

Divestment – Few Illustrations

I Coll fI Co 1

I Co 2

Foreign Sub

Merger Foreign Sub Foreign Sub

Merger

Allotment of shares

21ICAI – FEMA Update CA. Amithraj AN

RBI Approval ? RBI Approval ?

ODI Latest Circulars

Creation of charge on shares of JV/ WOS/ Step Down Subsidiary in favour of domestic/ overseas lender

• Charge permitted to be created across all levels

• Financial commitment of 400% to be complied with – Position where there is no further overseas investment?

• Funds raised by overseas JV/ WOS/ SDS should be used for core business activities and not for investing back in India in any manner whatsoever

• Permissibility of current account transactions

• Statutory auditors' certificate that funds have not been utilized for direct or indirect investments in India to be obtained by the designated AD

• Setting-up/ acquiring the multi-layered structure of overseas entities is under

22ICAI – FEMA Update CA. Amithraj AN

• Setting-up/ acquiring the multi-layered structure of overseas entities is under examination by the RBI

• Round tripping briefly touched upon

70

ODI Latest Circulars

Creation of charge on the domestic assets in favour of overseas lenders to the JV / WOS / step down subsidiary

• Financial commitment of 400% to be complied with – Position where there is no further overseas investment?

• The domestic assets, on which charge is being created, are not securitized

• Funds raised by overseas JV/ WOS/ SDS should be used for core business activities and not for investing back in India in any manner whatsoever

• Permissibility of current account transactions

• Statutory auditors' certificate that funds have not been utilized for direct or indirect investments in India to be obtained by the designated AD

• The overseas lender undertakes that in the event of enforcement of charge they shall

23ICAI – FEMA Update CA. Amithraj AN

• The overseas lender undertakes that, in the event of enforcement of charge, they shall transfer the domestic assets by way of sale to a resident only

• Wherever creation of charge involves pledge of shares of an Indian company, the pledge shall also be governed by the extant FEMA provisions

• Setting-up/ acquiring the multi-layered structure of overseas entities is under examination by the RBI

ODI Latest Circulars

Creation of charge on overseas assets in favour of domestic lender

• Charge permitted to be created across all levels

• Financial commitment of 400% to be complied with – Position where there is no further overseas investment?

• The domestic assets, on which charge is being created, are not securitized

• Funds raised by overseas JV/ WOS/ SDS should be used for core business activities and not for investing back in India in any manner whatsoever

• Permissibility of current account transactions

• Statutory auditors' certificate that funds have not been utilized for direct or indirect investments in India to be obtained by the designated AD

24ICAI – FEMA Update CA. Amithraj AN

• The invocation of charge resulting into the domestic lender acquiring the overseas assets shall require prior approval of the Reserve Bank

• Wherever creation of charge involves pledge of shares of an Indian company, the pledge shall also be governed by the extant FEMA provisions

• Setting-up/ acquiring the multi-layered structure of overseas entities is under examination by the RBI

71

Overseas Investments by Individuals

• Limit under LRS up to USD 125,000 per annum/ per person

• Possibility of pooling limits of individual family members

• Acquisition of immovable property abroad under the LRS route permitted again

• Portfolio investment in listed companies overseas permitted under LRS routep p

• Investment in unlisted companies covered under ODI Regulations

• Investment limit flows from LRS

• Combined limit for LRS and ODI

• Reporting requirements brought in for ODI by individuals

• Resident individuals cannot invest in foreign companies having downstream subsidiaries

25ICAI – FEMA Update CA. Amithraj AN

• Position of existing investments by resident individuals – can such companies set-up

downstream subsidiaries

• Individuals cannot invest in specified counties, including Mauritius

Overseas Investments by Individuals – Options

NR Individuals

Gift

Option 1 – Gift Route

NR

Option 2 – ESOP Route

Foreign Co

Indian Sub

Resident Individuals

Foreign Co

Indian Sub

ESOP

Resident Individuals

26ICAI – FEMA Update CA. Amithraj AN

Possibility of further investing under Rights Issue route?

Employment

Can ESOP of say 80% be granted

Tax issues – Perquisite

72

Overseas Investments by Individuals – Options

Resident Individuals

Option 3 – ODI Route for Corporates

NRAssignment of

Rights

Option 4 – Rights Issue Route

Foreign Co

Foreign Co

Indian Sub

Resident Individuals

Indian Co/ LLP

Investment

27ICAI – FEMA Update CA. Amithraj AN

Indian Sub

Round Tripping?

Investors' preference

Justifiable Argument??

Not recommended

ESOPs to Indian Residents

• No permission required for cashless ESOS; no remittance

• AD may allow remittance for acquiring equity shares of Foreign Co

• F Co can issue shares to employee/ directors of Indian office/ branch/ sub/ Indian Company

in which foreign holding at least 51% of equity

• Shares offered under ESOP offered by F Co globally on uniform basis

• Foreign Co to repatriate dividends/ sales proceeds within specified time frame

• Foreign Co can repurchase ESOP shares provided:

• Shares issued in accordance with FEMA Rules and Regulations

• Repurchase in terms of initial offer document

• Annual return submitted by I Co

28ICAI – FEMA Update CA. Amithraj AN

y

• Falls under ODI – Investment into Mauritius permitted?

73

• ECB means overseas borrowings by Indian companies – forex or INR denominated

• Automatic route/ approval route

• Eligible borrowers for raising ECB:

− Real sector – manufacturing

ECB

− Software, hotels, hospitals can access ECB – ITeS ?

− Miscellaneous services sector – training activities, R&D activities, supporting infra sector –

ECB can be raised only from hold co or group co

− Specified NBFCs, NGOs, Trust engaged in micro finance

− Holding companies, CICs

• Recognized lenders for raising ECB:

− International banks, multilateral financial institutions (such as IFC, ADB, CDC etc..)

29ICAI – FEMA Update CA. Amithraj AN

International banks, multilateral financial institutions (such as IFC, ADB, CDC etc..)

− International capital markets

− Export credit agencies and suppliers of equipment

− Foreign collaborators or foreign equity holders holding at least 25% in the equity share

capital of the Indian company

− Ultimate holding company/ group companies

• ECB liability-equity ratio shall not exceed 4:1 for ECB > USD 5 mn from holding co

− Equity = Equity share capital + Free Reserves (including securities premium)

− Securities premium should have been brought in by the lender

− Reserves 100% is considered, but Securities Premium is specifically identified

ECB

− 4 : 1 limit is on cumulative basis (existing + proposed ECB)

• ECB from ultimate holding co/ group cos

− Ultimate holding co should have an indirect shareholding > 51%

− Group co and borrowing co should be subsidiary of the same parent – Indirect

subsidiary?

• Limits:

− Non-services sector – USD 750 mn per FY

30ICAI – FEMA Update CA. Amithraj AN

Non services sector USD 750 mn per FY

− Services sector – USD 200 mn per FY

• Minimum average maturity/ repayment period – weighted average of period from each drawing to repayment

− ECB up to USD 20 million – 3 years

− ECB above USD 20 million – 5 years

74

• Payment of interest – All-in-cost ceilings:

− Maturity period between 3 to 5 years – LIBOR + 350 basis points

− Maturity period more than 5 years – LIBOR + 500 basis points

− Interest + fees and expenses in forex, except commitment fee, pre-payment fee

ECB

− Expenses incurred in INR including WHT are not included

− Penal interest should not be > 2% of all-in-cost of ECB

• Permitted end uses:

− Capital expansion

− Outbound investment

− Import of services, technical know-how and payment of license fees

• End-use restrictions – ECB proceeds cannot be utilized for:

31ICAI – FEMA Update CA. Amithraj AN

End use restrictions ECB proceeds cannot be utilized for:

− Repayment of rupee loans

− Investment in real estate

− Deployment in capital markets and acquiring an Indian company

− General working capital and corporate purposes (except under Approval Route)

− Acquisition of land

• Withholding tax rate

− ECB denominated in forex

• Concessional rate of 5%++ available to ECB borrowed between July 1, 2012 and July 1,

2017

Oth 20%

ECB

• Other cases – 20%++

− ECB denominated in INR – 40 %++

− Or tax treaty rate, whichever is beneficial

• ECB denominated in INR

− Lender should mobilise Indian Rupees through swaps undertaken with AD Bank

− The all-in-cost of such ECBs should be commensurate with prevailing market conditions

− Swap premiums are being added to all-in-cost ceiling

32ICAI – FEMA Update CA. Amithraj AN

Swap premiums are being added to all in cost ceiling

− All other conditions applicable to the automatic and approval routes to be complied with

• Refinancing of an existing ECB

− Existing ECB may be refinanced with fresh ECB

− Fresh ECB should have lower all-in-cost and outstanding maturity of the original ECB is

maintained

75

ECB

• ECB for general corporate purposes, including working capital – AD Bank Approval

− Borrowing only from direct holding co, holding minimum of 25% stake

− Minimum average maturity of 7 years

− End use – On-lending to group companies/ step-down subsidiaries in India not permitted

− Repayment of the principal shall commence only after completion of 7 years

− No prepayment before maturity

− Can this ECB after draw down be assigned to non-parent, say a recognized

financial institution

− ECB with an initial tenure of 15 years, with an option for repayment after 7

years – whether permissible?

• Immediate drawdown of funds meant for Rupee expenditure

33ICAI – FEMA Update CA. Amithraj AN

• Immediate drawdown of funds meant for Rupee expenditure

− Bifurcation of utilization of ECB proceeds towards foreign currency and Rupee expenditure to

be provided in Form-83

− Borrower shall repatriate ECB proceeds meant for Rupee expenditure in India for credit to

their Rupee accounts

− These funds can be deposited in FDs upto 6 months

ECB

• Repayment of Rupee Loans

− Companies in infrastructure sector and hotel sector and should be consistent foreign exchange

earner

− Rupee loan should have been availed for 'capital expenditure'

− Limit – 75% of the average annual export earnings realized during the past 3 FYs or next 3 FYs

− Auditors/ CA Certificate required

− Repayment of ECB out of forex earnings

34ICAI – FEMA Update CA. Amithraj AN

76

ECB

• Delegation of approving authority to AD Banks

− Changes/modifications in the drawdown/repayment schedule

− Changes in the currency of borrowing

− Changes in the name of the Borrower Company

− Change in the recognized lender

− Cancellation of LRN

− Change in the end-use of ECB proceeds

− Reduction in amount or all-in-cost of ECB

− Raising ECB from indirect equity holders and group companies

− Proposals involving change of lender when the ECB is from foreign equity holder – direct/

35ICAI – FEMA Update CA. Amithraj AN

Proposals involving change of lender when the ECB is from foreign equity holder direct/

indirect equity holders and group company

− Transfer of ECB on merger

• Regulation 5 of FEMA 20 governs foreign investment under NCD route

• SEBI registered FPIs (including FIIs and QFIs) are allowed to invest in listed NCDs or bonds, government securities/ treasury bills, commercial papers, units of mutual funds, primary issue of NCDs, etc.

Primary issue with the condition that NCDs/ Bonds are committed to be listed within 15 days

NCD

• Primary issue with the condition that NCDs/ Bonds are committed to be listed within 15 days of investment. Terms of offer to have a clause that if not listed within 15 days, the issuer shall immediately redeem/ buyback

• SEBI (Foreign Portfolio Investors) Regulations, 2014 govern investment by FPIs

• Three categories of FPI Investors:

− CAT I : includes Government, Govt agencies, sovereign funds, etc.

− CAT II : includes mutual funds, investment trusts, insurance companies, etc.

CAT III i l d b di f d i i di id l

36ICAI – FEMA Update CA. Amithraj AN

− CAT III : includes corporate bodies, trusts, foundations, individuals, etc.

− NRIs cannot register as FPIs

• Person seeking FPI registration should engage a Designated Depository Participant (DDP) for obtaining the registration

• DDP shall also act as a custodian of securities for the FPI

77

• Any Indian company (private or public) can issue NCDs on a private placement basis

− NCDs are listed in Wholesale Debt Market (WDM) segment of stock exchange

− Listing not necessary if investment is in 'infrastructure' sector

• NCDs subscribed/ purchased by FPIs are not treated as ECB

NCD

− No end-use restrictions and also conditions applicable to FDI investors under FDI policy would not apply

• No restrictions on the interest remittances and also on redemption

− However, NCDs with a maturity of less than one year are regulated by RBI

• NCDs can be secured against mortgage of assets of the issuing company

• NCD issue to comply with SEBI (Issue and Listing of Debt Securities) Regulations

• Compliance with Company Law requirements

37ICAI – FEMA Update CA. Amithraj AN

Compliance with Company Law requirements

− Private placement related provisions

− Does it amount to acceptance of deposit ?

• Stamp duty implications under Indian Stamp Act

− 0.05% per year of the face value of the debenture, subject to a maximum of 0.25% or Rs. 25 lakhs, whichever

is lower

NCD Issue Process

Obtain ISIN for the Company from the depository (NSDL/

CDSL)

Finalisation of Information Memorandum debenture trust

Shareholders Approval for allotment of NCD

Board Approval for allotment of NCD and convening of EGM

Appointment of credit rating agency, RTA and debenture

trustee

Obtaining rating certificate for the NCD issue

Filing of listing agreement and other documents with stock exchange and NCD listing

Memorandum, debenture trust deed

Subscription and allotment of NCDs

allotment of NCD

38ICAI – FEMA Update CA. Amithraj AN

Obtain In-principle approval for listing from the stock exchange Registration of charge and

other RoC filings

Estimated Time Frame : 6 - 8 Weeks (Approx)

78

Round Tripping – Meaning

Indian Company/ Indian Company/

View I – Round Tripping of Funds

View II – Round Tripping of Structure

Party

Foreign Company

Funds

Funds

Party

Foreign Company

Funds

Funds

Non Resident Investors

39ICAI – FEMA Update CA. Amithraj AN

Indian Company

Indian Company

Round Tripping – Likely Challenges

• ODI for bonafide business activities

• Financial services not permittedODI

Regulations

• Leveraging overseas for investment into India could amount to Deemed ECB

• End-use restrictions can be violated

ECB Regulations

• Not genuine foreign investor

40ICAI – FEMA Update CA. Amithraj AN

• Not genuine foreign investor

• Debt funds could be rerouted into India FDI

Regulations

79

Round Tripping – Illustrations

Indian Company/ Party

Indian Company/ Party

Foreign Company

Indian

Loan Funds

Equity

Bank

Foreign Company

Indian

Equity

Equity

PE Investors < 50%

41ICAI – FEMA Update CA. Amithraj AN

Company

Risk High

Company

Risk Moderate

Round Tripping – Illustrations

Indian Company/ Party

Foreign Company

Indian

Loan Funds

Bank Foreign Investor

TransferWhether Direct or Indirect Investment

42ICAI – FEMA Update CA. Amithraj AN

Company

Risk Moderate/ High

80

Round Tripping – Illustrations

Foreign Investor

Indian Company

Foreign Company

Transfer

Foreign Company

Foreign Company

43ICAI – FEMA Update CA. Amithraj AN

Risk Moderate

Indian Company

India Tax Implications

Taxation of Dividend from Overseas Investments

• Dividends received from an overseas company is liable to tax at 16.995%

• Expenses incurred for earning such dividend income are not deductible

• Any expenses incurred (including interest) shall be disallowed• Any expenses incurred (including interest) shall be disallowed

• In case the Indian entity has operating income and debt funded – incremental tax cost on disallowance of

interest

• Section 14A ??

• At least 26% in the ‘equity’ of foreign company for triggering 115BBD

• Implications of spreading shareholding over different entities

Taxation of Interest Income from Overseas Investments

44ICAI – FEMA Update CA. Amithraj AN

a at o o te est co e o Ove seas vest e ts

• Interest received from an overseas company is liable to tax at 33.99%

• Rate of interest to comply with Indian transfer pricing regulations

• Interest on debt borrowed and used for on-lending overseas – allowable as deduction

81

Modes of Funding

Equity Shares

• Lower rate of tax on foreign dividend – 16.995%

• No transfer pricing implications on rate of dividend

• Portion of expenses incurred towards investment are disallowed as per Section

115BBD of the IT Act

Convertible Preference Shares (CPS)

• Lower rate of tax on dividend – 16.995%

• Rate of dividend to comply with Indian transfer pricing implications

• Tax payable on declaration of dividend

• Other implications are similar to equity investment

45ICAI – FEMA Update CA. Amithraj AN

Debt/ Convertible Debentures (CD)

• Higher rate of tax on interest – 33.99%

• Rate of interest to comply with Indian transfer pricing regulations

• Tax break on interest in SPV – may not be available in the absence of income chargeable to tax

India Tax Implications

Broad Framework for Investing

Equity Debt Equity + Debt

I Co

F Co

Equity/ Debt ?

I Co

F Co

Equity/ Debt ?

I Co

F Co

Equity/ Debt ?

46ICAI – FEMA Update CA. Amithraj AN

Equity Debt Equity + Debt

82

Options for Investing

India Co India Co India Co

Option 1 Option 2 Option 3

Operating Cos SPV

Operating Cos

AHC

Mauritius SPV Dutch SPV

47ICAI – FEMA Update CA. Amithraj AN

Operating Cos Operating Cos

Options for Investing

Particulars Tax Efficiency Ease of

Compliance with FEMA

FlexibilityEase of

implementation

Option 1 –Direct Double taxation of income i e in source

Need to comply for

NoSimple structure, easy to implement and less

Investments income, i.e. in source country as well as India

each investment

No to implement and less administrative costs

Option 2 –Investment through Special Purpose Vehicle

Double taxation of income at the time of repatriation from SPV to India - No single jurisdiction which gives an effective structuring

Yes Less Flexible

More complex than option 1, require more time for implementation, administrative costs would also be more than option 1

Option 3 –

48ICAI – FEMA Update CA. Amithraj AN

Option 3 –Investment through International Hold Co and Special Purpose Vehicle

Most tax efficient Challen

ging Yes

Need to manage higher number of entities. More complexities and higher administrative costs

83

FEMA - Recent Changes in FDI Policy & Procedures and

Certification by ProfessionalsCertification by Professionals

25 April 2015

Seminar on Foreign Trade Policy, FEMA & Foreign Direct InvestmentBy NIRC of ICAI

Vijay GuptaACMA, FCS, FCA

Mobile: 9810083373vijay.gupta@vkgnassociates.com

Report of Dr Arvind Mayaram committe on FDI_FII

FDI Policy:‘FDI’ means investment by non-resident entity/person resident outsideIndia in the capital of the Indian company under Schedule 1 of FEMA 20

Foreign Direct investment (FDI) is characterised byForeign Direct investment (FDI) is characterised by A lasting interest i.e. existence of a long term relationship, significant

degree of influence. Normally, ownership of 10 percent or more ofthe ordinary shares OR voting power signifies this relationship.

Involves both initial and subsequent transactions.

Portfolio Investment (FPIs and NRIs) is characterised by Portfolio investment is distinctive because of the nature of the funds

raised the largely anonymous relationship between the issuers andraised, the largely anonymous relationship between the issuers andholders, and the degree of trading liquidity in the instruments

It covers, but is not limited to securities traded on organized or otherfinancial markets.

84

Foreign Exchange Management Act, 1999Sec.1-2 Short title, Definitions

Sec. 3-9 Regulation and management of FOREIGN EXCHANGE:

3 Dealing in foreign exchange

4 Holding of foreign exchange

5 Current account transactions5 Current account transactions

6 Capital account transactions

7 Export of goods and services

8 Realisation and repatriation of foreign exchange

9 Exemption from realisation and repatriation

Sec.10-12 Authorised person

Sec. 13-15 Contravention and penalties, power to compoundcontravention

Sec. 16-35 Adjudication and appeal

Sec. 36-38 Directorate of enforcement

Sec. 39-45 Miscellaneous

46, 47 Power to make Rules; Power to make Regulations

48, 49 Rules/Regulations laid before Parliament*; Repeal & Savings

Central Government makes Rules; RBI makes Regulations* For a total period of thirty days. Both Houses must either agree or disagree. 3

FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000: ‘FEMA 20’

Sch. 1 Foreign Direct Investment (‘FDI’) Scheme

Sch. 2& 2A

Purchase/Sale of shares or convertible debentures or warrants ofan Indian Company by Registered Foreign Portfolio Investor (RFPI)under Foreign Portfolio Investment (FPI) Scheme (RegisteredFIIs)

Sch. 3 Purchase/Sale of Shares and/or Convertible Debentures by an NRISch. 3 Purchase/Sale of Shares and/or Convertible Debentures by an NRIon a stock exchange in India on repatriation and/or non-repatriation basis under Portfolio Investment Scheme

Sch. 4 Purchase and Sale of Shares or Convertible Debentures orWarrants] by NRI, on Non-repatriation basis

Sch. 5 Purchase and Sale of Securities other than Shares or ConvertibleDebentures of an Indian company by a person resident outsideIndia

Sch. 6 Investment in an Indian venture capital undertaking by aregistered Foreign Venture Capital Investor

Sch. 7 Indian depository receipts by eligible companies resident outsideIndia

Sch. 8 Scheme for investment by Qualified Foreign Investors in equityshares

Sch.9 Scheme for Acquisition/Transfer by a person resident outsideIndia of capital contribution or profit share of Limited LiabilityPartnerships (LLPs)

85

Foreign Investment in India- Schematic Representation

Foreign Inbound Investments

F iOther Investments on

Foreign Direct Investments

Foreign Portfolio

Investments

Foreign Venture Capital

Investments

Other Investments

(G-Sec, NCDs, etc)

Investments on Non-

Repatriablebasis

Company LLP

FIIs/ QFIs/ RFPIs

Automatic Route

Govt. Route

NRIs/ PIOs

SEBI Regd. FVCIs/AIFs

FIIs/RFPIs, NRIs, PIO, QFIs

Long Term Investors

NRIs, PIOs

VCF, IVCUsPersons Resident Outside India

Fact Sheet on Foreign Direct Investment (FDI)Fact Sheet on Foreign Direct Investment (FDI)From April, 2000 to January, 2015From April, 2000 to January, 2015

Cumulative FDI Flows Into India (2000-2015):

A. Total FDI Inflows (from April, 2000 to January, 2015):

1. Cumulative Amount of FDI Inflows(Equity inflows + ‘Re-invested earnings’

- US$361,320(Equity inflows Re invested earnings

+‘Other capital’)361,320

Million

2. Cumulative Amount Of FDI Equity Inflows(excluding, amount remitted through RBI’s-+NRI Schemes)

Rs.1,199,386

crore

US$243,107

Million

B. FDI Inflows during Financial Year 2014-15 (from April, 2014 to January, 2015):

1 Total FDI Inflows Into India - US$1. Total FDI Inflows Into India (Equity inflows + ‘Re-invested earnings’ + ‘Other capital’)(as per RBI’s Monthly bulletin dated: 10.03.15)

US$37,758million

2. FDI Equity Inflows Rs.155,489

Crore

US$25,526million

86

Emerging Trends in FDI Inflows into India 1992-2013

Year FDI Inflows in US $ Billion % to Global FDI Inflows

1992 1.0 0.2

1995 3.0 0.3

2000 2.5 0.2

2005 5.0 0.5

2010 27.0 2.1

2013 28.0 2.1

Source: World Investment Report, 2014; Geneva

Year-wise / Route-wise FDI Equity Inflows from January, 2000 to January, 2015…1/2

Calendar Year

(January-December)

IGovt.

approval Route

(FIPB,SIA)

IIAutomatic

Route

IIIInflows through

acquisitionof existing

shares Route

IV RBI’s-

Various NRI’s

Schemes ^

CUMULATIVE TOTAL( I to IV )

INR (US$)Millionshares Route Million

2000 63,428 16,975 20,521 3,487 104,410(1,475) (394) (477) (81) (2,428)

2001 96,386 32,411 29,622 2,292 160,711(2,142) (720) (658) (51) (3,571)

2002 69,580 39,030 52,623 111 161,345(1,450) (813) (1,096) (2) (3,361)

2003 42,957 23,400 29,284 - 95,640(934) (509) (637) (2,079)

2004 48,517 54,221 45,076 - 147,814(1,055) (1,179) (980) (3,213)

2005 49,672 68,743 74,292 - 192,707(1,136) (1,558) (1,661) (4,355)

2006 69,684 321,758 112,131 - 503,573(1,534) (7,121) (2,465) (11,119)

2007 107,873 361,002 186,075 - 654,950(2,586) (8,889) (4,447) (15,921)

2008 135,588 1,004,681 455,026 - 1,595,295(3,210) (23,651) (10,234) (37,094)

87

Year-wise / Route-wise FDI Equity Inflows from January, 2000 to January, 2015…2/2Calendar Year

(January-December)

IGovt.

approval Route

(FIPB,SIA)

IIAutomatic

Route

IIIInflows through

acquisitionof existing

shares Route

IV RBI’s-

Various NRI’s

Schemes ^

CUMULATIVE TOTAL( I to IV )INR (US$)Million

shares Route2009 229,716 919,849 160,233 - 1,309,799

(4,680) (19,056) (3,309) (27,044)2010 115,966 655,519 188,664 - 960,150

(2,542) (14,353) (4,111) (21,007)2011 134,782 878,222 586,345 1,599,349

(2,933) (19,053) (12,636) (34,621)2012 159,557 845,289 211,069 - 1,215,914

(2,964) (15,825) (4,000) (22,789)2013 78,657 744,183 471,985 1,294,8252013 78,657 744,183 471,985 1,294,825

(1,345) (12,806) (7,887) (22,038)2014 109,979 1,226,012 417,143 1,753,134

(1,809) (20,089) (6,887) (28,785)2015 (for January, 2015)

13,013 249,910 15,881 278,804(209) (4,016) (255) (4,480)

Grand Total ^ 1,525,355 7,441,205 3,055,970 5,890 12,028,420(as on 31.01.2015)

(US$ (US$ (US$ (US$ (US$32,004) 150,032) 61,740) 134) 243,910)

Share of Top Investing Countries FDI Equity Inflows (April, 2000-January, 2015)

Amount Rupees in crores (US$ in million)

Ranks Country Cumulative Inflows %age to total Inflows (in terms of US $)

1. MAURITIUS417,148(86,187)

36 %

2. SINGAPORE157,959(30,707)

13 %

3. U.K.107.791(21,911)

9 %

4. JAPAN90,446

(17,879)7 %

5. NETHERLANDS75,393

(14,371)6 %

6. U.S.A.65,376

(13,510)6 %

7. CYPRUS38,834(7,959)

3 %

36 6238. GERMANY

36,623(7,340)

3 %

9 FRANCE22,323(4,471)

2 %

10. SWITZERLAND14,895(3,009)

1 %

Total FDI Inflows from all Countries *1,199,919(243,228)

-

88

Sectors Attracting Highest FDI Equity Inflows (April, 2000-January, 2015)

Amount Rupees in crores (US$ in million)

Ranks SectorCumulative

Inflows

% age to total Inflows

(In terms of US$)Services sector includes Financial,Banking Insurance Non-Financial / 201 728

1.Banking, Insurance, Non Financial /Business, Outsourcing, R&D, Courier,Tech. Testing and Analysis

201,728(42,101)

17 %

2.Construction Development: Townships,Housing, Built-Up Infrastructure

112,916(24,028)

10 %

3.Telecommunications(radio paging,cellular mobile, basic telephone services)

83,697(16,995)

7 %

4. Computer Software & Hardware67,694(14,125)

6 %

5. Drugs & Pharmaceuticals63,630(12,856)

5 %

60 7256. Automobile Industry

60,725(11,857)

5 %

7. Chemicals (Other Than Fertilizers)48,642(10,230)

4 %

8. Power46,359(9,512)

4 %

9. Metallurgical Industries40,738(8,481)

4 %

10 Hotel & Tourism40,198(7,774)

3 %

FDI EQUITY INFLOWS: (April, 2014 to January, 2015)

(Amount in million)A. Amount of FDI Equity Inflows Received Rs. 1,554,888

(US$ 25,526)

B. Share of Top Five Investing Countries in FDI Equity Inflowsk C h lRank s Country %age share to total FDI

Equity inflows1. Mauritius 28 %2. Singapore 21 %3. Netherlands 12 %4. Japan 6 %5. U.S.A. 6%

C. Share of Top Five Sectors Attracting Highest FDI Equity InflowsRank s Sector %age share to total FDI

Equity inflows 1. Telecommunications 11 %2. Services Sector 10 %3. Trading 9 %4. Automobile Industry 8 %5. Miscellaneous Mechanical & Engineering

Industries5%

89

FDI Policy ‘FDI’ means investment by non-resident entity/person resident outside India in

the capital of the Indian company under Schedule 1 of FEMA 20

Department of Industrial Policy and Promotion, Ministry of Commerce &Industry, Government of India (DIPP) issues Circular on Consolidated FDIP li hi h l t d t d A il 17 2014 (2015 P li i it d)Policy which was last updated on April 17, 2014 (2015 Policy is awaited)

RBI Master Circular on Foreign Investments in India Dated July 01, 2014(updated on 08.04.2015)

RBI FAQs - Foreign Investments in India 10.02.2015

FDI inflows - FIPB/SIA; Acquisition of Existing Shares; & Automatic Route ofRBI: Website of DIPP.nic.in

In case of any conflict between FDI Circular and FEMA Regulations, therelevant FEMA Notification will prevail. The procedural instructions are issuedby the Reserve Bank of India vide A.P.Dir. (Series) circulars

Options For Foreign Entity/Personfor business activities in India

CompanySection 25 companies

√ Subject to Foreign Contribution Regulation Act, 2010

Limited Liability Partnership √ (Sch. 9 of FEMA 20)

Venture Capital Fund (VCF) √T h hTrusts other than VCF xOther Entities e.g. HUF, AOPs xLiaison Office/Representative Office/Project Office / Branch Office to undertake specified activities

√ (Body incorporated outside India; Other than Individual/)

Partnership Firm / Proprietary Firm

By NRI and PIO:

On non-repatriation basis:(Not engaged in any agricultural/plantation or real estate business /print media sector)

√

On repatriation basisSubject to prior permission of RBI inconsultation with the Government of India.Generally not permitted by FIPB

Other than NRIs/PIO:Subject to prior approval of RBI inconsultation with the Government of India.Generally not permitted by FIPB

90

Kinds of Investment

• Automatic Route – no prior approval from the RBI/ Government

• Approval Route – prior approval of the FIPB required (no separate RBI approval)

Mode of Investment

Foreign Direct Investment into an Indian company

Mode of Investment

• Greenfield: Setting up a new JV/ WOS (fresh issue of shares/ ADR/ GDR)

• Brownfield: Relating to existing investments/ business activities:

Brownfield Investment

Share Purchase Gift of shares Share swap Rights/ Bonus

issue/ ESOP

Merger/Demerger/ Amalgamation/ Reconstruction

Conversion of ECB/ pre-incorp

payables/ import payables, royalty, other legitimate

dues etc.

Who can invest under FDI?

A person resident outside India or a non-resident entity (including foreign citizens/ Individuals/ NRIs)

A citizen of Pakistan or an entity incorporated in Pakistan

Under the Government route –other than defence, space & p , patomic energy, other prohibited sectors under FDI

A citizen of Bangladesh or an entity incorporated in Bangladesh

Under the Government route

NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan

On repatriation basis, if remittance received in free foreign exchange through normal b ki h lbanking channels

Erstwhile OCBs Derecognized w.e.f. September 16, 2003

Unincorporated entity outside India

Not allowed to invest in India

91

Types of instruments‘Capital’

Equity shares

Fully, compulsorily & mandatorily convertible preference shares

Fully, compulsorily & mandatorily convertible debentures

Non convertible optionally convertible or To comply with ECB normsNon-convertible, optionally convertible or partially convertible considered as debt

To comply with ECB norms

Warrants Upfront 25% of consideration Conversion in 18 monthsUpfront pricing/ conversion formula

Partly paid shares Upfront 25% of consideration including premiumg p Full payment in 12 months

Differential voting rights shares as to dividend, voting or otherwise Permitted

Optionality clauses: Buy-back of securities at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return. Minimum lock-in period of one year.

FDI in India - Revised pricing guidelinesPricing guidelines in respect of transfer/issue of shares and for exit from investment in equityshares with or without optionality clauses of listed/unlisted Indian companies have since beenreviewed so as to provide greater freedom and flexibility to the parties concerned under the FDIframework. The new pricing guidelines shall be as under:(i) In case of listed companies(a) The issue and transfer of shares including compulsorily convertible preference shares and

compulsorily convertible debentures shall be as per the SEBI guidelines;(b) The pricing guidelines for FDI instruments with optionality clauses shall continue to be in( ) p g g p y

accordance with A.P. (DIR Series) Circular No. 86 dated January 9, 2014, i.e., the non-residentinvestor shall be eligible to exit at the market price prevailing on the recognised stock exchangessubject to lock-in period as stipulated, without any assured return.

(ii) In case of unlisted companiesThe issue and transfer of shares including compulsorily convertible preference shares andcompulsorily convertible debentures with or without optionality clauses shall be at a priceworked out as per any internationally accepted pricing methodology on arm’s length basis.Thus, the guiding principle will be that the non-resident investor is not guaranteed any assuredexit price at the time of making such investment/agreement and shall exit at a fair pricecomputed as above at the time of exit subject to lock-in period requirement as applicable in termsf A P (DIR S i ) Ci l N 86 d t d J 9 2014of A.P. (DIR Series) Circular No. 86 dated January 9, 2014.

An Indian company taking on record in its books any transfer of its shares or convertibledebenture by way of sale from a resident to a non-resident and a non-resident to a residentshall disclose in its balance sheet for the financial year, in which the transaction took place, thedetails of valuation of share or convertible debentures, the pricing methodology adopted for thesame as well as the agency that has given/certified the valuation.

Circular No. 4 dated July 15, 2014

92

FEMA & Valuation

Price of shares shall not be less than the fair

value worked out as per any internationally

Price of shares shall not be more than the fair

value worked out as per any internationally

Listed Company Unlisted Company

FDIIssue of shares Transfer of shares from

Resident to Non-ResidentTransfer of shares fromNon-Resident to Resident

Only Certificationby SEBI registered

Merchant Banker/

Chartered Accountant

Valuation & Certificationby SEBI registered Merchant Banker/

Chartered Accountant

accepted pricing methodology

for valuation of shares on arm’s length basis

accepted pricing methodology

for valuation of shares on arm’s length basis

Market Price as per SEBI Preferential

Allotment

Internationally accepted pricing Methodology for

valuation of shares on arm’s length basis Convertible instruments:

Based on conversion formula which has to bedetermined / fixed upfront. Price at the time ofconversion should not be less than the fair valueworked out, at the time of issuance of theseinstruments.

Chartered Accountant

Preferential Allotment Pricing Guideline under SEBI (ICDR) Regulations 2009:“Price not less than the higher of Avg. weekly high and low closing price over a trailing six month period, or a trailing two week period, from the "relevant date of transaction.”“Relevant Date” means date thirty days prior to the date of GM of shareholders

NRIs on non-repatriation basis under Schedule4 of FEMA 20: No express provision for valuation

SEZs against import of capital goods: Committeeof Development Commissioner

Non-residents (including NRIs): Subscription to its Memorandum of Association: Made at face value subject to their eligibility to invest under the FDI scheme

Valuation Methods - Indicative

Asset Approach

• Net Asset Value

Income Approach

• Yield/ PECV

Market Approach

• Market Price• Liquidation Value • DCF • Comparable Companies

Multiples

• Comparable Transaction

• Price of Recent Investment method (PORI)

Other Methods

• Sum of the parts valuation

• Weighted Average Method

• Any other method accepted by RBI, SEBI or Income Tax

• Any other method(s) that valuer may deem fit (with justification)

93

ISSUE OF INSTRUMENTSIssue of Rights

Pricing of Right issue

Listed Price as determined under SEBI

UnlistedNot less than price at which the offer on right basis is made to resident shareholders

Additional allocation of rights share by residents to non-residents

Subject to sectoral cap

Issue of Bonus Shares Subject to sectoral cap, Companies Act & SEBI

Acquisition of shares under Scheme of Merger/Demerger/Amalgamation of two or more Indian companies

Subject to sectoral cap Not engaged in prohibited activities

Issue of shares under ESOP/Sweat equity

Listed Face value does not exceed 5 per cent of paid-up capital

Unlisted Follow provisions of Companies Act

Mode of payment

(i) Inward remittance through normal banking channels.

(ii) Debit to NRE / FCNR account of a person concernedmaintained with an AD category I bank.

(iii) Conversion of royalty / lump sum / technical knowhowfee/ Legitimate due for payment or conversion of ECB, shallbe treated as consideration for issue of shares.

(iv) Conversion of import payables / pre incorporation expenses/ share swap can be treated as consideration for issue ofshares with the approval of FIPBshares with the approval of FIPB.

(v) Debit to non-interest bearing Escrow account in IndianRupees in India which is opened with the approval from ADCategory – I bank and is maintained with the AD Category Ibank on behalf of residents and non-residents towardspayment of share purchase consideration.

94

Conversion of shares other than cash…1/3Transaction

Nature of permission

Conditions to be fulfilled

Conversion of ECB due for payment or not

Generalpermission

• Activity covered under AutomaticRoute or obtained FIPB approval•Post conversion equity within the sectoral capP i i f h dh d t• Pricing of shares adhered to

Against lump sum technical know-how fee, royalty

Generalpermission

•Subject to entry route, sectoral cap & Pricing Guidelines • Compliance with applicable tax laws

Share Swap FIPB approval

• Irrespective of the amount,valuation of shares to be made by aM h t B k i t d ithMerchant Banker registered withSEBI or an Investment Bankeroutside India registered withappropriate regulatory authority inthe host country•FIPB approval for Indian leg of FDI

Conversion of shares other than cash …2/3Import of capitalgoods/machinery/equipment(excluding second hand)

Import in accordance with Exim Policy Independent valuation by third party entity,

preferably by an independent valuer from thecountry of import along withdocuments/certificates issued by the customsauthorities towards assessment of the fair-value of such imports

Beneficial ownership and identity of theImporter Company as well as overseas entity

Conversions into FDI being done within 180days from date of shipment of goods

Second-hand machinery has now beenexcluded from the purview of this provision

Pre-operative/pre-incorporation expenses(including payments of rent

FIRC for remittance for expenditure incurred Verification and certification by statutory

auditoretc.) Payments made directly to company.

Payments made through third parties citingthe absence of a bank account or similar suchreasons not allowed

Capitalization within 180 days

Under the Government/FIPBroute

» Special resolution of the company; and subjectto pricing guidelines and appropriate taxclearance

95

FDI - Issue of equity shares under the FDI Scheme against legitimate dues …. 3/3

An Indian company under the automatic route may issue shares/convertibledebentures to a person resident outside India against lump-sum technical know-how fee, royalty External Commercial Borrowings (ECBs) (other than importdues deemed as ECB or Trade Credit as per RBI guidelines) and import payablesof capital goods by units in Special Economic Zones subject to certain conditions likeentry route, sectoral cap, pricing guidelines and compliance with the applicable taxlaws.

Decided to permit issue of equity shares against any other funds payable by theinvestee company, remittance of which does not require prior permission of theGovernment of India or Reserve Bank of India under FEMA, 1999 or any rules/regulations framed or directions issued thereunder, provided that:

i. The equity shares shall be issued in accordance with the extant FDI guidelines onsectoral caps, pricing guidelines etc. as amended by Reserve bank of India, fromtime to time;Explanation: Issue of shares/convertible debentures that require Governmentapproval in terms of paragraph 3 of Schedule 1 of FEMA 20 or import duesdeemed as ECB or trade credit or payable against import of second handmachinery shall continue to be dealt in accordance with extant guidelines;

ii. The issue of equity shares under this provision shall be subject to tax laws asapplicable to the funds payable and the conversion to equity should be net ofapplicable taxes.

Circular No.31 dated September 17, 2014

Escrow AccountFor open offers / exit offers and delisting of shares

AD Category – I banks can open Escrow account and Special account of non-resident corporate

Non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share

Permitted to open and maintain, without prior approval of RBInon residents, towards payment of share

purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions

approval of RBI

Escrow accounts for securities by SEBI authorised Depository Participants

Permitted to open and maintain, without RBI approval

Fund or non-fund based facilities Not permitted

Issue of fresh shares to the non-residents ApplicableIssue of fresh shares to the non-residents Applicable

Transfer of shares from/to the non-residents Applicable

Validity of Escrow Account Maximum 6 months

Terms of Escrow account Shall be laid down strictly in Escrow agreement, Share purchase agreement, conditions of issue of shares

96

Prohibited Sectors ….1/2Under Schedule 1 of FEMA 20 (FDI)FDI is prohibited in:(a) Lottery Business, including Government/private lottery, online lotteries,

etc.(b) Gambling and Betting, including casinos etc.(c) Chit funds(d) Nidhi(d) Nidhi company(e) Trading in Transferable Development Rights (TDRs)(f) Real Estate Business or Construction of Farm Houses(g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or

of tobacco substitutes(h) Activities/sectors not open to private sector investment e.g. (I) Atomic

Energy and (II) Railway operations (other than permitted activities mentioned in entry 18 of Annex B of FDI Policy).

Explanation to Regulation 5(7A) of FEMA 20No class of investors under Schedule 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 4 (NRI onnon-repatriation), 6 (FVCI) and 8 (QFI) of FEMA 20 shall make investment,directly or indirectly, in any security issued by any company engaged orproposes to engage in prohibited sector under FEMA 1.

Prohibited Sectors ….2/2

Under FEMA 1 Foreign investment in any form is prohibited in acompany or a partnership firm or a proprietary concern or any entity,whether incorporated or not (such as, Trusts) which is engaged orproposes to engage in the following activities6:(a) Business of chit fund, or(b) Nidhi(b) Nidhi company, or(c) Agricultural or plantation activities, or(d) Real estate business, or construction of farm houses, or(e) Trading in Transferable Development Rights (TDRs).

“Real estate business” will have the same meaning as provided inFEMA Notification No.1/2000- RB dated May 03, 2000 read with RBIMaster Circular i.e. dealing in land and immovable property witha view to earning profit or earning income there from and doesa view to earning profit or earning income there from and doesnot include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions,recreational facilities, city and regional level infrastructure,townships.

97

FDI upto 100% under Automatic Route – Subject to conditions

Mining and Exploration of metal and non-metal ores including diamond,

gold, silver and precious ores but

excluding titanium bearing minerals and

Coal and Lignite(1) Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under and

Petroleum & Natural Gas: Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of

Helicopter services/seaplane services requiring DGCA approval

Scheduled Air Transport S i /D tiits ores (2) Setting up coal

processing plants like washeries

g gnatural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasificationinfrastructure, market study and formulation and Petroleum refining in the private sector

Service/Domestic Scheduled Passenger Airline (100% for NRIs)

Non-Scheduled Air Transport Service(l00% for NRIs) Ground Handling

Services subject to sectoral regulations and security clearance (100% for NRIs)

Maintenance and Repair organizations; flying training institutes; and technical training institutions

Courier services

Pharmaceuticals: Greenfield

Industrial Parks – new and existing

(i) Merchant Banking , (ii) Under Writing, (iii) Portfolio Management Services, (iv) Investment Advisory Services, (v) Financial Consultancy, (vi) Stock Broking, (vii) Asset Management, (viii) Venture Capital, (ix) Custodian Services, (x) Factoring, (xi) Credit Rating Agencies, (xii) Leasing & Finance, (xiii) Housing Finance, (xiv) Forex Broking, (xv) Credit Card Business, (xvi) Money Changing Business, (xvii) Micro Credit, (xviii) Rural Credit, Non-Fund Based activities:(a)Investment Advisory Services, (b) Financial Consultancy,(c) Forex Broking, (d)Money Changing Business, (e)Credit Rating Agencies

Foreign investment in NBFC is allowed under the automatic route in only the following activities:

FDI upto 100% under Automatic Route – Subject to conditions

Agriculture & Animal Husbandry(a) Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions;(b) Development and production of Seeds and planting material;

Construction, operation and maintenance of Railways Infrastructure:(i) Suburban corridor projects throughPPP, (ii) High speed train projects, (iii)Dedicated freight lines, (iv) Rolling stocki l di t i t dplanting material;

(c)Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and(d)services related to agro and allied sectorsBesides the above, FDI is not allowed in any other agricultural sector/activity.

Cash & Carry Wholesale Trading/ WholesaleTrading (including sourcing from MSEs)

WT f d ld b i d i

including train sets, andlocomotives/coaches manufacturing andmaintenance facilities, (v) RailwayElectrification, (vi) Signalling systems,(vii) Freight terminals, (viii) Passengerterminals, (ix) Infrastructure in industrialpark pertaining to railway line/ sidingsincluding electrified railway lines andconnectivities to main railway line and (x)Mass Rapid Transport Systems.

WT of goods would be permitted among companiesof the same group. However, such WT to groupcompanies taken together should not exceed 25% ofthe total turnover of the wholesale venture. Groupcompany’ means two or more enterprises which,directly or indirectly, are in position to: (i)exercise twenty-six per cent, or more of voting rightsin other enterprise; or (ii) appoint more than fiftyper cent, of members of board of directors in theother enterprise.

E-commerce activities: Only inBusiness to Business (B2B) e-commerceand not in retail trading.

98

Petroleum refining by the Public Sector Undertakings (PSU), without any

49% 49% Foreign Investment (FI) limit shall include: FDI, FIIs, FPIs, QFIs, NRIs, FCCBs, ADRs, GDRs and CCPS

49% (FDI+ FII/FPI)FDI limit of 26 per cent and an FII/FPI limit of 23 per cent of the paid-up capital

49% (FDI+ FII/FPI)

Investment by Registered FII/FPI

under Portfolio Investment

Scheme (PIS) will be limited to 23%

Power Exchangesi d d h

FDI upto specified sectoral cap under Automatic Route

disinvestment or dilution of domestic equity in the existing PSUs

49% FDI (100% for NRIs)

be limited to 23% and Investment

under FDI Scheme limited to 26%

Cable Networks[Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)]

registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010

Infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations

Scheduled Air Transport Service/Domestic S h d l d

Commodity Exchange

74% (FDI + FII/FPI)

RegulationsScheduled Passenger Airline

Foreign airlinesallowed under the Government approval route up to the limit of 49%(subsume FDI and FII/FPIinvestment) of their paid-up capital.

Credit Information Companies

FDI upto 100% under Government Approval Route

Mining and mineral separation of titanium bearingminerals & ores, i l ddi i

Up-linking of Non-’News & Current Affairs’ TV Channels/Down-linking of TV ChannelsForeign Investment (FI) limit h ll i l d FDI FII FPI

Print Media: Publication of facsimile edition of foreign newspapers: from h f h

Print Media:Publishing/printing of Scientific and Technical Magazines/ specialtyits value addition

and integrated activities

shall include: FDI, FIIs, FPIs, QFIs, NRIs, FCCBs, ADRs, GDRs and CCPS

the owner of the original foreign newspapers

Pharmaceuticals: Brownfield(i)‘Non-compete’ clause would not be allowedexcept in special circumstances with the approvalof the Foreign Investment Promotion Board.(ii) The prospective investor and the prospectiveinvestee are required to provide a certificate along

i h h li i

specialty journals/ periodicals

Foreign investment in other financial services, other than those indicated in FDI Policy, would require prior approval of the Government.

with the FIPB application.(iii)Government may incorporate appropriateconditions for FDI in brownfield cases, at the timeof granting approval.

Tea PlantationTea sector including tea plantationsBesides the above, FDI is not allowed in any other plantation sector/activity.

99

Publishing of

26% (FDI and investment by NRIs/PIOs/FII/FPI)

26% Foreign Investment (FI) limit shall include: FDI, FIIs, FPIs, QFIs, NRIs, FCCBs, ADRs, GDRs and CCPS

Beyond 24%49%

Manufacture of items

Private Security Agencies

FDI upto specified sectoral cap under Government Approval Route

Publishing of Newspaper and periodicals dealing with news and current affairsPublication of Indian editions of foreign magazines dealing with news and current affairs

GDRs and CCPS

74%

Up-linking of ‘News & Current Affairs’ TV Channels

Terrestrial Broadcasting FM (FM Radio), subject to such terms and

diti

reserved for production inMicro and SmallEnterprises (MSEs) Anyindustrial undertaking whichis not a Micro or Small ScaleEnterprise, but manufacturesitems reserved for the MSEsector would requireGovernment route whereforeign investment is morethan 24% in the capital.Subject to Industrial License

d IDR A t & d t k

20% (FDI and Portfolio

Investment)

Banking- Public Sector includingState Bank of India and its associate Banks

74% conditions, as specified from time to time, by Ministry of Information & Broadcasting, for grant of permission for setting up of FM Radio stations

under IDR Act & undertaketo export a minimum of50% of the new or additionalannual production of theMSE reserved items to beachieved within a maximumperiod of three years.

SSI reserved Items: Nonew.e.f. 10 April 2015

Satellites –Establishment and operation, subject to the sectoralguidelines of Department of Space/ISRO

51%

Multi Brand Retail Trading

Automatic up to 49%Government route beyond 49% and up to 74%

Foreign Investment (FI) limit shall include: FDI

74% FDI (l00% for NRIs) Automatic up to 49%Government route beyond 49% and up to 74%

100% Automatic up to 49%Above 49% Government

100% of paid-up capital of ARC (FDI+FII/FPI)Automatic Up to 49% Government route beyond 49% Telecom Services

FDI upto specified sectoral cap under Automatic Route; thereafter under Government Approval Route

(1)Teleports (setting up of up-linking HUBs/Teleports)(2)Direct to Home (DTH) (3) Cable Networks(Multi System Operators

limit shall include: FDI, FIIs, FPIs, QFIs, NRIs, FCCBs, ADRs, GDRs and CCPS

to 74% y

74% including investment by FIIs/FPIs

Automatic up to 49%

Non-Scheduled Air Transport Service

Ground HandlingServices subject tosectoralregulations and security clearance

(including Telecom Infrastructure Providers Category-I)

All telecom services including Telecom Infrastructure Providers Category-I, viz. Basic, Cellular, United Access Services, Unified license (Access services), Unified License, National/ International Long Distance, Commercial V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal

Asset Reconstruction Company (ARC)

( y p(MSOs) operating at National or State or District level and undertaking upgradationof networks towards digitalization and addressability)(4) Mobile TV(5) Headend-in-the Sky Broadcasting Service (HITS)

Government route beyond 49% and up to 74%

Global Mobile Personal Communications Services (GMPCS), All types of ISP licences, Voice Mail/ Audiotex/ UMS, Resale of IPLC, Mobile Number Portability services, Infrastructure Provider Category-I (providing dark fibre, right of way, duct space, tower) except Other Service Providers.

Banking -Private sector

100% Automatic Up to 49%

Government route beyond 49%

Single Brand product retail

trading

100

FDI in India – Review of FDI policy – Sector Specific conditions- Railway Infrastructure

Department of Industrial Policy and Promotion (DIPP) has now permitted100% FDI in railway Infrastructure sector under automatic routesubject to conditions.

Accordingly, it has been decided to permit FDI in the following activities ofthe Railway Transport sector:

“Construction, operation and maintenance of the following: (i) Suburbancorridor projects through PPP, (ii) High speed train projects, (iii) Dedicatedfreight lines, (iv) Rolling stock including train sets, andlocomotives/coaches manufacturing and maintenance facilities, (v) RailwayElectrification, (vi) Signaling systems, (vii) Freight terminals, (viii) Passengerterminals, (ix) Infrastructure in industrial park pertaining to railwayline/sidings including electrified railway lines and connectivities to mainrailway line and (x) Mass Rapid Transport Systems.y ( ) p p y

Further, FDI beyond 49 of the equity of the investee company insensitive areas from security point of view will be brought before theCabinet Committee on Security (CCS) for consideration on a case tocase basis.”

Circular No.47 dated December 8, 2014

FDI in India – Review of FDI policy –Sector Specific conditions- Defence

Department of Industrial Policy and Promotion (DIPP) has now provided a list ofdefence items as finalised by Department of Defence Production, Ministry of Defenceand has clarified that items not in the list would not require industrial license fordefence purposes. Dual use items, having military as well as civilianapplications, other than those specially mentioned in the list, would also notrequire Industrial License from Defence angle. Department of Defence Production,Ministry of Defence, has finalised the ‘Security Manual for Licensed Defence Industry’.st y o e e ce, as a sed t e Secu ty a ua o ce sed e e ce dust y .

Further, on a review, effective from August 26, 2014, foreign investment i.e. FDI,FIIs, RFPIs, NRIs, FVCIs and QFIs upto 49% under government route shall bepermitted in defence sector subject to the conditions specified in the Press Note 7(2014 Series) dated August 26, 2014. Portfolio investment (RFPI/FII/NRI/QFI) andFVCI investment will not exceed 24% of the total equity of the investee company.Portfolio investment will be under automatic route.

The listed investee company engaged in defence sector, in accordance with theguidance provided by the Press Note 7 (2014 Series), shall immediately allocategu da ce p o ded by t e ess ote (20 Se es), s a ed ate y oc elimits for portfolio investment for RFPI (including QFI and FII), NRI (notexceeding 10%) and FVCI within the default portfolio investment limit of 24%being permitted now and approach Reserve Bank, Central Office, ForeignInvestment Division, Mumbai so that allocated limits can be monitored by the ReserveBank.

Circular No. 46 dated December 8, 2014

101

FDI in Insurance sectorFDI in Insurance sector shall be permitted up to 49% subject to the revised conditions specified inthe Press Note 3 (2015 Series) dated March 2, 2015. Also, a new activity viz. “Other InsuranceIntermediaries appointed under the provisions of Insurance Regulatory and DevelopmentAuthority Act, 1999 (41 of 1999)” has been included within the definition of ‘Insurance’.

3. Besides, the salient changes over the existing regime include:(a) Foreign investment in Indian insurance company shall be limited up to forty-nine percent of

the paid up equity capital;(b) Foreign direct investment up to 26 percent shall be under automatic route and beyond 26(b) Foreign direct investment up to 26 percent shall be under automatic route and beyond 26

percent and up to 49 percent shall be with Government approval;(c) Foreign investment in the sector is subject to compliance of the provisions of the Insurance

Act, 1938 and the condition that companies bringing in FDI shall obtain necessary licensefrom the Insurance Regulatory & Development Authority of India for undertakinginsurance activities.

(d) An Indian insurance company shall ensure that its ownership and control remains at alltimes in the hands of resident Indian entities;

(e) Foreign portfolio investment in an Indian insurance company shall be governed by theprovisions of Foreign Exchange Management (Transfer or issue of security by a person residentoutside India) Regulations, 2000 and provisions of the Securities Exchange Board of India(Foreign Portfolio Investors) Regulations.

(f) Any increase of foreign investment of an Indian insurance company shall be in accordancewith the pricing guidelines specified by Reserve Bank of India under the Foreign ExchangeManagement Act, 1999.

(g) Terms 'Control', 'Equity Share Capital', 'Foreign Direct Investment' (FDI), 'ForeignInvestors', 'Foreign Portfolio Investment', 'Indian Insurance Company', 'IndianCompany', 'Indian Control of an Indian Insurance Company', 'Indian Ownership', 'Non-resident Entity', 'Public Financial Institution', 'Resident Indian Citizen', 'Total ForeignInvestment' will have the same meaning as provided in Notification No. G.S.R 115 (E),dated 19th February, 2015.

Circular No.94 dated April 08, 2015

FDI in India – Review of FDI policy –Sector Specific conditions-Construction Development

FDI policy for Construction Development sector has since beenreviewed. Accordingly, effective December 3, 2014 100% FDI underautomatic route shall be permitted in construction development sectorsubject to the conditions specified in the Press Note 10 (2014 Series)dated December 3, 2014.

Circular No. 60 dated January 22, 2015

102

Townships, housing, built-up infrastructure and construction-development projects....1/4

(A) Minimum area to be developed under each project would be as under:i. In case of development of serviced plots, no minimum land area requirement.ii. In case of construction-development projects, a minimum floor area of 20,000 sq. meter.

(B) Investee company will be required to bring minimum FDI of US$ 5 million within six months ofcommencement of the project. The commencement of the project will be the date of approval of thebuilding plan/lay out plan by the relevant statutory authority. Subsequent tranches of FDI can bebrought till the period of ten years from the commencement of the project or before thecompletion of project, whichever expires earlier.p p j , p

(C) (i) The investor will be permitted to exit on completion of the project or after development of trunkinfrastructure i.e. roads, water supply, street lighting, drainage and sewerage.

(ii) The Government may, in view of facts and circumstances of a case, permit repatriation of FDI ortransfer of stake by one non-resident investor to another non-resident investor, before thecompletion of project. These proposals will be considered by FIPB on case to case basis inter-alia withspecific reference to Note (i).

(D) The project shall conform to the norms and standards, including land use requirements andprovision of community amenities and common facilities, as laid down in the applicable buildingcontrol regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/LocalBody concerned.

(E) Th I di i t ill b itt d t ll l d l d l t F th f thi(E) The Indian investee company will be permitted to sell only developed plots. For the purposes of thispolicy “developed plots” will mean plots where trunk infrastructure i.e. roads, water supply, streetlighting, drainage and sewerage, have been made available.

(F) The Indian investee company shall be responsible for obtaining all necessary approvals, includingthose of the building/layout plans, developing internal and peripheral areas and other infrastructurefacilities, payment of development, external development and other charges and complying with allother requirements as prescribed under applicable rules/byelaws/ regulations of the StateGovernment/Municipal/Local Body concerned.

(G) The State Government/Municipal/Local Body concerned, which approves the building/development plans, will monitor compliance of the above conditions by the developer.

Townships, housing, built-up infrastructure and construction-development projects....2/4

Note:(i) It is clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real

estate business, construction of farm houses and trading in transferable development rights (TDRs).

“Real estate business” will have the same meaning as provided in FEMA Notification No.1/2000- RBdated May 03, 2000 read with RBI Master Circular i.e. dealing in land and immovable property with aview to earning profit or earning income therefrom and does not include development of townships,construction of residential/commercial premises, roads or bridges, educational institutions,recreational facilities city and regional level infrastructure townshipsrecreational facilities, city and regional level infrastructure, townships.

(ii) The conditions at (A) to (C) above, will not apply to Hotels & Tourist resorts; Hospitals; SpecialEconomic Zones (SEZs); Educational Institutions, Old Age Homes and Investment by NRIs.

(iii) The conditions at (A) and (B) above, will also not apply to investee/joint venture companies whichcommit at least 30 percent of the total project cost for low cost affordable housing.

(iv) An Indian company, which is the recipient of FDI, shall procure a certificate from an architectempanelled by any Authority, authorized to sanction building plan to the effect that the minimum floorarea requirement has been fulfilled.

(v) ‘Floor area’ will be defined as per the local laws/regulations of the respective State governments/Unionterritories.

(vi) Completion of the project will be determined as per the local bye-laws/rules and other regulationsof State Governments.

(vii) Project using at least 40% of the FAR/FSI for dwelling unit of floor area of not more than 140square meter will be considered as Affordable Housing Project for the purpose of FDI policy inConstruction Development Sector. Out of the total FAR/FSI reserved for Affordable Housing, at leastone-fourth should be for houses of floor area of not more than 60 square meter.

(viii) It is clarified that 100% FDI under automatic route is permitted in completed projects foroperation and management of townships, malls/shopping complexes and business centres.

103

Clarification on Press Note 10 of 2014 ...3/4Sl.No

Issue Clarification/Comment

1. Whether FDI can be brought if the minimumcapitalization was not completed withinthe period of six months of thecommencement of the project?

No new FDI can be brought in the project if the minimumcapitalization of US $ 5 million has not been achievedwithin six months of commencement of the project. Ifsuch minimum capitalization was achieved, FDI can bebrought in till the period of 10 years or the completion ofthe project, whichever is earlier.

2 Wh th i d f i th f th R k i d t ld b th t f th j t2. Whether period of six months from thecommencement of project means firstapproval of the building plan/ layout plan orsubsequent approvals also?

Reckoning date would be the commencement of the projectwhich is the date of approval of the building plan/lay out planby the relevant statutory authority. Further approvals arejust addendum/modification to the first approval.

3. Whether exit is permitted under automaticroute after completion of three yearswithout completion of project or trunkinfrastructure?

Exit is permitted with FIPB approval on case to case basiseven before completion of the project or development of trunkinfrastructure.

4. Is the exit in residential/commercialprojects only after completion of project?

The exit is allowed automatically after the completion ofproject. However, in case of any project if trunkinfrastructure, which is clearly defined as development ofroads, water supply, street lighting, drainage and sewerage, isdeveloped first, the investor is automatically permitted to exitthereafter.

5. Whether the past investments made as perthe earlier FDI policy on the sector will beadversely impacted?

Press Note 10 of 2014 which provides more liberal FDI regimesupersedes the earlier FDI policy on ConstructionDevelopment sector contained in the FDI Policy Circular of2014.

6. Who will certify the completion of trunkinfrastructure?

A certificate from an architect registered with Council ofArchitecture certifying the completion of development of trunkinfrastructure would be sufficient to prove that trunkinfrastructure development is complete.

Clarification on Press Note 10 of 2014...4/4Sl.No

Issue Clarification/Comment

7. Whether exit is permitted on earlier of thecompletion of project or after development oftrunk infrastructure?

Exit is permitted on completion of project or afterdevelopment of trunk infrastructure, whichever is earlier.

8. Whether NR to NR transfer is underautomatic route?

Transfer of stake from one non-resident to another non-resident before completion of the project or beforecompletion of trunk infrastructure is through the FIPB

troute.9. Definition of Business Centre Business centre includes where multiplicity of businesses of

same or different nature are being carried out from aparticular building.

10. Whether Construction & Developmentcompanies with FDI are allowed to disposeunusable/ idle parcels of land?

FDI policy mandates exit on the completion of the project orcompletion of trunk infrastructure. If the unused land is partof the project and trunk infrastructure has not beendeveloped, then exit can take place with prior approval ofFIPB.

11. Whether minimum capitalization iscompany specific or project specific?

Minimum capitalization condition is project specific, notcompany specific.

12. Whether foreign investor can acquire FDI is permitted in completed projects for operation andpossession of the completed projects intownships, malls, shopping complexes andbusiness centres?

management of townships, malls/ shopping complexesand business centres as long as they do not get into therealm of real estate business. Definition of “Real EstateBusiness” for the purposes of FDI policy is as provided inFEMA Notification No. 1/2000-RB dated May 03, 2000 readwith RBI Master Circular i.e. dealing in land and immovableproperty with a view to earning profit or earning incometherefrom and does not include development of townships,construction of residential/ commercial premises, roads orbridges, educational institutions, recreational facilities, cityand regional level infrastructure, townships.

104

Foreign Direct Investment in Pharmaceuticals sector –Clarification

FDI policy for pharmaceutical sector has since been reviewedand it has now been decided with immediate effect that therewould be a special carve out for medical devices which wasearlier given the same treatment as pharmaceutical sector.

Circular No.70 February 02, 2015

Transfer of shares -Buyback, capital reduction scheme …1/2

Transferor Transferee

Non-Resident(other than NRIand erstwhile

Non-Resident(including NRIs)

By way of sale orgift

Under AutomaticRoute.With FIPBand erstwhile

OCB) Pricing norms notapplicable.

With FIPBapproval if sectorunder approvalroute.

NRIs NRIs By way of sale orgift

Pricing norms notli bl

Under AutomaticRoute.With FIPBapproval if sector

d lapplicable. under approvalroute.

Non-Resident Person residentin India

By way of giftPricing normsapplicable.

Under AutomaticRoute.

105

Transfer of shares …2/2

Transferor Transferee

NRI and erstwhileOCB

Non-Resident By way of sale orgift

Prior permissionof RBI.

Pricing norms notapplicable.

With FIPB approvalif sector underapproval route.

Resident Non-Residentincluding NRIsPricing normsapplicable.

Activities falling under AutomaticRoute. With FIPB approval if sectorunder approval route.

Transfer of Shares by Resident which requires Government approval:( ) d f ll d h ( ) f(i) Companies engaged in sector falling under the Government Route. (ii) Transferof shares resulting in foreign investments in the Indian company, breaching thesectoral cap applicable.Non-Resident can sell shares on a recognized Stock Exchange in Indiathrough a stock broker registered with stock exchange or a merchant bankerregistered with SEBI.Form FC-TRS within 60 days from the date of receipt of amount of consideration.Onus on transferor / transferee, resident in India.

Acquisition of shares under the FDI scheme by a non-resident on a recognized Stock Exchange

A non resident including NRI may acquire shares of a listed Indian company on the stockexchange through a registered broker under FDI scheme provided that:i. The non-resident investor has already acquired and continues to hold the control in

accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations;ii. The amount of consideration for transfer of shares to non-resident consequent to

purchase on the stock exchange may be paid as below:p g y p(a) by way of inward remittance through normal banking channels, or(b) by way of debit to the NRE/FCNR account of the person concerned maintained with

an authorised dealer/bank;(c) by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in

India with the AD bank in accordance with Foreign Exchange Management(Deposit) Regulations, 2000;

(d) the consideration amount may also be paid out of the dividend payable by Indianinvestee company, in which the said non-resident holds control as (i) above,provided the right to receive dividend is established and the dividend amount hasbeen credited to specially designated non –interest bearing rupee account foracquisition of shares on the floor of stock exchangeacquisition of shares on the floor of stock exchange.

iii. The pricing for subsequent transfer of shares shall be in accordance with the pricingguidelines under FEMA;

iv. The original and resultant investments are in line with the extant FDI policy and FEMAregulations in respect of sectoral cap, entry route, reporting requirement,documentation, etc;

106

Prior permission of the Reserve Bank

(i) Transfer from residents to non-residents by way of sale:Non-resident acquirer proposes deferment of payment ofthe amount of consideration.

(ii) A person resident in India, who intends to transfer anysecurity, by way of gift to a person resident outsideIndia. Gift does not exceed 5 per cent of the paid-up capitalof the Indian company / each series of debentures / eachmutual fund scheme; Sectoral cap limit is not breached;The transferor (donor) and the proposed transferee (donee)are close relatives as defined in Section 6 of the CompaniesAct 1956; Value of security to be transferred together withAct, 1956; Value of security to be transferred together withany security already transferred by the transferor, as gift, toany person residing outside India does not exceed the rupeeequivalent of USD 50,000 per financial year.

Approval of RBI is not required: Pricing Guidelines not met

Transfer of shares from a Non-Resident to Resident where pricingguidelines under FEMA, 1999 are not met: Pricing for the transaction is compliant with the specific/explicit, extant and

relevant SEBI regulations/guidelines (such as IPO, Book building, blockdeals, delisting, exit, open offer/substantial acquisition/SEBI SAST, buyback); andback); and

Chartered Accountants Certificate to the effect that compliance with therelevant SEBI regulations/guidelines as indicated above is attached to theform FC-TRS to be filed with the AD bank.

Transfer of shares from Resident to Non-Resident where pricing guidelinesunder the FEMA, 1999 are not met: Pricing for the transaction is compliant with the specific/explicit, extant andg p p / p ,

relevant SEBI regulations/guidelines (such as IPO, Book building, blockdeals, delisting, exit, open offer/substantial acquisition/SEBI SAST); and

Chartered Accountants Certificate to the effect that compliance with therelevant SEBI regulations/guidelines as indicated above is attached to theform FC-TRS to be filed with the AD bank.

107

Disclose in Balance Sheet

An Indian company taking on record in its books any transferof its shares or convertible debenture by way of sale from aresident to a non-resident and a non-resident to a residenth ll di l i it b l h t f th fi i l ishall disclose in its balance sheet for the financial year, in

which the transaction took place, the details of valuation ofshare or convertible debentures, the pricing methodologyadopted for the same as well as the agency that hasgiven/certified the valuation.

If Contravened? To bring the difference form the foreign investor tog g

comply with pricing guidelines and also to apply forcompounding for contravention of pricing guidelines?

Downstream Investments

• Investment by Foreign ‘Owned’ and/ or‘Controlled’ Indian company into anotherIndian company

• Covers fresh investment and acquisition ofexisting shares

• Regarded as Indirect FDI

Foreign Co

Regarded as Indirect FDI• Pricing guidelines applicable to Direct FDI

will equally apply• Investment/ consideration for transfer > Fair

Value

• Compliance: Filing of intimation with SIA, DIPPand FIPB within 30 days from date ofinvestment

• Downstream buy-backs also covered by pricingguidelines

Indian Co

Downstream Indian Co

> 50%

1% to 100%

• Buy-back price < Current Fair Value

• Valuation needs to be done by a CharteredAccountant or SEBI Regd. Merchant Banker

• Anomaly: Downstream investment throughacquisition of shares from NR

• Indian company can record share transfer onlyon receiving acknowledged Form FC-TRS

108

Four layered foreign holding

Effective foreign holding in HoldCo-IV through:

HoldingCoIV

(49% of 100%) Direct

49.00%

HoldingCo III (49% of 51%)Indirect

24.99%

HoldingCo II (49% of 25.01%) Indirect

12.25%

HoldingCo I (49% of 12.76%)

6.25%)

Indirect

Total effective foreign: Holding in HoldingCo -IV

92.49%

51

Calculation of total foreign investment Any non-resident investment in an Indian company is direct

foreign investment

Investment by resident Indian entities could have indirectforeign investment if the Indian investing company hasf i i t t i itforeign investment in it.

Computation of indirect Foreign investment: Include FDI;investment by FIIs (holding as on March 31); NRIs; ADRs;GDRs; FCCB; under Schedule 1, 2, 3 and 6 of FEMA 20; otherthan Schedule 4 (NRIs on non-repatriation basis).

Counting of indirect foreign Investment: If investingg g gcompany is owned or controlled by ‘non resident entities’.

For WoS, the indirect foreign investment will be limited to theforeign investment in the operating-cum-investing/ investingcompany – being mirror image of the holding company.

52

109

Indirect FDI/‘Control’Earlier: A company is considered as ‘Controlled’ by resident Indian citizens ifthe resident Indian citizens and Indian companies, which are owned andcontrolled by resident Indian citizens, have the power to appoint a majority ofits directors in that company.

Revised: ‘Control’ shall include the right to appoint a majority of thedi t t t l th t li d i i i l di bdirectors or to control the management or policy decisions including byvirtue of their shareholding or management rights or shareholdersagreements or voting agreements.

A company is considered as ‘Owned’ by resident Indian citizens if more than50% of the capital in it is beneficially owned by resident Indian citizensand / or Indian companies, which are ultimately owned and controlled byresident Indian citizens. Aviation Sector: Substantial ownership and effective control of which is

vested in Indian nationals

SEBI: Right of first refusal and tag along rights do not amount to changein CONTROL as per Takeover Regulations

In sector which are not prohibited (e.g. retail), Indian operatingcompanies owned & controlled by Indians, invest downstream into retailbusinesses, whether multi-brand, single brand or e-commerce.

Downstream Indirect FDI

FCo FCo FCoRes. ICo Res. ICo Res. ICo

<50% >50%

<100%

>50% <50% >50% - say 65% <50%

IndCo 1 Owned &

Controlled by resident Indian citizens/entities

IndCo 1Owned or controlled by foreign entities

IndCo 1Owned or

controlled by foreign entities

<100%

Indirect FDI in IndCo2: Nil

54

20%

Indirect FDI in IndCo2: 20%

100%

Indirect FDI in IndCo2: 65%Mirror image

DownstreamIndCo 2

DownstreamIndCo 2

DownstreamIndCo 2

.

110

Indirect cases:Prohibited sectors: Not permitted.

RBI Master Circular: The FDI recipient Indian company at the first level which isresponsible for ensuring compliance with the FDI conditionalities like no indirect foreigninvestment in prohibited sector, entry route, sectoral cap/conditionalities, etc. for thedownstream investment made by in the subsidiary companies at second level and soon and so forth would obtain a certificate to this effect from its statutory auditor on anannual basis as regards status of compliance with the instructions on downstreaminvestment and compliance with FEMA provisions.investment and compliance with FEMA provisions.

Indirect foreign investment via Indian Owned & Controlled Company: Telecom, I&B,Print Media, Single brand retail Trading, Multi Brand Retail Trading, Media,Pharmaceuticals, Construction and development projects/Real estate

Downstream investments by Indian companies will be subject to the following conditions:(i) Such a company is to notify SIA, DIPP and FIPB of its downstream investment in the

form available at http://www.fipbindia.com within 30 days of such investment,even if capital instruments have not been allotted along with the modality of investmentin new/existing ventures (with/without expansion programme);

(ii) Downstream investment by way of induction of foreign equity in an existing IndianC t b d l t d b l ti f th B d f Di t lCompany to be duly supported by a resolution of the Board of Directors as also ashareholders agreement, if any;

(iii) Issue/transfer/pricing/valuation of shares shall be in accordance with applicableSEBI/RBI guidelines;

(iv) For the purpose of downstream investment, the Indian companies making thedownstream investments would have to bring in requisite funds from abroad and notleverage funds from the domestic market. This would, however, not precludedownstream companies, with operations, from raising debt in the domestic market.Downstream investments through internal accruals are permissible.

Certificate from Statutory Auditor for Downstream Investment

The FDI recipient Indian company at the first level responsible forensuring compliance with the FDI conditionalities like no indirect foreigninvestment in prohibited sector, entry route, sectoral cap / conditionalities,etc. for the downstream investment made by in the subsidiarycompanies at second level and so on and so forth would obtain apcertificate to this effect from its statutory auditor on an annual basis asregards status of compliance with the instructions on downstreaminvestment and compliance with FEMA provisions.

The fact that statutory auditor has certified that the company is incompliance with the regulations as regards downstream investment andother FEMA prescriptions will be duly mentioned in the Director’s report inthe Annual Report of the Indian company.

In case statutory auditor has given a qualified report, the same shall bei di l b h h i f h RBI F i E h Dimmediately brought to the notice of the RBI, Foreign Exchange Department(FED), Regional Office (RO) of RBI in whose jurisdiction the Registered Officeof the company is located and shall also obtain acknowledgement from theRO of having intimated it of the qualified auditor report.

RO shall file the action taken report to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, CentralOffice, Central Office Building, Shahid Bhagat Singh Road, Mumbai 400001.

111

Pledge of shares of company incorporated in India Any person being a promoter of a company registered in India (borrowing

company), which has raised external commercial borrowing, may pledge theshares of the borrowing company or that of its associate residentcompanies for the purpose of securing the external commercial borrowing(ECB) raised by the borrowing company

Shares of an Indian company held by the non resident investor can be Shares of an Indian company held by the non-resident investor can bepledged in favour of an Indian bank in India to secure the credit facilitiesbeing extended to the resident investee company for bona fide businesspurposes

Shares of the Indian company held by the non-resident investor can bepledged in favour of an overseas bank to secure the credit facilities beingextended to the non-resident investor / non-resident promoter of theIndian company or its overseas group company.

Any person being a non-resident investor of a company registered in Indiaand listed on a recognised stock exchange/s in India (resident investeecompany), may pledge the shares of that company, in favour of a Non-Banking Financial Company in India, to secure the credit facilities beingextended to that resident investee company for bonafide businesspurposes, subject to the AD bank satisfying itself of the compliance of theconditions stipulated by the Reserve Bank, from time to time, in this regard

Security for External Commercial Borrowings...1/2

2. Under the extant ECB guidelines, the choice of security to be provided to the overseas lender /supplier for securing ECB is left to the borrower. With a view to liberalising, expanding the options ofsecurities and consolidating various provisions related to creation of charge over securities for ECB at oneplace, it has been decided that AD Category-I banks may allow creation of charge on immovable assets,movable assets, financial securities and issue of corporate and / or personal guarantees in favour ofoverseas lender / security trustee, to secure the ECB to be raised / raised by the borrower, subject tosatisfying themselves that:

(i) the underlying ECB is in compliance with the extant ECB guidelines(i) the underlying ECB is in compliance with the extant ECB guidelines,(ii) there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge,

in favour of overseas lender / security trustee, on immovable assets / movable assets / financialsecurities / issuance of corporate and / or personal guarantee, and

(iii) No objection certificate, wherever necessary, from the existing lenders in India has been obtained.

3. Once aforesaid stipulations are met, the AD Category-I bank may permit creation of charge onimmovable assets, movable assets, financial securities and issue of corporate and / or personalguarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject tothe following:

(a) Creation of Charge on immovable assets:i. Such security shall be subject to provisions contained in the Foreign Exchange Management

(Acquisition and Transfer of Immovable Property in India) Regulations, 2000.ii. The permission should not be construed as a permission to acquire immovable asset (property) in

India, by the overseas lender / security trustee.iii. In the event of enforcement / invocation of the charge, the immovable asset / property will have

to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidatethe outstanding ECB.

(b) Creation of Charge on Movable AssetsIn the event of enforcement / invocation of the charge, the claim of the lender, whether the lender takesover the movable asset or otherwise, will be restricted to the outstanding claim against the ECB.Encumbered movable assets may also be taken out of the country.

112

Security for External Commercial Borrowings...2/2

(c) Creation of Charge over Financial Securitiesi. Pledge of shares of the borrowing company held by the promoters as well as in

domestic associate companies of the borrower will be permitted. Pledge on otherfinancial securities, viz. bonds and debentures, Government Securities,Government Savings Certificates, deposit receipts of securities and units of theUnit Trust of India or of any mutual funds, standing in the name of ECBborrower/promoter, will also be permitted.

ii I dditi it i t t ll t d f t l t d ll tii. In addition, security interest over all current and future loan assets and all currentassets including cash and cash equivalents, including Rupee accounts of theborrower with AD Category-I banks in India, standing in the name of theborrower/promoter, can be used as security for ECB. The Rupee accounts of theborrower/promoter can also be in the form of escrow arrangement or debt servicereserve account.

iii. In case of invocation of pledge, transfer of financial securities shall be in accordancewith the extant FDI/FII policy including provisions relating to sectoral cap and pricingas applicable read with the Foreign Exchange Management (Transfer or Issue ofSecurity by a Person Resident outside India) Regulations, 2000.

(d) Issue of Corporate or Personal Guaranteei. A copy of Board Resolution for the issue of corporate guarantee for the company

issuing such guarantee, specifying name of the officials authorised to execute suchguarantees on behalf of the company or in individual capacity should be obtained.

ii. Specific requests from individuals to issue personal guarantee indicating details of theECB should be obtained.

iii. Such security shall be subject to provisions contained in the Foreign ExchangeManagement (Guarantees) Regulations, 2000.

Circular No. 55 dated January 01, 2015

Remittance Sale proceeds of shares is ‘remittance of asset’ governed by The Foreign

Exchange Management (Remittance of Assets) Regulations 2000 under FEMA.

Bank can allow remittance of sale proceeds of a security (net of applicabletaxes) to the seller of shares resident outside India, provided the security hasbeen held on repatriation basis, the sale of security has been made inaccordance with the prescribed guidelines and NOC / tax clearance certificatefrom the Income Tax Department has been produced.

Repatriation of Dividend: Without any restrictions (net of applicable taxes)being Current Account Transactions. The rate of dividend on convertiblepreference shares issued under these Regulations shall not exceed 300basis points over the Prime Lending Rate of State Bank of India prevailingas on the date of the Board meeting of the company in which issue of suchshares is recommended.

Repatriation of Interest: Without any restrictions (net of applicable taxes) Repatriation of Interest: Without any restrictions (net of applicable taxes)being Current Account Transactions. Bench mark ceiling applicable forPreference Shares apply to interest as well.

Credit of sale proceeds of Foreign Direct Investments in India to NRE / FCNR(B) accounts permitted

113

Form Supporting Time periodAction by

Regional Office concerned

Non-compliance

Advance ReportingForm

FIRC/sevidencingreceipt ofremittance

KYC report onnon-resident

Not laterthan 30days fromthe date ofreceipt

Allotment ofUniqueIdentificationNumber (UIN) forthe amountreported

Contraventionunder FEMA

Attract penalprovisions

Reporting of FDI Inflow

non-residentinvestor

reported

Form SupportingTime

Action by Regional Office Non-compliance

Reporting of Issue of Fresh Shares /Bonus /Right Shares /ESOP/ Convertible Debentures / Convertible Preference

Shares /Conversion of ECB / Royalty / Lumpsum Technical Know-how Fee / Import of Capital Goods by SEZs /Pre-operative/Pre-incorporation Expenses/Legitimate dues

Form Supportingperiod

Regional Office concerned

Non-compliance

Form FC-GPR dulyfilled up andsigned byMD/Director/Secretary ofCompany

A certificate fromCompany Secretary ofthe company

A certificate from SEBIregistered MerchantBanker or CharteredAccountant forvaluation.

Not laterthan 30days fromthe date ofreceipt

Taking on recordthe shareholdingpattern

Contraventionunder FEMA

Attract penalprovisions

Reporting of FDI Inflow

Time frame for issue of shares

Capital instruments should be issued within 180 days fromthe date of receipt of the inward remittance or by debit to theNRE/FCNR (B) accountNRE/FCNR (B) account

Else refunded to non-resident investor

Transfer of Shares (From Resident to a Non-resident andviceversa)

• File form FC-TRS with RBI through authorised dealer within60 days of receipt of considerationy p

• Onus on transferor / transferee, resident in India

114

FDI – NIC Codes Reporting under FDI Scheme

Indian companies are required to report the NIC Codes in theFCGPR and FCTRS forms as per the NIC 2008 version,henceforth.

A if St t d Di t i t d li t f ti f d t ilA uniform State and District code list for reporting of detailsof foreign direct investment by Indian companies in FormFCGPR. The list can be accessed on the RBI website(www.rbi.org.in - FEMA – State and District Code List).

Mapping of Activities/ Sectors by DIPP -http://dipp.nic.in/English/acts_rules/Press_Notes/Mapping_NIC2008_05January2015.pdf.

Circular No 6 dated July 18 2014Circular No. 6 dated July 18, 2014

Foreign Direct Investment – Reporting under FDI Scheme on the e-Biz platform

Reserve Bank of India, under the aegis of the e-Biz project of theGovernment of India has enabled the filing of the followingreturns with the Reserve Bank of India viz.― Advance Remittance Form (ARF) - used by the companies

t t th f i di t i t t (FDI) i fl t RBIto report the foreign direct investment (FDI) inflow to RBI;and

― FCGPR Form - which a company submits to RBI forreporting the issue of eligible instruments to the overseasinvestor against the above mentioned FDI inflow.

The online reporting on the e-Biz platform is an additionalfacility to the Indian companies to undertake their ARF andy pFCGPR reporting and the manual system of reporting asprescribed in terms of A.P. (DIR Series) Circular No. 102 datedFebruary 11, 2014 would continue till further notice.

Circular No. 77 dated February 12, 2015, & 95 dated April 17, 2015

115

Annual Return on Foreign Liabilities & Assets (FLA Return) (1/2)

Due date of filing FLA Return July 15 every year

Eligible Companies Indian companies which havereceived FDI and/or made ODI inthe previous year(s) including thecurrent year i.e. who holds foreignAssets or Liabilities in their BalanceSheets as on 31 March

No outstanding investment in respect ofinward and outward FDI as on end-March ofreporting year

Ned not submit FLA Return

If a company has received only shareapplication money and does not have anyFDI/ODI outstanding as on end-March ofthe reporting year

Need not submit FLA Return

p g y

If the company has not ‘received any freshFDI and/or ODI’ in the latest year but thecompany has outstanding FDI and/or ODI

Required to submit FLA Return

Registered Partnership Firms (Registeredunder Partnership Registration Act) orbranches or trustees, having any outwardFDI outstanding as on end-March of thereporting year

Required to send a request mail toget a dummy CIN number whichwill enable them to file the Excelbased FLA Return

FLA Return (2/2)

Is it required to submit AnnualPerformance Report (APR) for ODI,where FLA Return has beensubmitted ?

Yes. FLA Return and APR are twodifferent Returns as per different FEMANotifications

submitted ?

Who is responsible to file FLAReturn? From whose mail ID, theFLA Return should be e-mailed?

Filled-in Excel based FLA return shouldbe forwarded through the official emailID of any authorized person like CFO,Director, Company Secretary etc.

Format of FLA Return Updated FLA return to be downloadedfrom RBI’s website every year by endof May

Where accounts are not audited FLA Return to be submitted based onbefore July 15 unaudited (provisional) account

Revisions from the provisionalinformation given by company afteraccounts get audited

Revised FLA Return based on auditedaccounts can be filed by Septemberend

Non-filing of return before due date Violation under FEMA, Penalty orprosecution may be initiated

116

Schedule 4 of FEMA 20

NRI may without any limit, purchase on non-repatriationbasis, shares or convertible debentures of an Indian companyissued whether by public issue or private placement orright issue

Other than chit fund or a nidhi company or is engaged inagricultural/plantation activities or real estate business orconstruction of farm houses or dealing in Transfer ofDevelopment Rights

By way of inward remittance through normal bankingchannels from abroad or out of funds held inchannels from abroad or out of funds held inNRE/FCNR/NRO account

Sale/maturity proceeds (net of applicable taxes) of shares orconvertible debentures shall be credited only to NROaccount

Limited Liability Partnerships (LLPs)

FDI in LLPs: Prior approval from FIPB Sectors/activities where 100% FDI allowed No FDI-linked performance related conditions (such as ‘Non Banking

Finance Companies’ or ‘Development of Townships, Housing, Built-upinfrastructure and Construction-development projects’ or ‘Retail sector’ etc )infrastructure and Construction development projects , or Retail sector etc.)

Only by way of cash consideration Indian company having FDI (direct or indirect irrespective of % of such

foreign investment), permitted to make downstream investment in LLP onlyif both the company as well as the LLP is operating in sectors where 100%FDI allowed, through automatic route

Designated Partner – Resident in India under LLP Act and FEMA

Restrictions to LLPs with FDI: Not in agricultural/plantation activity, print media or real estate business Not eligible to make any downstream investment Not permitted to avail ECBs RFPIs/FIIs and FVCIs not permitted to invest in LLPs

Conversion of a company with FDI, into an LLP, allowed only if abovestipulations are met and with the prior approval of FIPB

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FDI in an LLP

FDI in an LLP either by way of capital contribution or by way of acquisition /transfer of ‘profit shares’, would have to be more than or equal to the fair priceas worked out with any valuation norm which is internationally accepted/adopted as per market practice (hereinafter referred to as “fair price of capitalcontribution/profit share of an LLP”) and a valuation certificate to that effectshall be issued by a Chartered Accountant or by a practicing CostAccountant or by an approved valuer from the panel maintained by theCentral Government.

Form FOREIGN DIRECT INVESTMENT-LLP-(II)

Declaration regarding transfer of capital contribution/profit shares of anLimited Liability Partnership from resident to non- resident / non-residentto resident

C tifi t i di ti f i l f h f th Ch t d A t t/C tCertificate indicating fair value of shares from the Chartered Accountant/CostAccountant/ approved valuer from the panel maintained by the CentralGovernment.

LLPReporting Requirements• Receipt of consideration for capital contribution

or profit share – Within 30 days Form Foreign Direct Investment – LLP(I)g ( ) Copies of FIRC KYC report of non-resident investor RBI will allot UIN for each remittance

• Transfer of capital contribution or profit sharebetween Non-Resident and Resident – Within 60days Form Foreign Direct Investment – LLP(II)

• Non-Resident to Non-Resident transfer FIPB approval required No specific reporting specified

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e-FIPB___Revised filing procedureOnce the e-filing of the application is completed, the application needs to file/courier onlySINGLE copy of the printed version of the online application, along with the dulyauthenticated copy of the documents attached with the application.

Global Reach -Apply from anywhere in the world! Access your status from anywhere in theworld! Transact while on a move!

E-communication - communication between the applicant, FIPS and other ministries/departments is online.p

Quicker communication- All the correspondence including updates/ decisions arecommunicated through SMS/emails

Quicker processing- FIPS forwards the application online to the concerned ministries forprocessing, queries are raised online eliminating physical delivery and loss of time due topostal delays.

Less Paperwork - Single signed copy only needed (for record) instead of present multiplesets of the application.

SMS/email alert- Regular alerts are sent to the applicants related to the queries raised bySMS/email alert- Regular alerts are sent to the applicants related to the queries raised bythe administrative ministries, inclusion of the proposal in the scheduled FIPS meeting anddecisions.

Time saving- E-correspondence between applicant and ministries and also betweenministries themselves avoids delays adding to speed and efficiency.

Transparency and security: all transactions and correspondences are recorded online andare secure.

Query module- Any doubts? A user can raise a query online which shall be replied by therelevant ministry.

Three divisions of Foreign Exchange Department shifted to FED CO Cell at New Delhi

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the PressRelease dated June 17, 2014 which mentions the shifting of three divisions of ForeignInvestment Division (FID) viz. Liaison/Branch/Project Office (LO/BO/PO) Division,Non Resident Foreign Account Division (NRFAD) and Immovable Property (IP) Divisionto New Delhi with effect from July 15, 2014. The address for correspondence for thethree divisions is FED, CO Cell, Foreign Exchange Department, Reserve Bank of India, NewDelhi Regional Office, 6, Parliament Street, New Delhi - 110 001, India.

2. Attention is also invited to A.P (DIR Series) Circular No 106 dated February 18, 2014 interms of which AD - Category I banks are required to furnish on a monthly basis, astatement on the number of applicants and total amount remitted from NRO account, asper proforma annexed, to the Chief General Manager-in-Charge, Foreign ExchangeDepartment, Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office,Mumbai-400001 within 7 days of the end of the reporting month.

3. Attention is also invited to Para 5(ii) and Para 5(iii) of A.P (DIR Series) Circular No 24dated December 30, 2009 in terms of which A.D Category-I banks are required to report (i)the extension of validity of the Liaison Offices to the Regional Office concerned aswell as to the Central Office, and (ii) closure of the Liaison Offices to the concernedRegional Office and closure of Branch Offices to the Central Office.

4. It is advised that all cases pertaining to these three divisions and the monthlystatements as per circulars ibid/reporting for extension or closure of LOs/BOs shallbe sent to the FED CO Cell at the address mentioned above. Reporting, by email, forNRFAD shall continue at the same email address.

Circular No.23 dated September 2, 2014

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Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -Compounding of Contraventions under FEMA, 1999...1/2

To delegate further powers to Regional Offices (Consolidated) as under:Sr. No.

FEMA Regulation Brief Description of Contravention

1 Paragraph 9(1)(A) of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Delay in reporting inward remittance received for issue of shares.

2 Paragraph 9(1)(B) of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Delay in filing form FC(GPR) after issue of shares.

3 Paragraph 8 of Schedule I to FEMA Delay in issue of shares/refund of share3 Paragraph 8 of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Delay in issue of shares/refund of share application money beyond 180 days, mode of receipt of funds, etc.

4 Paragraph 5 of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Violation of pricing guidelines for issue of shares.

5 Regulation 2(ii) read with Regulation 5(1) of FEMA 20/2000-RB dated May 3, 2000

Issue of ineligible instruments such as non-convertible debentures, partly paid shares, shares with optionality clause, etc.

6 Paragraph 2 or 3 of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Issue of shares without approval of RBI or FIPB respectively, wherever required.

7 Regulation 10A (b)(i) read with paragraph 10 of Schedule I to FEMA

Delay in submission of form FC-TRS on transfer of shares from Resident to Non-p g p

20/2000-RB dated May 3, 2000 Resident.8 Regulation 10B (2) read with paragraph

10 of Schedule I to FEMA 20/2000-RB dated May 3, 2000

Delay in submission of form FC-TRS on transfer of shares from Non-Resident to Resident.

9 Regulation 4 of FEMA 20/2000-RB dated May 3, 2000

Taking on record transfer of shares by investee company, in the absence of certified from FC- TRS.

Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -Compounding of Contraventions under FEMA, 1999 ...2/2

The work of three divisions of Foreign Investment Division (FID) viz. Liaison/ Branch/ Projectoffice(LO/ BO/ PO) division, Non Resident Foreign Account Division (NRFAD) and ImmovableProperty (IP) Division has been transferred to FED, CO Cell, Reserve Bank of India, 6, Sansad Marg,New Delhi- 110001 with effect from July 15, 2014. Accordingly, the officers attached to the FED, COCell, New Delhi office are now authorised to compound the contraventions as under:Sr.No.

FEMA Notification Brief Description of Contravention

1 FEMA 7/2000-RB, dated 3-5- Contraventions relating to acquisition and transfer of2000 immovable property outside India

2 FEMA 21/2000-RB, dated 3-5-2000

Contraventions relating to acquisition and transfer ofimmovable property in India

3 FEMA 22/2000-RB, dated 3-5-2000

Contraventions relating to establishment in India ofBranch office, Liaison Office or project office

4 FEMA 5/2000-RB, dated 3-5-2000

Contraventions falling under Foreign ExchangeManagement (Deposit) Regulations, 2000

The powers to compound the contraventions have been delegated to all Regional Offices (exceptKochi and Panaji) and FED, CO Cell, New Delhi respectively without any limit on the amountof contravention. Kochi and Panaji Regional offices can compound the above contraventions foramount of contravention below Rupees one hundred lakh (Rs 1 00 00 000/-) The contraventions ofamount of contravention below Rupees one hundred lakh (Rs.1,00,00,000/ ). The contraventions ofRupees one hundred lakh (Rs.1,00,00,000/-) or more under the jurisdiction of Panaji and KochiRegional Offices and all other contraventions of FEMA will continue to be compounded at Cell forEffective Implementation of FEMA (CEFA), Mumbai, as hitherto.

Accordingly, applications for compounding the e contraventions e, up to the amount ofcontravention stated therein may be submitted by the concerned entities to the respective RegionalOffices under whose jurisdiction they fall or to FED, CO Cell, New Delhi respectively. For all othercontraventions, applications may continue to be submitted to CEFA, Foreign ExchangeDepartment, 5th floor, Amar Building, Sir P.M.Road, Fort, Mumbai 400001.

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SPECIFIED LIST where Form 15CA/15CB not requiredForm A-2 code Nature of paymentS0001 Indian investment abroad -in equity capital(shares)S0002 Indian investment abroad -in debt securitiesS0003 Indian investment abroad -in branches and wholly owned subsidiariesS0004 Indian investment abroad -in subsidiaries and associatesS0005 Indian investment abroad -in real estateS0011 Loans extended to Non-ResidentsS0202 Payment- for operating expenses of Indian shipping companies operating abroad.S0208 Operating expenses of Indian Airlines companies operating abroadp g p p p gS0212 Booking of passages abroad -Airlines companiesS0301 Remittance towards business travel.S0302 Travel under basic travel quota (BTQ)S0303 Travel for pilgrimageS0304 Travel for medical treatmentS0305 Travel for education (including fees, hostel expenses etc.)S0401 Postal servicesS0501 Construction of projects abroad by Indian companies including import of goods at

project siteS0602 Freight insurance - relating to import and export of goodsS1011 Payments for maintenance of offices abroadS1201 M i t f I di b i b dS1201 Maintenance of Indian embassies abroadS1 202 Remittances by foreign embassies in IndiaS1301 Remittance by non-residents towards family maintenance and-savingsS1302 Remittance towards personal gifts and donationsS1303 Remittance towards donations to religious and charitable institutions abroadS1304 Remittance towards grants and donations to other Governments and charitable

institutions established by the Governments.S1305 Contributions or donations by the Government to international institutionsS1306 Remittance towards payment or refund of taxes.S1501 Refunds or rebates or reduction in invoice value on account of exportsS1503 Payments by residents for international bidding".

Chartered Accountant/ Statutory Auditor...1/6FDI

1. Reporting of issue of shares - Form FC-GPRA certificate from SEBI registered Merchant Banker / Chartered Accountant indicating the manner ofarriving at the price of the shares issued to the persons resident outside India.

2. Issue of equity shares against Pre-operative / pre – incorporation expenses (including payment ofrent etc.) is allowed under the Government route:Verification and certification of the pre-incorporation / pre-operative expenses by the statutory auditor

3. In case of winding up otherwise than by a courtAn auditor's certificate to the effect that there is no legal proceedings pending in any court in Indiag p g p g yagainst the applicant or the company under liquidation and there is no legal impediment in permitting theremittance.

4. Pledge of SharesThe Statutory Auditor has certified that the borrowing company will be utilized / has utilized the proceedsof the ECB for the permitted end use/s only.

Non-resident holding shares of an Indian company, can pledge these shares in favour of the AD bankin India to secure credit facilities being extended to the resident investee company for bonafidebusiness purpose

Submission of a declaration/ annual certificate from the statutory auditor of the investee company thatthe loan proceeds will be / have been utilized for the declared purpose;p / p p ;

Non-resident holding shares of an Indian company, can pledge these shares in favour of an overseasbank to secure the credit facilities being extended to the non-resident investor / non-residentpromoter of the Indian company or its overseas group company,

Submission of a declaration/ annual certificate from a Chartered Accountant/ Certified PublicAccountant of the non-resident borrower that the loan proceeds will be / have been utilized for thedeclared purpose.

The AD may also obtain a certificate ‘ex post’, from the statutory auditor of investee company, that theloan proceeds received consequent to pledge of shares, have been utilised by the investee company for thedeclared purpose;

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Chartered Accountant/ Statutory Auditor...2/65. Downstream investment made by in the subsidiary companies at second level and so onFDI recipient Indian company at the first level which is responsible for ensuring compliance with the FDIconditionalities like no indirect foreign investment in prohibited sector, entry route, sectoralcap/conditionalities, etc. for the downstream investment made by in the subsidiary companies at secondlevel and so on and so forth would obtain a certificate to this effect from its statutory auditor on an annualbasis as regards status of compliance with the instructions on downstream investment and compliance withFEMA provisions. The fact that statutory auditor has certified that the company is in compliance with theregulations as regards downstream investment and other FEMA prescriptions will be duly mentioned in theDirector’s report in the Annual Report of the Indian company. In case statutory auditor has given a qualifiedreport, the same shall be immediately brought to the notice of the Reserve Bank of India, Foreign ExchangeDepartment (FED), Regional Office (RO) of the Reserve Bank in whose jurisdiction the Registered Office of thecompany is located and shall also obtain acknowledgement from the RO of having intimated it of the qualifiedauditor report. RO shall file the action taken report to the Principal Chief General Manager, ForeignExchange Department, Reserve Bank of India, Central Office, Central Office Building, Shahid Bhagat SinghRoad, Mumbai 400001.

6. Multi Brand Retail TradingIn respect of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased, will bedone from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen in all sectors.The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, bystatutory auditors from the duly certified accounts which the company will be required to maintain.

7. Single Brand product retail tradingS lf tifi ti b th t li f th diti t i l (ii) (iii) d (i )Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv)above, which could be cross-checked, as and when required. Accordingly, the investors shall maintainaccounts, duly certified by statutory auditors.

8. Person resident in India for transfer of shares to a person resident outside India by way of gift to aclose relativeIn case of Government dated securities and treasury bills and bonds, a certificate issued by a CharteredAccountant on the market value of such security.

In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value ofsuch securities according to the guidelines issued by Securities & Exchange Board of India or fair valueworked out as per any internationally accepted pricing methodology for valuation of shares for listedcompanies and unlisted companies, respectively.

Chartered Accountant/ Statutory Auditor...3/6FDI in an LLP:

Either by way of capital contribution or by way of acquisition / transfer of ‘profit shares’, would have to bemore than or equal to the fair price as worked out with any valuation norm which is internationally accepted/adopted as per market practice (hereinafter referred to as “fair price of capital contribution/profit share of anLLP”) and a valuation certificate to that effect shall be issued by a Chartered Accountant or by a practicingCost Accountant or by an approved valuer from the panel maintained by the Central Government.

Establishment of Liaison/Branch/Project Offices in India by Foreign Entities1. Annual Activity CertificatesBranch Offices / Liaison Offices have to file Annual Activity Certificates (AAC) from CharteredAccountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of thatyear. In case the annual accounts of the LO/ BO are finalized with reference to a date other than March 31,the AAC along with the audited Balance Sheet may be submitted within six months from the due date of theBalance Sheet to the designated AD Category I bank, and a copy to the Directorate General of Income Tax(International Taxation), New Delhi along with the audited financial statements including receipt and paymentaccount.2. Closure of Branch/Liaison OfficesAuditor’s certificate- i) indicating the manner in which the remittable amount has been arrived at andsupported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal ofassets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees,etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no incomeaccruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.3. Intermittent Remittances by Project Offices in India3. Intermittent Remittances by Project Offices in IndiaThe Project Office submits an Auditors' / Chartered Accountants’ Certificate to the effect that sufficientprovisions have been made to meet the liabilities in India including Income Tax, etc.The Project Office shall also submit to the AD branch on an annual basis, a Certificate from a CharteredAccountant showing the Project Status and certifying that the accounts of the Project Office has been auditedand the activities undertaken are in conformity with the General / Specific permission given by the ReserveBank.4. Powers relating to transfer of assets of Liaison / Branch Office/Project OfficeA certificate is to be submitted from the Statutory Auditor furnishing details of assets to be transferredindicating their date of acquisition, original price, depreciation till date, present book value or WDV value andsale consideration to be obtained. Statutory Auditor should also confirm that the assets were not re-valuedafter their initial acquisition. The sale consideration should not be more than the book value in each case.

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Chartered Accountant/ Statutory Auditor...4/65. Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxesA Chartered Accountant’s certificate certifyingi. the manner of arriving at the remittable profitii. that the entire remittable profit has been earned by undertaking the permitted activitiesiii. that the profit does not include any profit on revaluation of the assets of the branch.

ODI1. Form ODI: Section F- Certificate by the Statutory Auditors of the Indian PartySection F: Certificate by the Statutory Auditors of the Indian PartyIt is certified that the terms and conditions contained in Notification No. FEMA 120/RB-2004 dated July 7,2004, as amended from time to time (Foreign Exchange Management (Transfer or Issue of any ForeignSecurity) Regulations, 2004) have been complied with by the Indian party(Name of the Indian Party) in respectof the investment under report. In particular, it is certified that:(i) the investment is not in real estate oriented or banking business, and(ii) the amount of foreign exchange proposed to be purchased for remittance towards the investment together

with remittances for all overseas investments already made and exports and other dues capitalized /swap of shares / investment from ECB / FCCB balances for investment abroad under the AutomaticRoute is within the limit stipulated by the Reserve Bank from time to time. This has been verified withreference to the net worth of the Indian party (Name of the Indian Party) as on the date of last auditedbalance sheet, i. e.-------(date)

(iii) has complied with the valuation norms prescribed for the investment(iv) has complied with the ECB guidelines #(v) that the Indian party (a) has made net profits during the preceding three years (b) has fulfilled the(v) that the Indian party (a) has made net profits during the preceding three years, (b) has fulfilled the

prudential norms of capital adequacy as prescribed by the regulatory authority concerned; (c) has beenregistered with the appropriate regulatory authority in India and (d) has obtained approval for theinvestment in financial services sector activities from the regulatory authorities concerned in India andabroad*.

Further, certified that, wherever applicable, the Annual Performance Report, as required in terms ofRegulation 15(iii) of the Notification ibid, in respect of all the existing JV / WOS of the Indian party hasbeen submitted.

Note: * Applicable only in cases where the investment is in the financial services sector (e.g. insurance, mutualfund, asset management, etc.).# Applicable where investment is funded through ECB/FCCB balances.

Chartered Accountant/ Statutory Auditor...5/62. Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) AbroadIn case of partial / full acquisition of an existing foreign company, where the investment is more thanUSD 5 million, valuation of the shares of the company shall be made by a Category I Merchant Bankerregistered with SEBI or an Investment Banker / Merchant Banker outside India registered with theappropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or aCertified Public Accountant.

3. Transfer by way of sale of shares of a JV / WOSIf the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, theshare price is not less than the value certified by a Chartered Accountant / Certified Public Accountant asthe fair value of the shares based on the latest audited financial statements of the JV / WOS;

4. Annual Performance Report (APR)Certified by Statutory Auditors of the Indian party, through the designated AD Category– I bank every year byJune 30th as long, as the JV / WOS is in existence.

Where the law of the host country does not mandatorily require auditing of the books of accounts of JV /WOS, the Annual Performance Report (APR) may be submitted by the Indian party based on the un-auditedannual accounts of the JV / WOS provided:a. The Statutory Auditors of the Indian party certify that ‘The un-audited annual accounts of the JV / WOSreflect the true and fair picture of the affairs of the JV / WOS’ andb. That the un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of theIndian partyIndian party.

5. Report on Closure / Disinvestment / Voluntary Liquidation / Winding Up of JV/WOS

If the shares are not listed on the stock exchange, and the shares are disinvested by a private arrangement,the share price is not less than the value certified by a Chartered Accountant /Certified Public Accountant asthe fair value of the shares based on the latest audited financial statements of the Joint Venture or WhollyOwned Subsidiary;

In all other cases, by a Chartered Accountant or a Certified Public Accountant.

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Chartered Accountant/ Statutory Auditor...6/6ECB

1. Form-83: (Reporting of loan agreement details under Foreign Exchange Management Act, 1999)Forward one copy (within 7 days from the date of signing loan agreement between borrower and lender)for allotment of Loan Registration Number (LRN)We hereby certify that the particulars given above are true and correct to the best of our knowledge and beliefand no material information has been withheld and/or misrepresented. Furthermore, the ECB is incompliance with the extant ECB guidelines.

2. ECB-2: Reporting of actual transactions of External Commercial Borrowings (ECB) under Foreign ExchangeManagement Act, 1999 (for all categories and any amount of loan)

Certificate from Company Secretary / Chartered AccountantWe hereby certify that the ECB availed in terms of approval granted by Government or RBI or under approvalroute / automatic route is duly accounted in the books of accounts. Further, ECB proceeds have beenutilised by the borrower for the purpose of _____________________. We have verified all the related documentsand records connected with the utilisation of ECB proceeds and found these to be in order and inaccordance with the terms and conditions of the loan agreement and with the approval granted by GoI(MoF) or RBI or under approval route / automatic route and is in conformity with the applicable ECBGuidelines.

3. Repayment of Rupee loans and/or fresh Rupee capital expenditure for companies with consistentforex earnings – USD 10 billion schemeThe maximum permissible ECB that can be availed of by an individual company will be limited to 75 per centof the average annual export earnings realized during the past three financial years or 75 per cent of theof the average annual export earnings realized during the past three financial years or 75 per cent of theassessment made about the average foreign exchange earnings potential for the next three financial years ofthe Indian companies from the JV / WOS / assets abroad as certified by Statutory Auditors / CharteredAccountant / Certified Public Accountant / Category I Merchant Banker registered with SEBI / an InvestmentBanker outside India registered with the appropriate regulatory authority in the host country.

Exports of Goods and ServicesWrite off of export billsIn case of self-write-off, the exporter should submit to the concerned AD bank, a Chartered Accountant’scertificate, indicating the export realization in the preceding calendar year and also the amount of write-offalready availed of during the year, if any, the relevant EDF/SDF Nos. to be written off, Bill No., invoice value,commodity exported, country of export. The CA certificate may also indicate that the export benefits, if any,availed of by the exporter have been surrendered.

Company SecretaryFDI

1. Reporting of issue of shares - Form FC-GPRA certificate from our Company Secretary certifying that(a) all the requirements of the Companies Act, 1956 have been complied with;(b) terms and conditions of the Government approval, if any, have been complied with;(c) the company is eligible to issue shares under these Regulations; and(d) the company has all original certificates issued by authorised dealers in India evidencing receipt of

amount of consideration in accordance with paragraph 8 of Schedule 1 to Notification No. FEMA20/2000-RB dated May 3, 2000.

ECB2. Form-83: (Reporting of loan agreement details under Foreign Exchange Management Act, 1999)Forward one copy (within 7 days from the date of signing loan agreement between borrower andlender) for allotment of Loan Registration Number (LRN)We hereby certify that the particulars given above are true and correct to the best of our knowledge andbelief and no material information has been withheld and/or misrepresented. Furthermore, the ECB is incompliance with the extant ECB guidelines.

3. ECB-2: Reporting of actual transactions of External Commercial Borrowings (ECB) under ForeignExchange Management Act, 1999 (for all categories and any amount of loan)

Certificate from Company Secretary / Chartered AccountantWe hereby certify that the ECB availed in terms of approval granted by Government or RBI or underapproval route / automatic route is duly accounted in the books of accounts. Further, ECB proceedshave been utilised by the borrower for the purpose of We have verified all the relatedhave been utilised by the borrower for the purpose of _________________. We have verified all the relateddocuments and records connected with the utilisation of ECB proceeds and found these to be in orderand in accordance with the terms and conditions of the loan agreement and with the approval grantedby GoI (MoF) or RBI or under approval route / automatic route and is in conformity with the applicableECB Guidelines.

Portfolio Investment4. Indian Investee Company eligible to raise the aggregate cap of 24% for RFPI to sectoral cap/statutory limit

5. Indian Investee Company eligible to raise the aggregate cap of 10% to 24 per cent for PortfolioInvestments by SEBI registered NRI/PIO

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Cost Accountant FDI in an LLP:Either by way of capital contribution or by way of acquisition / transfer of ‘profit shares’,would have to be more than or equal to the fair price as worked out with any valuation normwhich is internationally accepted/ adopted as per market practice (hereinafter referred to as“fair price of capital contribution/profit share of an LLP”) and a valuation certificate to thateffect shall be issued by a Chartered Accountant or by a practicing Cost Accountant or byan approved valuer from the panel maintained by the Central Governmentan approved valuer from the panel maintained by the Central Government.

CEO/CFO/ Company Secretary instead of Statutory Auditors!

Revised Guidelines relating to participation of Residents in the Exchange TradedCurrency Derivatives (ETCD) marketAt present, market participants have to produce a certificate from the statutory auditorsas indicated therein. As a measure of liberalisation in the ETCD market, it has now beendecided that, instead of the statutory auditor’s certificate, a signed undertaking to thesame effect from the Chief Financial Officer (CFO) or the senior most functionaryresponsible for company's finance and accounts and the Company Secretary (CS) may be

d d I th b f CS th Chi f E ti Offi (CEO) th Chi fproduced. In the absence of a CS, the Chief Executive Officer (CEO) or the ChiefOperating Officer (COO) shall co-sign the undertaking along with the CFO.

Always Ask What. . . ? What are the details of the foreign investor? What is the nature of the target entity? What sector is the target entity in? What are the principal and ancillary activities? What is the route that is proposed to be adopted? Nature and timing of investment? Is the aggregate foreign shareholding in the target entity? Is the nature of the instrument? Equity shares, convertible

debentures, preference shares, derivatives? Listed or unlistedcompany?

Is there a minimum capitalization requirement? Are the lock in requirements or other restrictions on exit /

repatriation? Pricing/Valuation guidelines are applicable? Regulatory approvals are needed? Post-facto filings are applicable? For primary, time period for allotment – Companies Act 2013? Structure in India and Overseas – round tripping issues? Tax issues – both in India and Overseas; Section 56(2)(vii)

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NOTES

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