Tag Archives: FEMA

compounding under FEMA

Regional/ Sub offices of RBI authorised to compound offences under the following regulations

Please refer to para 3.5 of A.P. (DIR Series) Circular No. 56 dated June 28, 2010 and para 2 of A.P. (DIR Series) Circular No.11 dated July 31, 2012 with respect to the classification of a contravention under FEMA by the Reserve Bank as ‘technical’ or ‘material’ or ‘sensitive/serious in nature’. On a review it has been decided to discontinue the classification of a contravention as ‘technical’ that was dealt with by way of an administrative/ cautionary advice and regularize such contraventions by imposing minimal compounding amount as per the compounding matrix as contained in the ‘Master Direction – Compounding of Contraventions under FEMA, 1999’ dated January 01, 2016, as amended from time to time.

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discontinuation of FEMA returns

RBI circular dated 13th November, 2020 whereby they have discontinued 17 returns under FEMA. The list of discontinued reports is as under:

Annexure

List of Discontinued Reports

Sl No.Name of ReportReporting EntityFrequency
1Category-wise transaction where the amount exceeds USD 5000 per transactionAD Category-IIMonthly
2Category-wise, transaction-wise statement where the amount exceeds USD 25,000 per transactionAD Category- IIMonthly
3Statement of Purchase transactions of USD 10,000 and above (including transactions of their franchisees)FFMCs and AD Category- IIMonthly
4Extension of Liaison Offices (LOs)AD Category-I banksAs and when extension is granted
5Extension of Project Offices (POs)AD Category-I banksAs and when extension is granted
6FII/FPI daily: Daily inflow/outflow of foreign fund on account of investment by FPIsAD banksDaily
7FII/FPI Return (Monthly): Data relating to actual inflow /outflow of remittances on account of investments by Foreign Institutional Investors (FIIs) in the Indian Capital marketAD Category-I banksMonthly
8FVCI reporting: Inflows/outflows of remittances on account of investments by Foreign Venture Capital Investor (FVCIs) and Market value of Investments made by FVCIsAD Category-I banks/Custodian banksMonthly
9Reporting of Inflow/Outflow details in respect of Mutual Fund by Asset Management CompaniesAsset Management CompaniesQuarterly
10Market value of FII Investment in India on fortnightly basisAD Category-I banksFortnightly
11Market value of FII Investment in India on Monthly basisAD Category-I banksMonthly
12FII holdings as percentage of floating stockAD Category-I banksMonthly
13Form DRR for Issue/transfer of sponsored/unsponsored Depository Receipts (DRs)-Hardcopy@CustodianAt the time of issue/transfer of depository receipts
14ADR/GDR Movement Report- two way fungibilityAD Category-I banksMonthly
15Repatriation of Sales proceeds of underlying shares represented by FCCBs/GDRs/ ADRsCustodianMonthly
16GDR/ADR underlying shares issued, re deposited and released monthly reportingCustodianMonthly
17Monitoring of disinvestments by Overseas Corporate BodiesAD banksMonthly

@ Please note that it is only the hardcopy filing of form DRR that has been discontinued. The domestic custodian may continue to report the form DRR on FIRMS application in terms of Regulation 4 (5) of FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

This is with a view to promoting ease of doing business and reducing cost of compliance to the stakeholders.

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pan India umbrella entity for retail payments

RBI has vide its press release dated 18th August, 2020 placed on its website, the framework for authorisation of pan India umbrella entity for retail payments.

It invites applications for such umbrella entities which has to be submitted in the prescribed form and last date for submission is february 26, 2021.

The framework states as under:

A. Objective

To set-up pan-India umbrella entity / entities focussing on retail payment systems. Such entity shall be a Company incorporated in India under the Companies Act, 2013 and may be a ‘for-profit’ or a Section 8 Company as may be decided by it.

B. Authorisation under the Payment and Settlement Systems Act, 2007 (PSS Act)

The umbrella entity shall be a Company authorised by Reserve Bank of India (RBI) under Section 4 of the PSS Act, 2007. It shall be governed by the provisions of the PSS Act and other relevant statutes and directives, prudential regulations and other guidelines / instructions.

C. Eligible Promoters & Shareholding

All entities eligible to apply as promoter / promoter group of the umbrella entity shall be owned and controlled by resident Indian citizens’1 [as defined in the rules / regulations framed under the Foreign Exchange Management Act, 1999 (FEMA), as amended from time to time] with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) / Payment Service Provider (PSP) / Technology Service Provider (TSP)2. The shareholding pattern shall be diversified. Any entity holding more than 25% of the paid-up capital of the umbrella entity shall be deemed to be a Promoter.

D. Memorandum of Association (MoA)

The Memorandum of Association (MOA) of the applicant entity must cover the proposed activities of operating a pan-India umbrella entity for retail payment systems.

E. Foreign Investment

In case of any Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) in the applicant entity, it shall:

  1. Fulfil, additionally, the capital requirements as applicable under the rules / regulations framed under FEMA, as amended from time to time.
  2. Submit, with application of authorisation, necessary approval from the competent authority as required under rules / regulations framed under FEMA, as amended from time to time.

F. Fit and Proper Criteria

The Promoters / Promoter Groups, shall conform to the Reserve Bank’s ‘fit and proper’ criteria. Director of a Promoter Company / Group Company shall be deemed to be a “fit and proper” person if:

1. Such person has a record of fairness and integrity, including but not limited to –

  1. financial integrity;
  2. good reputation and character; and
  3. honesty;

2. Such person has not incurred any of the following disqualifications –

  1. Convicted by a court for any offence involving moral turpitude or any economic offence or any offence under the laws administered by the RBI;
  2. Declared insolvent and not discharged;
  3. An order, restraining, prohibiting or debarring the person from accessing / dealing in any financial system, passed by any regulatory authority, and the period specified in the order has not elapsed;
  4. Found to be of unsound mind by a court of competent jurisdiction and the finding is in force; and
  5. Is financially not sound.

3. If any question arises as to whether a person is a fit and proper person, the RBI’s decision on such question shall be final.

G. Capital

The umbrella entity shall have a minimum paid-up capital of ₹500 crore. No single Promoter / Promoter Group shall have more than 40% investment in the capital of the umbrella entity. The Promoters / Promoter Groups shall upfront demonstrate capital contribution of not less than 10% i.e., ₹50 crore at the time of making an application for setting up of the umbrella entity. The balance capital shall be secured at the time of commencement of business / operations. The Promoter / Promoter Group shareholding can be diluted to a minimum of 25% after 5 years of the commencement of business of the umbrella entity. A minimum net-worth of ₹300 crore shall be maintained at all times.

H. Scope of Activities

The scope of activities of the umbrella entity shall be as follows:

  1. Set-up, manage and operate new payment system(s) in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar based payments and remittance services; newer payment methods, standards and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.
  2. Operate clearing and settlement systems for participating banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system(s) and / or the economy in general.
  3. Fulfil its policy objectives and ensure that principles of fairness, equity and competitive neutrality are applied in determining participation in the system; frame necessary rules and the related processes to ensure that the system is safe and sound, and that payments are exchanged efficiently.
  4. Carry on any other business as suitable to further strengthen the retail payments ecosystem in the country. It is expected that the umbrella entity shall offer innovative payment systems to include hitherto excluded cross-sections of the society and which enhance access, customer convenience and safety and the same shall be distinct yet interoperable.
  5. It is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI.
  6. The umbrella entity may be permitted to participate in Reserve Bank’s payment and settlement systems, including having a current account with Reserve Bank, if required.

I. Governance Structure

The umbrella entity shall conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its Board. The Reserve Bank retains the right to approve the appointment of Directors as also to nominate a member on the Board of the umbrella entity.

J. Business Plan

The application for setting up the umbrella entity shall contain a detailed business plan covering the payment system/s proposed to be set-up and / or operated along with other documents to duly establish its experience in the payments ecosystem.

Such plan shall, inter alia, include technology, security features, market analysis / research, benefit, if any, of such payment systems, operational structure of the payment systems, time-period for setting up the payment systems and proposed scale of operations, etc. A proposed organisational strategy in terms of fulfilling its responsibility as an umbrella entity shall also be given in the business plan. The umbrella entity shall commence business / operations within a time of 6 months, extendable to a maximum of one year, if required, from the date of ‘in-principle approval’.

K. Procedure for Application

The application shall be submitted in an envelope superscribed “Application for Umbrella Entity ”, addressed to the Chief General Manager, Department of Payment and Settlement Systems, Central Office, Reserve Bank of India, 14th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai – 400 001 and shall be submitted in the prescribed form (Form A) till the close of business hours on February 26, 2021.

L. Procedure for Processing of Applications

The applications will be taken up for processing only after the last date of receipt of applications, in the order of their receipt at the Reserve Bank of India. Scrutiny of applications will be undertaken by an External Advisory Committee (EAC). The EAC will submit its recommendations to the Reserve Bank. Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), will be the final authority on issuing authorisation for setting up umbrella entity / entities. Reserve Bank will endeavour to complete the process within a period of six months.

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import & export of currency

RBI has vide their notification dated 11th August, 2020 amended the Foreign Exchange Management (Import and Export of Currency) Regulations, 2015 wherein they have added another clause 9 to the regulations. Vide this new clause 9, RBI has given themselves power to allow import or export of currency subject to such conditions as may be stipulated.

Hitherto, resident persons were allowed to take out of India, currency notes upto Rs.5000/- or two commemorative coins. Any person who had gone out of India on temporary basis may bring back to India, currency notes upto Rs.5000/- .

Export of coins covered under the Antique and Art Treasure Act, 1972 is strictly prohibited.

Clause 5 stipulates that no person shall except under general or special permission export or import foreign currency.

Clause 6 permits a person to import foreign exchange into India without any limit except foreign currency notes, bank notes and travellers cheques or unissued notes. The person bringing in foreign exchange has to make a declaration at the time of arrival at the Customs in form CDF (currency declaration form). But the declaration is required only if the person is bringing in foreign currency notes exceeding US$5000 or its equivalent or exceeding US$10,000 or its equivalent, in foreign currency notes, travellers cheques, bank notes all put together.

Clause 7 allows a person to take or send out of India, (1) cheques drawn on foreign currency account maintained by him, or (2) foreign currency obtained by him by drawal from an authorised dealer in accordance with the regulations, (c) currency in the safes of vessels or aircrafts in accordance with the regulations,

Further he may take out of India, foreign exchange already possessed by him in accordance with the regulations and unspent foreign exchange retained by him from his travels abroad in accordance with the regulations.

Clause 8 pertains to export or import of foreign currency to and from Nepal and Bhutan.

Now this new clause 9 which empowers RBI to allow any person to export or import currency on an application being made on such terms & conditions as it may stipulate and if the RBI is satisfied that it is necessary to do so.

The above regulations are available at the below link https://www.rbi.org.in/SCRIPTS/BS_ECMNotificationUserView.aspx?Id=160

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Monitoring of foreign investment limits in listed Indian companies

SEBI circular dated 5th April, 2018

1. Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA.

2. As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits. The architecture of the new system has been explained in Annexure A.

3. The depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism described at Annexure A. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies.

4. The depositories shall issue the necessary circulars and guidelines for collecting data on foreign investment from listed companies. The system for collecting this data from the companies shall go live on the date of the issuance of this circular. The companies shall provide the necessary data (details of which have been mentioned in Annexure A) to the depositories latest by April 30, 2018.

5. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 01, 2018. The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized. RBI shall issue the necessary guidelines in this regard.

This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992.

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Relaxations in FDI policy

Vide DIPP Press Note

Radical Changes in FDI Regime in Construction Development Sector

Following changes have been made in the FDI policy on Construction Development sector:

i. Conditions of area restriction of floor area of 20,000 sq. mtrs in construction development projects and minimum capitalization of US $ 5 million to be brought in within the period of six months of the commencement of business, have been removed.

ii. Each phase of the construction development project would be considered as a separate project for the purposes of FDI policy.

iii. A foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed.

Further, transfer of stake from one non-resident to another nonresident, without repatriation of investment will neither be subject to any lock-in period nor to any government approval. Nonetheless, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in period.

iv. 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 mean as ‘dealing in land and immovable property with a view to earning profit 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, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.’

v. Condition of lock-in period will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs.

vi. 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period.

vii.”Transfer”, in relation to FDI policy on the sector, includes,— (a) the sale, exchange or relinquishment of the asset ; or (b) the extinguishment of any rights therein ; or (c) the compulsory acquisition thereof under any law ; or (d) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (e) any transaction, by acquiring shares in a company or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property.

2. Foreign Investment in Defence Sector up to 49% Under Automatic Route

As per extant FDI policy in the Defence Sector, foreign investment up to 49% is permitted under Government approval route. Foreign investment above 49% is also permitted, subject to approval of Cabinet Committee on Security (CCS) on case to case basis, wherever the investment is likely to result in access to modern and ‘stateof-art’ technology in the country. Portfolio investment and investment by FVCIs is restricted to 24% only. In this regard, the following changes have inter-alia been brought in the FDI policy on this sector:

i. Foreign investment up to 49% will be under automatic route.

ii. Portfolio investment and investment by FVCIs will be allowed up to permitted automatic route level of 49%.

iii. Proposals for foreign investment in excess of 49% will be considered by Foreign Investment Promotion Board (FIPB).

iv. In case of infusion of fresh foreign investment within the permitted automatic route level, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, Government approval will be required.

3. New Sectoral Caps & Entry Routes in Broadcasting Sector

FDI policy on Broadcasting sector has also been amended. New sectoral caps and entry routes are as under: Sector/Activity New Cap and Route 6.2.7.1.1

(1)Teleports(setting up of up-linking HUBs/Teleports);

(2)Direct to Home (DTH);

(3)Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability);

(4)Mobile TV;

(5)Headend-in-the Sky Broadcasting Service(HITS)

6.2.7.1.2 Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)) 6.2.7.2 Broadcasting Content Services 6.2.7.2.1

100% (Up to 49% -Automatic route Beyond 49% – under Government route)

Terrestrial Broadcasting FM (FM Radio),

6.2.7.2.2 Up-linking of ‘News & Current Affairs’ TV Channels

49% Government Route

6.2.7.2.3 Up-linking of Non-‘News & Current Affairs’ TV Channels

100% Automatic route Down-linking of TV Channels

4. Full Fungibility of Foreign Investment Permitted in Banking- Private Sector

Government has decided to introduce full fungibility of foreign investment in Banking Private sector. Accordingly, FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74%, provided that there is no change of control and management of the investee company.

5. 100% Foreign Investment Permitted in Coffee/Rubber/Cardamom/Palm Oil & Olive Oil Plantations

As per the present FDI policy on the Plantation sector, only tea plantation is open to foreign investment. In line with this sector, the government has decided to open certain other plantation activities namely; coffee, rubber, cardamom , palm oil tree and olive oil tree plantations also for 100% foreign investment. Foreign investment in the plantation sector would henceforth be under automatic route.

6. Investment by Companies/Trusts/Partnerships Owned & Controlled by NRIs on Non-Repatriation Basis to be Treated as Domestic Investment

Non-Resident Indians (NRIs) have special dispensation for investment in construction development and civil aviation sector. Further, investment made by Non-Resident Indians under schedule 4 of FEMA (Transfer or issue of Security by Persons Resident Outside India) Regulations is deemed to be domestic investment at par with the investment made by residents. In order to attract larger investments, which are possible through incorporated entities only, the special dispensation of NRIs has now been also extended to companies, trusts and partnership firms, which are incorporated outside India and are owned and controlled by NRIs. Henceforth, such entities owned and controlled by NRIs will be treated at par with NRIs for investment in India.

7. Permitting Manufacturers to Undertake Wholesale and/or Retail, Including Through E-Commerce Without Government Approval

It has been decided that a manufacturer will be permitted to sell its product through wholesale and/or retail, including through e-commerce without Government approval.

8. Review of FDI Policy Conditionalities for Single Brand Retail Trading and Permitting 100% FDI in Duty Free Shops

(i) Extant FDI policy on SBRT mandates that sourcing of 30% of the value of goods purchased would be reckoned from the date of receipt of FDI. It has now been decided that sourcing requirement has to be reckoned from the opening of first store. Further, it is seen that in certain high technology segments, it is not possible for retail entity to comply with the sourcing norms. To provide opportunity to such single brand entities, it has been decided that in case of ‘state-of-art’ and ‘cuttingedge technology’ sourcing norms can be relaxed subject to Government approval.

(ii)FDI policy on the SBRT provides that, retail trading, in any form, by means of ecommerce, would not be permissible. It has been decided that an entity which has been granted permission to undertake SBRT will be permitted to undertake ecommerce activities.

(iii) It has been clarified that Indian brands are equally eligible for undertaking SBRT. It has been decided that certain conditions of the FDI policy on the sector namely; products to be sold under the same brand internationally and investment by nonresident entity/ entities as the brand owner or under legally tenable agreement with the brand owner, will not be made applicable in case of FDI in Indian brands.

(iv) An Indian manufacturer is permitted to sell its own branded products in any manner i.e. wholesale, retail, including through e-commerce platforms. For the purposes of FDI Policy Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers. Further Indian brands should be owned and controlled by resident Indian citizens and/or companies, which are owned and controlled by resident Indian citizens.

Opening of Duty Free Shops for 100% FDI under Automatic Route 100%

FDI is now permitted under automatic route in Duty Free Shops located and operated in the Customs bonded areas.

9. Permitting Same Entity to Carry Out Both Wholesale and Single Brand Retail Trading

As per the FDI policy, in wholesale cash & carry activities, 100% foreign investment is permitted under the automatic route. FDI policy on this sector further provides that a wholesale/cash & carry trader cannot open retail shops to sell to the consumer directly. It has now been decided that a single entity will be permitted to undertake both the activities of single brand retail trading (SBRT) and wholesale with the condition that conditions of FDI policy on wholesale/ cash & carry and SBRT have to be complied by both the business arms separately.

10. 100% FDI in LLPs Permitted Under Automatic Route

FDI policy on Limited Liability Partnerships (LLP) has been amended to provide that investments in LLPs will not require Government approval. 100% FDI is now permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. Further, the terms ‘ownership and ‘control’ with reference to LLPs have also been defined.

Downstream Investment

It has been decided that in line with companies, an LLP having foreign investment will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Further, for the purposes of FDI policy, the term ‘internal accruals’ has also been defined.

11. Opening up of FDI in Regional Air Transport Service

As per the present FDI policy, foreign investment up to 49% is allowed in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline (SOP). It has now been decided that Regional Air Transport Service (RSOP) is will also be eligible for foreign investment up to 49% under automatic route.

12. Enhancing Foreign Equity Caps in Non-Scheduled Air Transport, Ground Handling Services, Satellites- establishment and operation and Credit Information Companies

Foreign Equity caps of certain sectors viz. Non-Scheduled Air Transport Service, Ground Handling Services, Satellites- establishment and operation and Credit Information Companies have now been increased from 74% to 100%. Further, sectors other than Satellites- establishment and operation have been placed under the automatic route.

13. Companies without Operations Not to Require Government Approval for FDI for Undertaking Automatic Route Sector Activities

Approval requirements in respect of companies under operation have also been relaxed. It has now been decided that for infusion of foreign investment into an Indian company which does not have any operations and also does not have any downstream investments, Government approval would not be required, for undertaking activities which are under automatic route and without FDI-linked performance conditions, regardless of the amount or extent of foreign investment.

14. Establishment and Transfer of Ownership and Control of Indian Companies

As per the FDI policy establishment and ownership or control of the Indian company in sectors/activities with caps requires Government approval. This provision has now been amended to provide that approval of the Government will be required if the company concerned is operating in sectors/ activities which are under Government approval route rather than capped sectors. Further no approval of the Government is required for investment in automatic route sectors by way of swap of shares.

15. Simplification of Conditionalities

Certain conditions of FDI policy on Agriculture and Animal Husbandry, and Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities have been simplified.

16. Raising the Threshold Limit for Approval by Foreign Investment Promotion Board

As per the FDI policy Foreign Investment Promotion Board (FIPB) considers proposals having total foreign equity inflow up to Rs. 3000 crore and proposals above Rs. 3000 crore are placed for consideration of Cabinet Committee on Economic Affairs (CCEA). In order to achieve faster approvals on most of the proposals, it has been decided that the threshold limit for FIPB approval may be increased to 5000 crore.

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Annual return on foreign assets & liabilities – reporting by LLPs

RBI has vide its circular no. 22 dated 21st October, 2015 mandated that LLPs (Limited Liability Partnerships) which have received FDI or invested abroad (ODI) are also required to report annually in the FLA return i.e. Foreign Liabilities and Assets return by 15th July every year. However since they do not have a Corporate Identification Number (CIN) they have to mention  ‘A99999AA9999LLP999999’ against CIN in the said return. The operative part of the said circular is reproduced hereunder:

In order to capture the statistics relating to Foreign Direct Investments (FDI), both inward and outward, by Limited Liabilities Partnerships (LLPs) in India, it has been decided that henceforth, all LLPs that have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) as well as in the current year, shall submit the FLA return to the Reserve Bank of India by July 15 every year, in the format as prescribed in the A.P (DIR Series) Circular No. 145 dated June 18, 2014. Since, LLPs do not have21-Digit CIN (Corporate Identity Number), they are advised to enter ‘A99999AA9999LLP999999’ against CIN in the FLA Return.

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Subscription to National Pension System by NRIs

RBI has vide its circular no. 24/2015 dated 29th October, 2015 allowed Non Resident Indians to invest in the National Pension System. The salient features of the said circular are as follows

With a view to enabling NRIs’ access to old age income security, it has now been decided, in consultation with the Government of India, to enable National Pension System (NPS) as an investment option for NRIs under FEMA, 1999. Accordingly, NRIs may subscribe to the NPS governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act.

The subscription amounts shall be paid by the NRIs either by inward remittance through normal banking channels or out of funds held in their NRE/FCNR/NRO account. There shall be no restriction on repatriation of the annuity/ accumulated savings.

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Regularisation of assets held abroad pursuant to Black Money Act

RBI has vide its notification dated 30th September, 2015 laid down the modalities for regularisation of assets held abroad and for which declaration has been to the competent authority pursuant to the Black Money Act. The salient features of its notificaton is as below:

a) No proceedings shall lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid.

b) No permission under FEMA will be required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration.

c) In case the declarant wishes to hold the asset so declared, she/ he may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application. Such applications will be dealt by the Reserve Bank of India as per extant regulations. In case such permission is not granted, the asset will have to be disposed of within 180 days from the date of receipt of the communication from the Reserve Bank conveying refusal of permission or within such extended period as may be permitted by the Reserve Bank and proceeds brought back to India immediately through the banking channel.

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Issue of ESOP shares to non residents

RBI has issued a notification dated 16th July 2015 wherein it has done away with the 5% limit on the issue of shares under the Employees Stock Options Scheme or sweat equity shares to its employees who are resident outside India. Instead the company has to comply with all the applicable regulations of SEBI/ MCA / RBI in this regard.

The relevant portion of the said notification is reproduced below

On a review, it has been decided that an Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that :

  1. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.
  2. The “employee’s stock option”/ “sweat equity shares” issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.
  3. Issue of “employee’s stock option”/ “sweat equity shares” in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.
  4. Issue of “employee’s stock option”/ “sweat equity shares” under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

The issuing company is also required to furnish a return in form ESOP within 30 days of the issue to the RBI.

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Liberalised Remittance Scheme – enhancement of limits

RBI has vide its circular dated 1st June, 2015 enhanced the amounts that can be used under the Liberalised Remittance Scheme by Resident Individuals from USD 125,000 per financial year to USD 250,000 per financial year for any permitted capital or current account transactions. Further all facilities for release of foreign exchange for current account transactions, including private/ business visits will be subsumed under the aforesaid limit of USD 250,000/-. However for certain expenses such as emigration, medical treatment abroad, higher studies abroad higher limits than the above will be considered if so required by the country of emigration, medical institution abroad or educational institution situated abroad.

The salient features of the circular are reproduced below:

  1. Liberalised Remittance Scheme (LRS) for resident individuals- increase in the limit from USD 125,000 to USD 250,000 and rationalisation of current account transactions
  2. Remittance facilities for persons other than individuals

Attention of Authorised Persons is invited to the A.P.(DIR Series) Circular No. 138 dated June 3, 2014 regarding the Liberalised Remittance Scheme (LRS) for resident individuals and the existing guidelines issued under the Foreign Exchange Management (Current Account Transactions) Rules, 2000. On a review, it has been decided to make the following changes for further liberalization and rationalization on the existing guidelines.

Limit and Facilities under LRS

2. AD banks may now allow remittances by a resident individual up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 250,000 for the financial year by the amount already remitted. The permissible capital account transactions by an individual under LRS are:

i) opening of foreign currency account abroad with a bank;
ii) purchase of property abroad;
iii) making investments abroad;
iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;
v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

3. Further, to facilitate ease of transactions, all the facilities (including private/business visits) for release of exchange/remittances for current account transactions available to resident individuals under Para 1 of Schedule III to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time, shall now be subsumed under the overall limit of USD 250,000. However, for item numbers as mentioned at (iv)[ emigration], (vii)[expenses in connection with medical treatment abroad] and (viii)[studies abroad] in Para 1 of Schedule III provided at Annex 1, individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS, if it is so required by a country of emigration, medical institute offering treatment or the university respectively. Gift in Indian Rupees by resident individuals to NRI relatives as defined in the Companies Act, 2013 shall also be subsumed under the LRS limit.

The Notification dated May 26, 2015 containing the revised Schedule III is given in Annex 1.

4. As hitherto, the Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc.

5. Remittance Procedure

Requirements to be complied with by the remitter

5.1 The resident individual seeking to make the remittances should furnish an application cum declaration in the format indicated in Annex 2 to the AD/ full fledged money changer (FFMC) concerned regarding the purpose of the remittances and declaration to the effect that the funds belong to the remitter and will not be used for the prohibited purposes referred to in Para 4 above. Resident individuals can also purchase foreign exchange from a full fledged money changer (FFMC) for private/business visits. Foreign exchange thus purchased from an FFMC should also be reckoned within the overall LRS limit USD 250,000 and declared accordingly in the application-cum-declaration form submitted to the AD bank.

Requirements to be complied with by the Authorised Persons

5.2 While allowing the facility to resident individuals, Authorised Persons, including AD Category II and FFMCs, are required to ensure that the “Know Your Customer” guidelines and the Anti-Money Laundering Rules in force have been complied with while allowing the transactions.

Requirements to be complied with by the Authorised Dealers

5.3 It is clarified that banks should not extend any kind of funded and non-funded facilities to resident individuals to facilitate capital account remittances under the Scheme.

5.4 The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance for capital account transactions. If the applicant seeking to make the remittances is a new customer of the bank, Authorised Dealers should carry out due diligence on the operations and maintenance of the account.

5.5 No part of the foreign exchange of USD 250,000 shall be used for remittance directly or indirectly to countries notified as non-cooperative countries and territories by the Financial Action Task Force (FATF) from time to time and communicated by the Reserve Bank of India to all concerned.

6. Reporting of the transactions

Authorised Dealers may arrange to furnish on a monthly basis information on the number of applicants and total amount remitted under LRS to the Chief General Manager, External Payment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai – 400001 through Online Return Filing System (ORFS) only.

7. Facilities for persons other than individuals

7.1 As provided in Para 2 of Schedule III provided in Annex 1, persons other than individuals can make remittances for

  1. Donations for educational institutions;
  2. Commissions to agents abroad for sale of residential flats/commercial plots in India;
  3. Remittances for consultancy services and
  4. Remittances for reimbursement of pre-incorporation expenses

within the limit and conditions laid down therein.

7.2 While making the above remittances, such persons shall submit to the concerned AD branch a declaration to the effect that the limits and conditions relating to the remittances have been complied with.

8. All other terms and conditions for making overseas remittances shall remain unchanged.

9. Necessary amendments to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, (Notification No. FEMA 1/2000-RB dated May 3, 2000) have been notified vide GSR No. 426 (E) dated May 26, 2015 and GSR No.425 (E) dated May 26, 2015 respectively.

10. Authorised Persons may bring the contents of this circular to the notice of their constituents and customers concerned.

11. The directions contained in this circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(A. K. Pandey)
Chief General Manager


Annex-1

MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION

New Delhi, the 26th May, 2015

G.S.R. 426(E).—In exercise of the powers conferred by section 5 and sub-section (1) and clause (a) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in consultation with Reserve Bank, the Central Government having considered it necessary in the public interest, makes the following amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, namely:—

1. (1) These rules may be called the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Foreign Exchange Management (Current Account Transactions) Rules, 2000,-

(i) for rule 5, the following rule shall be substituted, namely:-

“5. Prior approval of Reserve Bank.—Every drawal of foreign exchange for transactions included in Schedule III shall be governed as provided therein:

Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.”;

(ii) for Schedule III, the following shall be substituted, namely:—

“SCHEDULE III (See rule 5)

Facilities for individuals—

1. Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of the Reserve Bank of India.

  1. Private visits to any country (except Nepal and Bhutan)
  2. Gift or donation.
  3. Going abroad for employment
  4. Emigration
  5. Maintenance of close relatives abroad
  6. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
  7. Expenses in connection with medical treatment abroad
  8. Studies abroad
  9. Any other current account transaction

Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme as provided in regulation 4 to FEMA Notification 1/2000-RB, dated the 3rd May, 2000 (here in after referred to as the said Liberalised Remittance Scheme) if it is so required by a country of emigration, medical institute offering treatment or the university, respectively:

Provided further that if an individual remits any amount under the said Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted:

provided also that for a person who is resident but not permanently resident in India and

  1. is a citizen of a foreign State other than Pakistan; or
  2. is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company,

may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).

Explanation: For the purpose of this item, a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed three years, is a resident but not permanently resident:

provided also that a person other than an individual may also avail of foreign exchange facility, mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned herein above.

Facilities for persons other than individual –

2. The following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India.

(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for-

  1. creation of Chairs in reputed educational institutes,
  2. contribution to funds (not being an investment fund) promoted by educational institutes; and
  3. contribution to a technical institution or body or association in the field of activity of the donor Company.

(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more.

(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.

Explanation:—For the purposes of this sub-paragraph, the expression “infrastructure’ shall mean as defined in explanation to para 1(iv)(A)(a) of Schedule I of FEMA Notification 3/2000-RB, dated the May 3, 2000.

(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.”

3. Procedure

The procedure for drawal or remit of any foreign exchange under this schedule shall be the same as applicable for remitting any amount under the said Liberalised Remittance Scheme.

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ECBs denominated in INRs

External Commercial Borrowings denominated in Indian Rupees were allowed by RBI vide its circular dated September 3, 2014. But in that circular the external lenders were required to enter into rupee swap transactions with the Authorised Dealer Category I banks in India. Now they have given some flexibility to recognised lenders abroad to enter into swap transactions with their overseas banks who in turn will enter into a back to back swap transaction with an Authorised Dealer Category 1 bank in India. The detailed instruction are now given in their latest circular dated 21st May, 2015, which is reproduced below:

To facilitate ECB lending denominated in INR by overseas lenders, it has now been decided that such lenders may enter into swap transactions with their overseas bank which shall, in turn, enter into a back-to-back swap transaction with any AD Cat-I bank in India as per the procedure given below:

(i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower.

(ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable).

(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank.

(iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis.

(v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times.

(vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India.

(vii) All other Operational Guidelines, Terms and Conditions as contained in the annex to A.P. (DIR Series) Circular No.63 dated December 29, 2011 governing hedging of ECBs denominated in INR shall apply, mutatis mutandis.

(viii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank.

The RBI circular can be found here i.e. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9731&Mode=0

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NRI investments now considered as domestic investments

The Union Cabinet has allowed some changes in the FDI Policy whereby NRIs are considered on par with OCIs (Overseas Citizens of India) and PIOs (Persons of Indian Origin). Secondly all NRI investments on repatriable basis will be henceforth considered as domestic investments. Since NRI has been clubbed together with OCI and PIO, that means all investments by NRIs, OCIs, PIOs on repatriable basis will be considered as domestic investments. So all reporting requirements under the relevant FEMA regulations will not be necessary in case of NRI/ OCI/ PIO investments in future. The relevant notification to the FEMA regulations is awaited, but the gist of the Press Release is as given below:

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval to review of Foreign Direct Investment (FDI) Policy on investments by Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs).  Following are the amendments approved by the Cabinet to incorporated in FDI policy:

(i)           By amending relevant para, definition of NRI will be as under:

‘Non-Resident Indian’ (NRI) means an individual resident outside India who is citizen of India or is an ‘Overseas Citizen of India’ cardholder within the meaning of section 7 (A) of the Citizenship Act, 1955. ‘Persons of Indian Origin’ cardholders registered as such under Notification No. 26011/4/98 F.I. dated 19.8.2002 issued by the Central Government are deemed to be “Overseas Citizen of India’ cardholders”.

(ii)   To provide that investment by NRIs on on-repatriable basis is domestic. Following new para is approved to be added:

‘Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents.’

The decision that NRI includes OCI cardholders as well as PIO cardholders is meant to align the FDI policy with the stated policy of the Government to provide PIOs and OCIs parity with Non Resident Indians (NRIs) in respect of economic, financial and educational fields. Further the decision that NRIs investment under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment made by residents, is meant to provide clarity in the FDI policy as such investment is not included in the category of foreign investment. The measure is expected to result in increased investments across sectors and greater inflow of foreign exchange remittance leading to economic growth of the country.

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KYC – bank accounts of proprietory firms

RBI’s KYC requirements for opening bank accounts of proprietory firms were way too stringent and cumbersome with the result that many proprietory firms were unable to open current accounts at all for starting their businesses. Proprietory firms are the simplest way of starting any business in India with the opening of current accounts being the first and main step in the process, other requirements such as registrations with tax authorities coming only after some threshold had been reached.

Now the RBI has eased its KYC requirements for opening bank accounts for proprietorship firms with the requirement that only of the two documents are required for doing so.

The extant guidelines on KYC for opening bank accounts for proprietorship concerns were as follows as the RBI Master Circular dated 1st July, 2014.

Accounts of proprietary concerns

Apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks should call for and verify the following documents before opening of accounts in the name of a proprietary concern:

Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the Municipal authorities under Shop & Establishment Act, sales and income tax returns, CST/VAT certificate, certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities, Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/Department. Banks may also accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT, the complete Income Tax Return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated/acknowledged by the Income Tax authorities and utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern as required documents for opening of bank accounts of proprietary concerns.

Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

Now the revised KYC norms provide any one of the above documents would suffice to open a bank account in the name of the proprietory concern.

The relevant portion of the RBI circular dated March, 13, 2015 states as under:

Reserve Bank has been receiving representations pointing out difficulties in complying with the requirement of furnishing two documents as activity proof while opening accounts of sole proprietary firms in certain cases. It is possible that in some types of activities there is genuine difficulty in procuring two such documents. The matter has, therefore, been reviewed with a view to ease the process of opening bank accounts of proprietary concerns in such cases. The default rule is that any two documents, out of those listed in paragraph 2.5 (h) of the Master Circular, should be provided as activity proof by a proprietary concern. However, in cases where the banks are satisfied that it is not possible to furnish two such documents, they would have the discretion to accept only one of those documents as activity proof.  In such cases, the banks, however, would have to undertake contact point verification, collect such information as would be required to establish the existence of such firm, confirm, clarify and satisfy themselves that the business activity has been verified from the address of the proprietary concern.

3. It is also clarified here that the list of registering authorities indicated in paragraph 2.5 (h) of the Master circular is only illustrative and therefore includes license/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute, as one of the documents to prove the activity of the proprietary concern.

A copy of the RBI circular is given in this link i.e. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9599&Mode=0

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Hongkong & Macau citizens barred from purchasing property in India

RBI has issued a circular dated 11th March, 2015 wherein it has barred citizens of Hongkong and Macau from acquiring or transferring immoveable property in India other than lease which does not exceed 5 years. Already citizens of Pakistan, Sri Lanka, Nepal, Afghanistan, China, Iran, Nepal and Bhutan are barred from acquiring immoveable property in India.

The gist of the RBI circular is given below:

Attention of Authorised Dealers in Foreign Exchange is invited to Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of immovable property in India) Regulations, 2000 notified vide Notification No. FEMA 21/2000-RB dated 3rd May 2000 in terms of which no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years.

2. It has been observed that Macau and Hong Kong are the two Special Administrative Regions of China. As they are notified separately, it has been decided, in consultation with the Government of India, that citizens of Macau and Hong Kong will also be included in the list of countries which are prohibited to acquire/transfer immovable property in India in terms of Regulation 7 of FEMA ibid.

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