NRI's CORNER
F.E.M.A.

FEMA,1999 – ANOMALIES & REMEDIAL SUGGESTIONS
(our submission to Hon. Finance Minister together with remedial suggestions)


While critically examining the Foreign Exchange Management Act (FEMA), 1999 which has replaced the Foreign Exchange Regulations Act, 1973 w.e.f. 1st June, 2000, as also related regulations notified by the Reserve Bank of India certain anomalies are noticed  in the Act and Regulations. The same are incorporated herein as :


“FEMA, 1999 – Anomalies and Remedial Suggestions” consisting of
 

01)Parawise detailed provisions of the Act / Regulations – (P)

02)Anomalies therein – (A)

03)Remedial suggestions –(R)



 

 

FEMA,1999 – ANOMALIES & REMEDIAL SUGGESTIONS

1. (P)

Section 2( u )( ii ), Foreign Exchange Management Act, 1999  defines the term “person” and this includes  a Hindu Undivided Family. 
Section 2(v) defines “person resident in India”  and Section 2(w) defines “person resident outside India”
Now said definitions cover an individual as also a person or body corporate registered or incorporated in India or office branch or agency controlled by a person resident in India or otherwise.

  (A)

 None of the definitions cover / lay down guidelines for determining residential status of a Hindu Undivided Family.

  (R)

“Appropriate clause should be added for determining the residential status of Hindu Undivided Family.” 

2. (P)

Section 6(4) of  Foreign Exchange Management Act, 1999  : 

   

“A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.”

  (A)

Whereas first part of the Section permits an NRI who has returned to India for settlement “ transfer of or investment in foreign assets”; second part stipulates a condition that “ such foreign asset was owned when the person was resident outside India”.  

   

Simply speaking the section  requires ownership of an asset before the   NRI’s return to India for settlement, which in turn restricts transfer of existing asset and/or investment in a new asset as every transfer results into ceasation of an  old asset and creation of a new asset. Similarly, investment also results in creation of  a new asset.

  (R)

As the intention of the Statute is to facilitate transfer and also permit new investments, the section should be redrafted removing the anomaly .

“6(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or acquired out of transfer proceeds of any such asset or reinvestment thereof or inherited from a person who was resident outside India.” 

3. (P)

Section 6(5) of Foreign Exchange Management Act, 1999 - the Act Provides :

   

“A person Resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.” 

  (A)

Whereas first part of the Section permits a resident who has become a non- resident  “ transfer or investment in assets in India”; second part stipulates a condition that “ such asset was owned when the person was resident in India”.

   

Simply speaking the section  requires ownership of  assets before the person left India. Which in turn restricts transfer of existing asset and/or investment in a new asset as any transfer results into cessation of an  old asset and creation of a new asset. Similarly, investment also results in creation of  a new asset.

  (R)

Section 6(5) be drafted as under : 

   

Section 6(5)  A person Resident Outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or acquired out of transfer proceeds of any such asset or reinvestment thereof or  inherited from a person who was resident in India.” 

4. (P)

Para-3 of Schedule-I – Non Resident (External) Rupee Account Scheme of Foreign Exchange Management (Deposit) Regulations, 2000, enumerates permissible credits to a NR(E) account..

  (A)

Although the Schedule contains a paragraph regarding credits covered under general permission granted by Reserve Bank of India, these suggestions are made on account of importance & multiplicity of transactions by NRIs & also enumeration of other examples of generally permitted credits.

   

This credits do not include:

   

i)

Sale proceeds of shares and debentures acquired under the direct investment scheme or under the portfolio investment scheme on repatriation basis as provided vide Reg. 11 of Foreign Exchange Management ( Transfer or Issue of Security by a person resident outside India ) Regulations, 2000 or provisions of FERA, 1973 and

   

ii)

Sale proceeds to the extent of cost of acquisition of immovable property as provided vide Reg. 6 of Foreign Exchange Management.(Acquisition and transfer of immovable property in India ) regulations, 2000 or provisions of FERA, 1973.

  (R)

Following be inserted in Para 3 of Schedule 1, of Foreign Exchange Management (Deposit) Regulations, 2000 under the head

   

“ Permitted Credits”

   

“Subject to payment of tax, Sale proceeds of shares and debentures acquired under the direct investment scheme or under the portfolio investment scheme on repatriation basis as provided by Foreign Exchange Management. ( Transfer or Issue of Security by a person resident outside India ) Regulations, 2000 or provisions of FERA, 1973 and sale proceeds to the extent of cost of acquisition    of immovable property as provided by Foreign Exchange Management. (Acquisition and transfer of immovable property in India ) regulations, 2000 or provisions of FERA, 1973.”

5. (P)

Para-4 of Schedule-I – Non Resident (External) Rupee Account Scheme of Foreign Exchange Management (Deposit) Regulations, 2000, enumerates various permissible debits. 

  (A)

Although the Schedule contains a paragraph regarding debits covered under general permission granted by Reserve Bank of India, these suggestions are made on account of importance & multiplicity of transactions by NRIs & also enumeration of other examples of generally permitted debits.

   

This debits do not include :

   

In the case of an individual account holder a gift to any person resident / non resident or any charitable trust in India recognized under the Income Tax Act, 1961 as specifically provided in Para 6 of Schedule 4 pertaining to Non- Resident (Non Repatriable) Rupee Deposit Scheme.

   (R)

Following be inserted in Para 4  under the head

   

“ Permitted Debits

   

In the case of individual account holder, amount gifted to any resident / non – resident or to any Charitable Trust in India recognized under the Income – tax Act, 1961. “

6.  (P)

Para-9 (g) of Schedule-I – Non Resident (External) Rupee Account Scheme of Foreign Exchange Management (Deposit) Regulations, 2000, provides:

“Tax Exemption – Income from interest on balances standing to the credit of NRE accounts is exempt from income-tax. Likewise balances held in such accounts are exempt from Wealth Tax.”


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